Business Law Frequently Asked Questions

Whats the difference between a merger and an acquisition?

An acquisition occurs when one company buys (or otherwise acquires) another company’s assets or stock. A merger occurs when two companies come together to form a new company.

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What is the difference between a C corporation and an S corporation?

In short, taxes. The majority of large, publicly held corporations are C corporations. Some corporations are able to eligible to file an election (Form 2553) that will let the corporation be taxed under rules that are more like that of an LLC. Corporations that use this type of taxation are S corporations. Only certain corporations meet the tax requirements to become S corporations. If C corporations pay their shareholders dividends, the corporation will face double taxation. A C corporation will pay taxes on its profits before paying out its dividends to the shareholders, and the shareholders will then have to pay taxes when filing their individual tax returns. S corporations are not subject to double taxation as long as the requirements are met, and the shareholders are protected from corporate debts.

What is Business Law?

Business Law (also known as Commercial Law) encompasses many different smaller areas of law, all concerning the formation, operation, and sale or closing of a business.   Business law utilizes a wide array of legal areas, including (but not limited to):

Real Estate LawIntellectual Property LawContract LawTax LawBankruptcy LawEmployment & Labor LawEstate Planning & Wills

While Estate Planning & Wills might look out of place on the above list, businesses (especially those that are family-owned & operated) often need to make provisions for a clear and relatively smooth transition in ownership from one owner to another upon the death of the current owner.

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What is a non-profit corporation?

Non-profit corporations are organizations created to carry out scientific, educational, literary, religious, or charitable purposes. Non-profit corporations are exempt from paying state and federal income taxes on profits derived from the works it performs to meet its goals. These corporations are sometimes called 501(c)(3) corporations, named for the section of the Internal Revenue Code dealing with the tax exemption for non-profits.

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What is a Limited Liability Corporation (LLC)?

A limited liability corporation (or LLC) is sort of a hybrid-type business structure, bearing the advantages and disadvantages of several different business types. Like a standard corporation, LLCs limit the personal liability of the members, meaning that the personal assets of the members are protected against recovery by debtors for any losses, business credit, or debt belonging to the company.  At the same time, the company may remain eligible for pass-through taxation like sole proprietorships and partnerships. Despite the advantages, an LLC is not always the right choice for every business.  It helps to contact an attorney experienced in Business Law so they can discuss which types of business formations may be the most suitable for different situations.

What is a corporation?

Corporations are business entities that protect their shareholders by allowing limited liability so that the assets they invest in the business tend to be the only assets placed at stake, leaving personal assets of the shareholders safe from any losses the corporation may incur. Corporations are composed of three different types of people, with different levels of involvement. There are the shareholders, who vote on major corporate changes and elect directors. Directors are responsible for managing the business overall, and hire the CEO and other corporate officers. The CEO and the corporate officers are in charge of the business’s everyday operations.

Ive heard of Joint Ventures. How are these different from partnerships?

While partnerships and joint ventures share similarities, their goals are different. Where a partnership is a business entity that has two or more owners, a joint venture occurs when two (or more) business entities come together for a limited time for a specific goal.

Im thinking of starting my own business. What are some of the issues I should be considering before making any big decisions?

Before anything else, consider what type of business entity is right for the business type. There are sole proprietorships, partnerships, corporations, and limited liability corporations (LLCs). The size and type of business being conducted will likely help determining which type of business entity will be the best fit. There are different advantages and disadvantages to each type of business entity. Allocation of profits and losses among the owners is another concern if the business is going to have more than one owner. Then there is also the matter of determining how much employees are to be paid and drafting any types of employment agreements employees are to sign upon accepting employment with the company. All of these decisions can have effects that last throughout the life of the business, so it is important to make the right ones from the start. Contact an attorney experienced in Business Law today for assistance in determining the right business entity, drafting necessary documents, and answering difficult questions.

I want to start my own business and keep it simple. Is a sole proprietorship a good idea?

It depends. A sole proprietorship is the simplest form of business, that much is clear. Sole proprietorships are, by name and definition, owned by only one individual. Unlike a corporation, a sole proprietorship is not a legal entity. Therefore, it is not a taxable entity. Legally, the business owner is the sole proprietorship. The owner reports the business’s profits and losses on their own annual tax return. The biggest advantage to a sole proprietorship is that all profits go directly to the owner. Conversely, the biggest disadvantage is that all debts are the responsibility of the owner.

Do I have to hire a lawyer if I want to start a business?

It can’t be recommended enough. While it is legal to start a business without one, an attorney experienced in Business Law and Commercial Litigation can be an incredibly valuable asset. An attorney can help determine which type of business entity is the most suitable, help draft contracts and articles of incorporation, help obtain necessary permits and licenses, and more. Just the benefit of having someone there to respond when questions or issues come up out of the blue cannot be understated. An experienced attorney is one of the best investments a business owner can make.

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