All businesses deal with contracts, even if they are unwritten, as with many transactions involving goods or services. A contract is a legally binding agreement, and even an honest contractual mistake can cause serious problems. We can help you draft good contracts that will protect your interests or help you figure out if a contract you signed has been breached or is even binding at all.
When you need to organize your business, we can help you select the best type of business organization for you – and help you navigate the legal formalities to protect your business, personal assets and peace of mind.
Most new businesses start as sole proprietorships. This simple form of ownership for a sole owner requires little more than a tax ID number. However, when there are concerns over taxation or liability issues arise, or when there are multiple owners, other business organization types should be considered.
A partnership is also easy to create, as it only requires an agreement, whether verbal or written. In a partnership, the owners manage and control the business, and all revenue flows directly through the business to the partners, who are then taxed based on their portions of the income. The partners are personally liable for debts and any liabilities that result from the operation of the business. When one partner leaves, the partnership is dissolved unless there is an agreement in place that allows it to continue. A business continuation agreement typically stipulates the terms under which a partner can transfer his share of the business for some financial consideration. The same agreement should provide for the transfer of a deceased partner’s share so the surviving family members receive fair compensation from the remaining partners.
Limited Liability Company (LLC)
The creation of a limited liability company (LLC) requires a written operating agreement and filing articles of organization with the New York Department of State. The main difference between a partnership and an LLC is the LLC separates the business assets of the company from the personal assets of the owners, which insulates the owners from the debts and liabilities of the company. Like a partnership, the sale or transfer of the LLC requires a business continuation agreement to ensure a smooth transfer when one of the owners leaves or dies.
There are two types of corporations – S corporations and C corporations. Both are legal entities based on articles of incorporation filed with the state. The primary difference between the two is in their tax structures. A C corporation is a tax entity in and of itself, so it files a tax return and is taxed based on business revenue. A double taxation could occur when the shareholders or owners file individual returns based on any income or dividends received from the corporation. An S corporation is similar to a partnership or LLC in that it files an information return, but the revenue flows directly to the shareholder owners who then file individual returns.
In most other aspects, the two business structures are the same. Both are controlled by a board of directors who are answer to the shareholders. The board hires the senior management team. Business assets and liabilities belong to the company, and the sale or transfer of interests is conducted by the sale of shares to anyone who wants to buy the interest.
Ultimately the type of business organization selected comes down to the your level of concern over management control, liability exposure, tax issues and business transfer issues.
We can offer you the guidance essential in selecting and filing the most suitable form of ownership for your business.
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