Business Law Firm

After deciding on a business form, the owner will need to come up with a legal name for the business. The legal name is the name of the person or entity that owns a business. The business may also be operated under a fictitious name.

The legal name of your business is your full name if you are the sole owner of your business. For a partnership, the legal name of your business is either the name given in your partnership agreement or the last names of the partners. If your new business if either a corporation or a limited liability corporation (LLC), your legal business name is the name that you registered with the state government.

A fictitious or “doing business as” (DBA) name is a business name that is different than your personal name, the names of your partners or the officially registered name of your LLC or corporation. It is another name that you use in the operation of your business instead of your personal name.

To find out if another business is already using the desired name, you can search state databases connected with the secretary of state or the state commerce division. These departments typically maintain business records and registration documents.

The owner should also determine if the proposed business name conflicts with a registered trademark. The United States Patent and Trademark Office (USPTO) maintains trademark records.

Although regulations concerning new businesses vary by location and business type, if you want to open a business or sell your products under a name that is different then your legal business name then you may need to file a fictitious name or DBA registration form with a government agency.

Depending on the name you choose, you may or may not have to register it with the government. In some states any business that doesn’t use the legal name of its owner as part of its business name must register the name as a fictitious business name. This allows customers to easily contact the business owner with a complaint or to take legal action against the business.

See the chart on the US Small Business Administration (SBA) Web site, which provides the requirements for fictitious name filing in all 50 states and territories.

If you use your full name in your business name, you don’t have to register it. For example, if you simply add a word or two after your full name to come up with a business name, such as John Doe Design. You can start using a name like this without filing any paperwork.

If you don’t use your full name, there are a couple of major reasons why you should register it:

• You won’t be able to enforce any contract that you sign under an unregistered name

• Many banks won’t open an account under your business name unless you provide proof that you have properly registered the name.

The single member LLC is a great asset protection vehicle for the sole owner, but in order to ensure that you are really protected, you must adopt a single member LLC operating agreement and make sure you have one suitable for your business.

A sole owner operating as a sole proprietorship is always risking everything he owned in order to run and grow a business. This is because his business is inextricably a part of him and so if a business problem ever arose and caused some liability, the sole owner would be personally liable. What does this mean?

It means that everything he owns like his home and all his money is at risk. Before the limited liability company was available, this sole business owner could choose to get a corporation for protection but many did not go that route because of the costs and added complexity of incorporating a business.

Then along came the limited liability company and even more importantly the single member LLC. Now, the solo entrepreneur has a viable option for protection. He can run his business and protect his personal assets from business liability. In addition, he will not be required to meet all these formalities because these types of legal entities are easy to manage.

However, it should be noted that lawmakers are sometimes suspect of the single member LLC. For a time, they were not even allowed in some states. But, recently, every state has changed their LLC laws to allow for a single member. The reason they are not always liked by judges and lawmakers is that when there is only one member, the business looks like the mere alter ego of the sole owner. It appears to have the exact same features and is run like a sole proprietorship.

Well, they may be right but it still does not matter because the limited liability company laws passed in every state provide for this protection if a sole owner chooses to form a single member LLC for his or her business. So, no worries- the protection is there.

However, in order to make sure you have a strong case if ever challenged, you should always have a single member LLC operating agreement for your business. This is a written document that sets forth the governance rules and procedures for the legal entity. By having one, you are showing the world that you are recognizing your LLC as a separate person from yourself. After all, you are giving it its own personality by adopting a proper written governance agreement.

This is very important because if your business is ever sued, the first thing everyone will want to see if your LLC paperwork and if there is none, they will claim that you disregarded your own legal entity which, in turn, means, you should be personally liable. With a proper single member LLC operating agreement and some minimal paperwork, you can win this argument every time.

The Partnership 

A partnership involves two or more people undertaking a business venture as co-owners, with an intent to make a profit. 

The General Partnership 

Forming a general partnership is easiest way to go into business with another person. But the simplicity of a partnership can be its downfall, so careful planning is important. One of the principal drawbacks of a general partnership is that a general partner can be held responsible for all debts and liabilities of the partnership. For example, a general partner with only a 1% interest in a business could still be held liable for 100% of the debts and liabilities of the partnership. 

