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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.
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