We counsel a variety of businesses, including many of the region’s largest companies, national and multinational corporations, banks, manufacturing companies, utilities, governmental entities, and nonprofit institutions. We also value our relationships with our small business clients, entrepreneurs, private individual clients, and closely held businesses.
Whether faced with a valuable opportunity or a complex dispute that threatens to disrupt their core business, our clients turn to us for strategic advice and answers. We carefully listen to our clients in order to determine their overall business objectives so that we can effectively collaborate with them to formulate a strategy tailored to meet their long-term needs and goals.
Our clients expect and deserve legal counsel who can deliver creative yet practical advice, and we value their trust and confidence.
We counsel many clients making decisions regarding the buying and selling of a business. Just as with the formation of a new business entity, there are many important issues to consider when buying or selling a business, such as the taxation of the proposed transaction, management, control and vulnerability to personal liability.
The process of buying or selling a business is often misunderstood by business owners and their advisors, even though the purchase or sale of a business is usually the largest financial transaction made during the lifetime of the purchaser or seller. In many cases, more money can be gained or lost in the sale of a business than in any previous deal in which most business owners have been involved. Some of the important decisions are the following:
We are experienced in consulting with clients to answer these questions, sometimes in partnership with a client’s other valuable and trusted partners (e.g. brokers, accountants, advisors).
We counsel many clients in making the strategic decision of which form of business entity to use when starting or expanding a business. The selection of the most advantageous form of legal business entity involves counseling on many practical and legal considerations.
The most important issues to consider in selecting a form of business entity include, but are not limited to, the cost to establish and maintain the entity, taxation of the entity, continuity of existence, ability to transfer ownership interests, management, control and vulnerability to personal liability.
In general, the available forms for a business entity include the sole proprietorship, the general partnership, the limited partnership, the limited liability company, and the corporation. We highlight below some of the key features of each entity choice; however, the choice of entity and the best ownership structure within the entity often involves a variety of factors specific to a particular business. Our clients rely on our knowledge and experience with the nuances of each type of business structure and the application of the best structure to meet their business needs.
Let us help you form the business entity that will most closely meet the needs of your business.
The sole proprietorship is the simplest form of business entity. It is owned and managed by one person. The individual owner has the ultimate responsibility and authority for all decisions affecting the business and is personally liable for the debts and liabilities of the sole proprietorship. No legal formalities are necessary to create a sole proprietorship.
A sole proprietorship will terminate at the death of the individual owner. Estate planning documents for the sole proprietor may grant the heirs of the individual owner the right to continue the business.
Since a sole proprietor owns the business directly, the ownership interest may be transferred at any time, and all business income or loss is treated as the individual owner’s income or loss and taxed on his individual income tax return.
A general partnership is created by an oral or written agreement to share in the profits, losses, and assets of the partnership. The relations of the partners are governed by that agreement. In addition, a fiduciary relationship also exists between the partners. Each partner is personally liable for the debts, obligations and other liabilities of the partnership, which is a characteristic that makes this form of business entity undesirable to many clients.
The death or withdrawal of a partner, or the expiration of the term of the general partnership, will dissolve the partnership. However, the continuation of the partnership can be determined in accordance with the partnership agreement.
Although a general partnership is required to file an income tax return, a general partnership pays no federal income tax. Each partner is required to declare his share of partnership income or loss on his individual income tax return as reported on a Schedule K-1 from the income tax return filed by the general partnership.
A limited partnership is similar to a general partnership in certain aspects and similar to a corporation in others. A limited partnership is a form of business entity in which, by complying with certain statutory requirements, the limited partners have only limited liability for partnership debts, obligations and other liabilities. However, the limited partners cannot participate in management. The general partner manages the limited partnership but also can have liability for partnership debts, obligations and other liabilities.
The relationship between the general partner and limited partner in a limited partnership is different than that of the partners of a general partnership. If there is at least one general partner, the death or withdrawal of another general partner in a limited partnership will not result in a termination of the partnership. Moreover, a limited partner is more like a shareholder of a corporation in that his withdrawal or death will not affect the continuity of the partnership.
Usually, the ownership interest in a limited partnership held by a limited partner cannot be freely transferred because of restrictions in the partnership agreement of the limited partnership.
Limited partnerships are taxed similarly to general partnerships for income tax purposes. Each partner is required to declare his share of partnership income or loss on his individual income tax return, which share is reported on a Schedule K-1 from the income tax return filed by the limited partnership.
A corporation is a form of business entity created under a particular state statute. The corporation may be owned by one or more shareholders, who may be natural persons or other legal entities. A corporation is treated as a separate entity from its shareholders. Therefore, the shareholders of a corporation are generally not liable for corporate debts, obligations and other liabilities. In order to maintain the corporate protections, certain statutory formalities related to the formation and operation of a corporation must be strictly followed. Failure to properly follow the statutory corporate formalities may cause the shareholders to become personally liable for the debts, obligations and other liabilities of the corporation.
The statutory filing documents of a corporation can provide for perpetual existence so that the corporation will not be dissolved but will continue upon the death or withdrawal of any of its shareholders, officers, or directors.
Shareholders’ interests in a corporation are evidenced by stock certificates, which are generally freely transferable. The corporation permits the greatest flexibility in the transfer of ownership interests. However, a shareholders’ agreement can be used to restrict the transfer of the shares.
A corporation must file its own income tax return. A disadvantage to the corporate form is that “double taxation” may occur since income received by the corporation will be taxed at the corporate level and, if distributed to its shareholders as dividends, will be taxed again on the shareholders’ individual income tax returns. There are several strategies that can be used to minimize the impact of this double taxation such as salaries to officers, loans from shareholders, and a Subchapter S election. A corporation taxed as an S-Corporation is taxed like a partnership for income tax purposes.
A limited liability company (LLC) is a hybrid form of entity that shares characteristics with a limited partnership in certain aspects and a corporation in others. The LLC is a form of business entity in which, by complying with certain statutory requirements, all the members of the LLC, like limited partners of a limited partnership, have only limited liability for partnership debts, obligations and other liabilities. The LLC is managed by either its members or a board of directors, but it does not have a general partner like a limited partnership. The members of the LLC can participate in management but still have limited liability.
The ownership interest of an LLC cannot be freely transferred because of restrictions in the operating agreement of the LLC.
Like limited partnerships, LLCs are required to file a tax return but will not have to pay income tax if the LLC elects to be taxed as a partnership. If the LLC elects to be taxed like a partnership, each partner is required to declare his share of LLC income or loss on his individual income tax return, which is reported on a Schedule K-1 from the income tax return filed by the LLC.
In other words, the members of a LLC enjoy the limited liability of shareholders of a corporation but can avoid the “double taxation” of a corporation if the LLC is taxed as a partnership.