The Limited Partnership 

From a tax standpoint, it’s sometimes better to invest in a partnership rather than a corporation. But in order to address the issue of potentially unlimited personal liability, most states recognize another type of business entity that is called a “limited partnership”. A limited partnership must have at least one general partner, but all of the other investors can be limited partners whose potential liability exposure can usually be limited to the extent of that partner’s investment. One of the resulting tradeoffs, though, is that an investor must take a passive role in the operation of the business in order to maintain the status of a limited partner.

In many regards, being a limited partner is comparable to a shareholder in a corporation. 

The Limited liability Company 

A limited liability company is perhaps best described a hybrid of a corporation and a general partnership. It’s treated as a corporation for limited liability purposes, but is treated as a general partnership for tax purposes. The owners are called “members”. Unlike a shareholder or a limited partner, they don’t have to take a passive role in the business. A variation is the limited liability partnership, which can be formed in certain instances by professionals such as lawyers, accountants or engineers. 

The Nonprofit Corporation 

Just because a business is called nonprofit doesn’t mean that it can’t make money. One significant limitation for nonprofit corporations, though, is that they cannot take on investors in the traditional sense, because they do not have shareholders. So the only way a person may be able to invest in a nonprofit would be through a loan or some other non-equity investment means.

You can form a S-Corporation or a Limited Partnership, but if you are considering that, make sure you are talking to a lawyer who is familiar with the specifics of your specific situation and is advising you personally.

With both LLCs and S-Corps, you are taxed only once on the income of the entity, meaning that all of the income and expenses will be reported on an information return filed with the IRS, but the actual taxes are paid by the shareholders or members of the entity. This is called pass-through taxation.

Your corporate entity must be established correctly from the beginning with governing documents and then maintained on a yearly basis. If you don’t do that, you may come to find out too late that your business entity doesn’t provide the protection you thought it did. So, make sure that once you decide what kind of an entity to use, you set it up right and then maintain that entity. In other words, protect yourself from inside assets.

Except inside assets, there are also outside assets protection that protects your business from your potential personal liabilities. For example, if you are in a car accident, file for personal bankruptcy, or are sued by a business partner or colleague or personally guarantee a debt. These are all personal risks that are happening outside your business entity.

In most cases, your business entity is not protected from your personal risks. That means if you are sued personally and a judgment is obtained against you, the judgment creditor could take your business entity from you in satisfaction of the judgment. But, not always.

There are pros and cons to both LLCs and S-Corps and this is really a decision you should be reaching with the guidance of your own lawyer and your own CPA working together to advise you.

Your decision will have tax consequences that cannot be considered based on what you read in a general article that does not take into account the specifics of your situation. So before you incorporate any sort of entity, make sure to consult with your own personal lawyer and your CPA to make the decision about an LLC or an S-Corporation for your business structure.

1.    Why do I want to buy this particular business? What is the value of this business to me?
2.    What are the advantages and disadvantages of purchasing this business? Have I compared the cost of buying the existing business with the cost of starting a new business within the same industry?
3.    Can my resources (time, money, capital etc.) be utilized in a more productive alternative investment which better suits my goals, requirements, skills and vision? What is the opportunity cost of this acquisition?
4.    Have I obtained enough information, conducted enough research and properly evaluated all the data to satisfy my informational requirements regarding this particular business, the general industry and the overall economic value of the business?
5.    What skills and resources can I bring to this business to make it more profitable, efficient and productive?
6.    Do I have the time and access to the knowledge, skills and resources required to enhance the value of the business? How easily accessible are the required knowledge, skills and resources?
7.    What is my previous exposure to this industry? What lessons have I learned from my past dealings within this industry and, if applicable, with this particular business?
8.    Do I have the network to provide the base of contacts required for this business venture or will I have to develop a new set of contacts?
9.    What am I willing to give up in terms of price, assets and financial capital in order to acquire this business? What do I expect in return? Are my expectations reasonable?
10.    What financing arrangements should I make? Have I raised enough capital to sustain the business in the early stages? It is important not to be undercapitalized and in search of financing when you should be spending time managing the business, especially in the early stages.

