Business Law

When starting a new business venture there is a lot to do and a lot of questions. From the legal side, which entity is right for me. Does it provide enough protection? Do I really need an entity or can I get by without one. Hopefully the information below will help you get a basic understanding and as always, please call us for a free consultation to go over your specific situation

LLC or Series LLC Set Up, Articles of Organization and Operating Agreements:

LLC and Series LLCs for the most part are set up the same. The difference between a regular LLC and a Series LLC is that a series provides more asset protection because you can designate equipment, accounts or property into separate series that from a liability standpoint are separate from each other. It is like each series acts like is own LLC from a liability standpoint while only having once company to file with the State for licenses and only one tax return to file. It truly is the best of both worlds.

That being said the Series LLC may not be the end all be all. If you do a lot of business out of state it may not work because most states don’t recognize Series LLCs. Also, in some cases, including tax, it might make sense to separate the businesses out.

LLC’s in general are a great estate planning and asset protection tool. They are the most versatile of all of the entity structures because they can be taxed as a partnership or S-Corp while maintaining that vital Limited Liability to all of the partners. Hence the name Limited Liability Company.

Corporation Set Up (C-Corp and S-Corp) with Bylaws, Minutes and Articles of Incorporation:

Besides Partnership, Corporations are the oldest business entity structure. They were first formed back in the 1600’s to protect those who invested in trade shipping. Today when most people hear for a corporation, they think of the big ones on Wall Street. The thing is most corporations are much smaller than that. You can have single owner corporations or many owners. There are C-Corps and S-Corps. This is one area where we would definitely want to work side by side with your accountant or CPA to make sure that not only does the corporation set up make sense on the liability side but also on the tax side.

Also with corporations, we can set up special “Professional Corporations” for those of you who have credentials after your name such as doctors, attorneys, dentists, CPAs and so on.

Business Succession Planning

Have you ever thought about what will happen to your business when you are ready to retire or if you die? Can you sell the business? Who can take over? What legal requirements do you need to worry about. Do you want it all to just disappear because you are done working in the business? Do you work with a partner in your business? Have you ever thought about what would happen if your partner died? If you don’t have any documentation in place then when your partner dies you could be in business with their spouse or kids or both. What if that partner holds the special license to operate the business? Can you get the license to keep the business going? I know these are all terrible situations to think about but the reality is things happen and if you don’t plan ahead then everything you’ve worked so hard to build may be gone either because of death or because of a forced sale.

Buy-Sell Agreements

One way to plan for the unexpected in business with a partner is through a BUY SELL agreement. This is where both you and your partner agree that if either of you die, the survivor or the business has the first right to buy the deceased partners share of the business and that the deceased estate, spouse, kids or trust must sell it to the business.

What this does is make sure the business can go on and that the surviving partner does not have to be partners with a deceased’s spouse, kids, trust or estate. Think of this like a will for your business. You are laying out exactly what you want to happen upon your death, this time specifically for the business.

The buy sell doesn’t just have to be about death either. What about if a partner becomes disabled? Do they still retain ownership, receive a salary, or do they get bought out? The nice thing here is it can be as flexible or airtight as you want. We can also include terms about if a partner wants to leave in the beginning when the foundation is being laid. Typically incentives to stay are such that if a partner leaves in the first 5 years they get a percentage reduction in the amount to be paid for their shares. For instance, if the business is worth $100,000 with two partners each a 50% owner in the company and the buy sell agreement says that the partner leaving only gets 80% of his fair market value in the stock. This would mean that the partner selling would only get $40,000 from his partner instead of the full $50,000 value.

Just like with Trusts you can be very creative here and specific. The buy sell agreement can lay out ahead of time how value is to be determined, what interest rate will be paid and if life insurance is to be paid for by the company to cover the purchase price of the ownership interest.