Business Formation FAQs
Formation of Corporations, Partnerships and LLC's
1. What is business law?
Business law encompasses rules, statutes, codes, and regulations that are established which govern commercial relationships and provide a legal framework within which businesses may be conducted and managed. Business law is highly diverse and includes areas such as:
- banking and finance law,
- business formation and organization,
- business negotiations,
- business planning,
- transactional business law,
- acquisition,
- merger,
- divestiture,
- sale of businesses, and
- business litigation.
2. What is involved in properly setting up and maintaining your business as a corporation?
You should employ an experienced business attorney and a certified public accountant to be sure that corporate formation and maintenance are handled properly. The attorney will draw up articles of organization with language to protect you from personal liability.
3. What is a Limited Liability Company and how is it set up?
Your business may have the flexibility of a partnership and the legal protection of a corporation if it is a limited liability company ("LLC"). The LLC uses an operating agreement, similar to a partnership agreement, to control business, financial and tax provisions. The operating agreement may be oral, although it should be in writing and signed by all the LLC's members. Through its provisions, the operating agreement determines whether the LLC is taxed as a partnership or corporation.
4. What are the possible consequences of being personally liable for businesses debts and obligations?
Personal liability opens the individual to claims for a wide range of business obligations. Most people realize that personal liability may extend to business losses, but other obligations may also reach individuals, including:
- Damage awards in lawsuits;
- Tax deficiencies and penalties; and
- Back wages and benefit payments.
The limited liability offered by incorporation shelters business owners from personal liability. Some insurance can also help cover business owners, directors, and officers. However, if an owner or director performs certain personal acts, behaves illegally, or fails to uphold statutory requirements for corporate status, he or she may face personal liability despite the corporate shelter.
5. How often should a corporation hold meetings and update its minutes?
Any time a corporation undertakes a major change or transaction, it should be reflected in its minutes. In addition, meetings of shareholders and directors should take place at least annually if for no other reason than to elect new officers and directors. Failure to adhere to the formality of regular meetings can jeopardize the corporation's ability to shield its officers, directors and shareholders from personal liability for the corporation's actions.
6. Is it a good idea to have a Buy-Sell Agreement for a corporation?
If a corporation has more than one shareholder, a buy-sell agreement is recommended. A shareholder's death, divorce, disability or termination of employment can create serious problems for a corporation and its other shareholders. A buy-sell agreement can help minimize these problems by describing what will happen in those events. Similar provisions are recommended for partnership agreements and operating agreements for limited liability companies.