There are a lot of ways to invest money in a company. Generally speaking, though, you can divide investment vehicles into two different categories: direct and indirect investments. With a direct investment, you actually acquire an ownership interest in the company, for example, as a stockholder or a partner.
If you are making a direct investment in a business, whether it is a public company or a mom-and-pop grocery store, it is extremely important to understand the nature of your investment. The terms and conditions of any paperwork that you sign (or don’t sign) most likely will determine whether you ever get some or all of your money back on your investment. For example, if the company is sold or liquidates, who gets their money back first?
The primary legal vehicles through which you can make direct investment in a business are:
The Corporation
A corporation is the tried-and-true business entity through which investments are made, as a corporation could serve as a shield to help insulate investors from personal liability exposure. There may also be tax benefits to incorporating, even if the business fails. A corporation is a legal entity that the law treats as a “person” in the sense that the corporation has its own name and identity separate from the owners. A corporation:
•    Pays taxes
•    Has the ability to enter into contracts
•    Can own property
•    Can sue and be sued
•    Can sometimes be charged with and convicted of crimes
As a separate legal entity, a corporation serves as a shield between the owners and third parties doing business with the organization. So long as corporate formalities are observed, the corporate shield makes it difficult for third parties to go after the owners personally. In other words, if the corporation is sued, the only thing that’s usually at risk is the assets of the corporation. A lawsuit could not reach into the pockets of the individual owners. Instead, creditors and other third parties can be limited to going after assets of the corporation.
The Sole Proprietorship
Although maybe not the best alternative in the long run, the simplest and cheapest way to start up a business is as a sole proprietorship. A sole proprietorship means that someone is doing business in an individual capacity and not through any type of business entity.
You can invest in a sole proprietorship by loaning money to the business. But if your investment is something more than a loan, the business may be deemed to be taking on another owner and would no longer be a sole proprietorship. Instead, there is a good chance that it would be labeled a partnership between you and the original owner.

The franchise territory is defined in the franchising agreement, but be aware the franchiser generally has the “bigger say” and can limit the territory and location of the franchising business so long as it has a business reason to justify the restricted area. For example, say you plan on opening the first Burger King in downtown Boston, and you want to be the only Burger King in downtown Boston. Burger King is likely to insist on the right to open another restaurant a few blocks away, so you would set out on a map the very limited few blocks for your “exclusive”. However, Burger King may be willing to allow you to have the right of first refusal for a new Burger King franchise in an adjoining “neighborhood” as part of your deal with them.
Issues regarding territory may later arise, for example, (a) due to a change in the owner of the trademarked property, a competing business in the same industry and having the right to use the same trade name or trade mark opens in the “neighborhood”, (b) trademarked property being distributed to other retail or company-owned outlets, or (c) the protected area is lost for failure to meet sales quotas.

Stockholders are the ultimate owners of a corporation. They have the right to elect directors, vote on major corporate actions (such as mergers) and share in the profits of the corporation. However, stockholders do not have the right to direct the day-to-day operations of the corporation.

