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Business Law

Formation:

Starting a business is both exciting and daunting. For most people, the greatest difficulty in the formation process arises from the reconciling a “good idea” into a concrete entity. Overlap this with federal, state, and local requirements and it is easy to lose sight of the original reason why you wanted to create a business.

 

Specifically, there are seven distinct base types of entities that can be created. Each type has distinct financial, managerial, and liability consequences; no two business are alike and a careful review of the original business plan is required when choosing an entity type. After an entity is chosen the creation of an operating agreement is required both for state filing requirements and for orderly operation of a business. Issues for closely-held and family businesses (which defines the majority of businesses) creates special concerns because these entities typically have overlapping and conflicting personal interests and individuals holding multiple roles within an entity.

 

 

After choosing an entity, creating an operating agreement, and filing the proper paperwork with the Secretary of State’s Office, federal, state, and local regulation of certain businesses must be complied with before a business can legally operate in the state. For some businesses this is simple process that can be completed in a day, but for others the compliance process can be the longest part of a business’s formation. A few common issues are: employees, compensation, benefits (medical, retirement, and fringe), workplace safety issues, tax issues (withholding, reporting, allocations, etc.), intellectual property concerns, state licensing, and local law that restrict business operation. 

 

All of these factors need to be resolved before a business can legally begin operating, sign a lease agreement or gain financing (loans, bank accounts, outside investment, and internal contributions). The formation process can be overwhelming, but the complexity should not prevent you from creating a business. The process is manageable and, with careful planning, can be resolved in an efficient and affordable manner. Our attorney has actively worked with many startups and has the knowledge and experience to help make your idea become a reality.

 

Operation:

Regardless of size, operating businesses must always account for the dual requirements of: conducting businesses in which goods or services are offered and managing the business. Not surprisingly, most businesses focus on day-to-day operation of the business and leave managerial decisions for a later time. While less obvious than daily operation, careful management can increase efficiency and profitability of every business. For example, active monitoring of weekly income and expenses can help to find greater margins of profit and provide a real-time picture of the relative health of a business. This same monitoring will also make tax reporting faster and tax/insurance estimates of costs more accurate.    

 

Management also involves corporate governance and ownership interest matters. All entities are required by law to have at least one meeting a year with shareholders/partners to discuss the overall development of the business. Surprisingly, corporate governance often affects smaller business more than most large corporations because of the dual roles held by most owners/entity officers and the additional needs of many family businesses to keep ownership within the family. These requirements typically arise when owners retire, sell or bequeath there ownership interest in a business.

 

Finally, operating a business also creates legal issues. Many matters can be easily handled, such as leasing or purchasing of real or other tangible property. Other matters can be overwhelming. For example, the hiring of employees creates a series of new legal requirements ranging from withholding taxes to worker’s compensation insurance to general compensation matters. IN TOTO has the knowledge and experience to handle the bureaucratic and management matters in an efficient manner to allow business owners to focus on what matters; keeping the running.

 

 

Sale or Merger of a Business:

Much like people, the needs of businesses change. This can result in the sale or merger of a business. The reasons for a change in business ownership can range from retirement to a reorganization intended to limit liability or include new owners. Regardless of the reasoning, sale or merger of a business creates numerous accounting and legal matters that need to be resolved. The three largest areas of concern are: valuations/accounting, tax and financial consequences of a disposition, and continuing interest/liability following a transfer. With careful planning, these matters can be resolved to maximize profit, reduce unnecessary expenditures, and limit or wholly eliminate taxation of a disposition.

 

Ending a Business:

Once created, entities continue to exist in perpetuity. An entity will continue to exist even if no profits or losses are generated, no taxes are filed, shareholder/partner meeting discontinue, and filling fees/licenses are not renewed. Regardless of how a business reaches its end, numerous loose-ends need to be resolved during the winding-down process before a business can truly be considered terminated. The most common matters that need to be resolved are: extinguishment of debts to creditors, notification to interested parties, disposition of entity assets, termination notices to federal and state agencies. These matters can be resolved in a quick and efficient manner, but failure to properly wind-down a business will result in continued liability to all owners of the business until these matters are resolved.

 

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