Q: What is business law?
Business law comprises of codes, statutes, regulations, and rules put into place to govern commercial relations. It offers a legal framework. Businesses work within this framework. The structure allows people to conduct and manage their businesses. Business law covers a wide spectrum of topics and includes areas such as:
- Sale of businesses
- Business litigation
- Banking and finance law
- Business planning
- Business formation and organization
- Transactional business law
- Business negotiations
Q: What factors should be considered in choosing the type of business form for my business?
The best way to weigh out the factors of which business form you should choose is to look at the benefits of each organizational form and decide which one works to your best advantage. The most commonly used entities by small businesses are the sole proprietorship, partnerships, and stock corporations. The factors you should compare in each entity are control, liability, continuity, and taxes. For example, let’s take a look at control. Who owns and operates the business? A sole proprietorship is controlled directly by you. In a partnership control is delegated in the partnership agreement. In a stock corporation, the shareholders elect a group of individuals to act as the board of directors. Pick apart each of the factors like this, compare and contrast, and decide which entity is the best for your business.
Q: What is the difference between a subchapter C and S corporation?
The most significant difference between a subchapter C and S Corporation is that an S Corporation does not pay any takes. This is because the income or loss created by an S Corporation passes through to the shareholders. The shareholders’ own personal returns are then taxed.
In contrast, a C Corporation pays taxes on the income it creates. The C Corporation’s shareholders pay taxes on the dividends received as well.
Structuring your corporation as an S Corporation eradicates this double taxation. However, you must have less than one hundred shareholders to form an S Corporation. You cannot have an S Corporation if your corporation has more than one class of stock. The corporation must be domestic and it cannot have partnership or corporate shareholders. Also keep in mind that preferred stock is not permissible.
Q: What does it mean to “pierce the corporate veil?”
This phrase refers to the ability of a plaintiff to sue the shareholders of a corporation. The concept came around as a way for courts to deal with corporations that are only funded by a few assets. The corporation is the only entity that can be held liable, and this often makes it hard for the plaintiff to recover when dealing with these thinly capitalized corporations. Therefore, in order to fulfill the corporate liability, the court will permit the plaintiff to sue the shareholders. The idea is that while the corporation holds limited liability, the owners should still take some responsibility in egregious cases, especially if the corporation took part in risky activities.
Q: What is the difference between a joint venture and a partnership?
A limited partnership is a business structure comprised of at least two business partners. A member of the business could be a general or limited partner. General partners have more control, but this also comes with more liability. Joint ventures are also a legal business entity formed of at least two members. These members can be either companies or individuals. The joint venture specifies in a legal agreement how much control each party receives. There are only a few major differences. The first is that a joint venture usually only lasts for a short period of time. The partnership lasts until the company disbands legally. The joint venture is a much more flexible structure. Joint ventures can specify the needs of the members, while the limited partnership is stuck in the general partner/limited partner form.
Q: What is a non-profit corporation?
A nonprofit corporation is a company or organization that makes money through sales. The organization then keeps 100% of the profit. Instead of going into the pockets of a shareholder or owner, any surplus funds and income are reinvested in the company and its activities. Non-profits serve a charitable purpose. They use funds received from donations and fund raising to help those in need. A non-profit can also support education, health care, and scientific research. They protect animals and promote responsibility and conservation.
Internal Revenue Code 501(c)3 allows most of the generated profits to be exempt from income taxes. Also, donations to nonprofits are often tax deductible.
Q: How often should a corporation hold meetings and update its minutes?
The shareholders and director of a company need to meet at least once a year. At this one meeting, the most crucial item on the agenda is to elect new board members. However, it is advisable to meet more than once a year. The company has very weak protection over its directors, shareholders, and officers from personal liability for the company’s engagements if meetings are not held on a regular basis. The minutes should reflect these meetings. It is important to post minutes. This is how people find out about any substantial transformation or important business matter that the corporation might be going through.
Q: Is it a good idea to have a Buy-Sell Agreement?
Buy-sell agreements play a critical role in business organizations that have multiple owners or partners. They resolve conflicts in the organization. The agreement is made in case of the likelihood of a partner’s death, desire to sell, or retirement. The agreement has advantages for both the existing owner and the ex-owner. The partner who is leaving provides security that will free the partner of any ownership disputes. If the partner dies, the agreement takes care of the sale assets so the heirs do not have to manage them and can get compensation for the sold business interest. The existing owner is at advantage because the departing party’s interest stays with the business, eliminating the chance of a dispute between parties. The agreement is very beneficial to both parties because it guarantees the business running smoothly. It strengthens the financial stability since nothing unexpected can hit the company hard. The agreement may even offer tax benefits to the company.
Q: What is involved in a corporate merger?
A corporate merger occurs when two companies combine and to form one singular company. A merger is different from an acquisition or takeover because shareholders of both companies keep a shared interest in the new corporation. The merger is usually kept secret from the public. Sometimes not even the employees know that that merger is happening. This is because there is a high failure rate for mergers. There are many benefits to a merger. They are often used as tools. For example, a lucrative company may combine with a company with much less success to use their losses as a tax write-off. At the same time, this expands the company.
Q: How long may a foreign national stay and work in the United States with an H-1B Visa?
Most H-1Bs are given an initial admission period of up to three years. An individual with H-1B status may extend their stay past three years. They may not stay for over six years. However, The American Competitiveness in the 21st Century Act grants a few exceptions. The 6-year maximum stay could be extended if a year prior, the individual filed Form I-140 or a labor certification form. Additionally, if the worker filled out the aforementioned forms but cannot apply for change of status due to decline in the employment-based visa numbers, the Act grants a three-year extension.
Q: How can a properly established business entity such as a corporation shield me from personal liability for business debts and obligations?
Limited liability can shield all partners from any debts of the business. Only by going after the assets of a company can creditors collect debt. One of the only was a shareholder will be held accountable is if they cosigned or personally guaranteed the debts of the corporation. If a creditor can prove that a shareholder did not follow formalities, or it is discovered that the corporation was formed for liability protection, they could be held liable.
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David F. Anderson attorney at law located in Miami, Florida specializes in long term care, Condominium law, Medicaid planning, Corporate structures, Residential real estate, Asset protection, Commercial real estate, Family law, Title insurance, Bankruptcy, Mortgage law, Association Law throughout Dade County, FL and the surrounding area