A corporation is required to hold annual meetings of shareholders to elect directors. The minutes of these meetings must be carefully maintained by the corporation. If the corporation has only one or a few stockholders, it may make sense to hold the meetings by conference call, or simply by having the stockholders sign a statement indicating what actions are approved.
The most basic level of stock is called “common stock”. Sometimes, there is another level of stock, known as “preferred stock”. The preferred stock generally has greater rights over the common stock when it comes to receiving dividends and/or assets from the corporation (in case the corporation is liquidated). Preferred stock can also have special voting characteristics, the ability to convert into common stock, the right to require that the company repurchase the stock at a later date (redemption), and other features allowed by state law.
The articles of incorporation must state the maximum number of shares that can be issued by the corporation. There is no need to actually issue the maximum number of shares – you can issue a lesser number. For example, if a corporation has two stockholders, you can authorize a maximum of 1,000 shares, but give each stockholder only 250 shares. This way, you have the flexibility to add more stockholders. Otherwise, if additional shares were needed, the articles of incorporation would have to be amended. There is no maximum on the number of shares that can be authorized, but be advised that some states base their annual corporation fee on the number of shares authorized.
In some states, an archaic feature of stock, known as the “par value”, must be stated. This value is simply for accounting and tax purposes, since stock can be sold at whatever price a buyer is willing to pay. The corporation, however, cannot sell stock for less than its par value. And since some states base their annual corporation fee on the total par value of the stock, it is advisable to choose a low par value, such as $.01 or even $.001 per share.
The sale of stock is subject to federal and state securities laws. Generally though, if you are not advertising the sale and are dealing only with a small number (less than 35) of knowledgeable and sophisticated investors or people you know personally, then you will be exempt from the regulations.

The most important thing to know about operating a corporation is to leave a paper trail of the important business activities. Below are some of the most common issues to consider when maintaining your corporation.
1.    Keep things separate – It’s important to keep the business and affairs of the corporation separate from the personal affairs of the stockholders, directors and officers. This means setting up a separate bank account, maintaining separate records, and keeping separate books for accounting purposes.
2.    Meetings – Directors need to hold periodic meetings, and shareholders must meet once per year to elect directors. Meetings can take place in person or by telephone. Either way, you need to make a written record of the items discussed and actions approved at the meetings. Alternatively, you can just get all the directors (or a majority of the stockholders) to sign a statement approving corporate actions. This is known as “written consent”.
3.    Transfer of ownership interests – Generally, as long as all applicable laws are followed, a stockholder is free to sell or transfer shares to anyone. However, with small corporations in which the stockholders act more like partners and each is integral to the success of the company, you may wish to consider placing restrictions on the transfer of shares.
Stockholders sometimes enter into a buy-sell agreement which sets the terms for when shares can be transferred or sold. A typical buy-sell agreement would state that if one stockholder seeks to sell shares to any third party, the other stockholders have a right of first refusal; that is, the other stockholders may purchase those shares at the same price. Only if the other stockholders do not purchase those shares can a stockholder sell to a third party.
Additionally, certain professional corporations can only have shareholders that are licensed professionals, limiting the transferability of shares.
4.    Tax forms and licenses – Every corporation must obtain a federal tax identification number, which is similar to an individual’s social security number. Some states also require a separate state tax number. In addition, state, county and city business licenses may be required.

Advantages of S-Corporation Status
One of the main advantages of S-Corporation status is that it avoids the double taxation that occurs with a regular C-Corporation. In a C-corporation, the corporation pays income tax on its profits and, if those profits are distributed to shareholders, the shareholders pay income tax on the distribution.
Electing S-Corporation status passes the income or losses of the corporation to the shareholders who recognize the income or loss on their personal tax returns. This is an advantage if the corporation expects to show a loss at first. The loss can be used to offset the shareholder’s income from other sources, including a spouse’s income.
Disadvantages of S-Corporation Status
Passing income through to shareholders can be a disadvantage in some instances. If the business is profitable, shareholders will be required to pay income tax on their share of the profits, even if that money is not distributed to them. In a C-Corporation, profits can be used to expand the business and shareholders are not required to pay taxes until distributions are made.
Reasonable salaries paid to employees are deductible business expenses for S-Corporations as well as for C-corporations. However, in an S-Corporation, fringe benefits may not be deductible as they would be in a C-Corporation.
Even though losses pass through to shareholders in an S-Corporation, those losses aren’t deductible by shareholders who don’t materially participate in the business. This could result in higher taxes overall.
Not every corporation qualifies for S-Corporation status. In order to elect S-Corporation status, the corporation can only have one class of stock. The corporation can have no more than 35 shareholders, although a husband and wife who both own shares will only be counted as one shareholder. No shareholder can be a nonresident alien or another corporation. All of the shareholders must consent to elect S-Corporation status. The corporation also cannot earn too much of income from investments.