What Areas Of Business Law Do You Help Your Clients With?
My business law practice focuses primarily small business law. If someone is looking to start a new business and they need the filings with the state to get their new business organized and recognized as a separate legal entity, I will help them with that. If they have partners with whom they are going into business, they will want to establish what their various rights and responsibilities are in funding, running and making decisions about the new business. My practice assists people in establishing partnership agreements, operating agreements and shareholder agreements to address these issues.
Disputes and disagreements often arise between businesses and their customers or vendors. If those disputes end up in litigation or arbitration, I can help with that. I also represent businesses in need of assistance negotiating a resolution of a dispute. Sometimes a business will close down because the owners mutually agree that it is time to move on with their lives. More commonly, a business will close down due to a dispute between the owners about what the direction of the business should be. If one of the partners needs to be bought out so that the other one can move forward with the business, then I can help make that happen.
What Factors Should Be Considered When Structuring A Business Entity?
There are a few factors to consider when structuring a business entity. One of the first pieces of advice that I give to my clients is to find a CPA or other tax professional who they can consult with to figure out if there is a reason for them to choose one business entity over another. A lot of times, those decisions are actually driven by the tax ramifications more so than the legal ramifications.
When someone comes to me for legal advice on what the right business entity is for them, I tell them to consider the amount of money they’re going to be bringing in. If it’s just a small venture, where they may only bring in a few thousand dollars over the course of a year, then they may be able to get away without a separate legal entity. For example, if a licensed cosmetologist wants to work a few hours a week in order to retain a few valuable clients, and they realistically expect to bring in $3000 or $4,000 a year, that’s the type of situation in which you wouldn’t necessarily need to form a business entity, because it could be done as a sole proprietorship. If you’re the single owner of a business, you would be a sole proprietorship and all of the income would be counted on your own personal tax return. If there are any losses of the business, those would also get reported on your own personal tax return. The downside of a sole proprietorship is that there’s no separation of liability. So, if something happens and the business gets sued, then all of your personal assets could potentially be at risk to satisfy a judgment brought against you.
That brings me to the next level of analysis in determining what type of business entity you might want to use. If limiting your liability is important, then you would want to use either a limited liability company or a corporation, both of which are considered to be separate legal entities. If someone sues the corporation or the limited liability company for something that the business did wrong, then it’s only the assets of that company that are at risk. That means that the owner’s personal assets are not going to be used to satisfy a judgment.
There are some administrative headaches that go along with forming an actual business entity. With the limited liability company, it’s a medium level of administrative burden, and with the corporation it definitely goes higher. On the corporation side, you have to hold annual meetings and abide by other corporate formalities. If you don’t, and if the business ever gets sued, then the courts could disregard the existence of that business and rule that you are personally liable for the debts of the business.
For most small businesses that I’ve dealt with over the years, the limited liability company is going to be the best choice of business entity. If you are a small business, and you intend to stay small, the LLC could be a good fit for you because there isn’t that concern about ongoing administrative requirements like annual meetings of shareholders that could come back to bite you if you don’t do it exactly right. On the other hand, if you’re starting a business that you intend to grow substantially and you intend to employ more than 100 employees, then it’s very likely that a corporation will be the right business entity for you.
Finally, if you’re going into business with a partner and you don’t establish it as either a corporation or a limited liability company, then your default business entity would be a partnership. There is a whole set of partnership laws that apply, and all of the partners will be held liable for the debts of the business. As a result, their personal assets would be at risk. Partnerships tend to be an entity that happens by default instead of by choice—in other words, if you go into business with a partner or a group of partners, and if you don’t proactively choose a different business entity such as an LLC or corporation, then legally, you are considered a partnership. I strongly recommend making a conscious choice about this, and not simply falling into a default business entity because you didn’t think about it.
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