We help our clients select and form the business organization that best suits their needs. Our attorneys are experienced in providing the following types of legal services for our clients. Many of our clients have found the following information helpful in deciding the services they may need for their business operations.
Business Formation – What We Do
- Corporate structuring, contracts and mergers, acquisitions
- Exempt securities registration
- Confidentiality agreements
- Employment agreements
- Non disclosure agreements (NDA)
- Covenants not to complete
- Due diligence planning and review
- Negotiating and drafting of contracts
Selecting the Right Business Entity:
This is the easiest and most widely used form of doing business. They should be approached cautiously because in exchange for the ease of starting a business there are liabilities imposed upon the owner. An entrepreneur may start doing business incorporating the use of the person’s last name within the business name; often that avoids the necessity for filing and publishing a fictitious business name for the business. However, the business is, in a sense, the person conducting the business. Initially, that may seem attractive; but, the drawbacks can be substantial. In our view, the disadvantages often outweigh the advantages and include: the lack of separating one’s personal assets from liability to the creditors of the business; the need to personally finance the continuing operations of the business; the limitations in giving others a share of ownership of the business; and, most importantly, when something terrible occurs, finding out the insurance company excludes coverage for a claim or a lawsuit which exposes the proprietor’s personal assets to plaintiffs and their lawyers. Moreover, it is difficult to sustain the business operations following death or divorce.
Partnerships and LLCs
Partnerships are a basic form of doing business. Under the laws of most states, a simple oral agreement between two or more people to carry on a business as co-owners for a profit can create a partnership and liability for the unwary. That simple agreement can create broad tax, legal and financial consequences to the partners. Partnerships can be appropriate for certain types of investments and businesses particularly those in real estate. One of the advantages of partnerships is that the entity does not pay income tax at the entity level, but, partners have to recognize income on their tax returns when income is realized at the partnership level. Partnerships also pose adverse tax consequences if precautions are not undertaken to ensure that upon the happening of certain events the partnership is not liquidated for tax purposes. A partnership should be organized only after discussion with our lawyers and a client’s certified public accounting firm.
Limited Liability Companies or LLCs are an unincorporated business entity form that combines the favorable aspects of general partnerships and corporations. Like partnerships and corporations they are formed under state law. The owners or members have limited liability to the extent of the loss of their capital (but, like shareholders those owners may lose that protection if they provide creditors with their personal guarantees for the repayment of debt). The LLC is separate and distinct from the members and can be managed by the members or a professional manager. Elections can be made so that the entity is taxed as a partnership or as a corporation. Several disadvantages do accrue to LLCs and include the limitations that some states place upon their business activities. Sometimes it is difficult to secure third party funding and investment for them. Business people must be aware of the fiduciary responsibilities that managers may or may not have in certain situations.
A joint venture is an entity or relationship created by contract formed for a limited time or purpose such as a single project. Joint ventures are usually interpreted under partnership law, but, in the case of a dispute between or among the joint venture partners contract law principles can apply. Care should be taken to carefully document the responsibilities and accountability of each of the joint venture partners. We often assist clients in documenting and operating joint ventures.
Almost ninety percent of businesses operate in the U.S. as an incorporated business entity. State law and not federal law governs the formation of corporations. In the usual case, the entrepreneur will act as the catalyst in bringing together the team that will eventually result in a profitable business. Fields Law Group’s attorneys will assist the business promoter in forming the vision, developing the business strategy and documenting the corporation’s activities. It begins with a thorough review of the client’s business plan, followed by a review of the business financing and implementation of the plan. Articles of incorporation are filed in the state where the best protection and tax advantages are available. Related corporate documents such as bylaws, employment agreements, covenants not to compete, buy-sell agreements, and confidentiality and non disclosure agreements are prepared to protect the corporation and its owners. We have to ensure that corporate securities laws are observed when the corporation is formed.
By properly forming a corporation the principals of the business can be protected from personal liability for the debts and obligations of the company; however, business people need to be aware that a corporation has to be adequately capitalized and operated in accordance with the law for that protection to continue to be available to them. Improper formation, inadequate capitalization, and mismanagement can result in alter-ego or personal liability being borne by the shareholders of the corporation. We assist clients in their annual shareholder and board of director meetings.
There are many advantages in forming a corporation. Among them are: offering limited liability to shareholders to the extent of their capital contribution; the transferability of shares (subject to the provisions of buy-sell agreements), the ability to hire professional managers, provide fringe benefits not otherwise available to a sole proprietorship, better income and estate tax planning and centralized management. Most of the employment in America is offered through privately-held small business corporations.
C corporations and S corporations.
A C corporation is one which pays federal tax at the corporate rate level and all dividend distributions from the corporation to its shareholders are taxed again at the personal income tax rate. If the state imposes income tax on such earnings, then, both the corporation and the individual would pay additional state income tax. All publicly traded companies are operated as a C corporation. In contrast, a S corporation pays no federal income tax, but the income or loss resulting at the end of a tax year is recognized by the individual shareholders and is taxed at their rates. Current law restricts the availability of the S election and a timely election must be made to enjoy its benefits; however, we cooperatively work with our clients certified public accountants to ensure that it is timely and fully discussed.