Business Law
Q: What is business law?
We define business law in the broadest possible context. It is any legal matter that touches on a business. Business law is highly diverse and includes many areas including, but not limited to:
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Domestic and International Contracts (preparation, negotiation and review)
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Uniform Commercial Code (sale of goods, promissory notes and other negotiable instruments, electronic transfer of funds, letters of credit and security interests)
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Commercial Real Estate Transactions
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Business Planning
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Real Estate Conveyances (including mortgage foreclosures)
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Formation of Corporations and other Business Entities
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Collections
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Mergers and Acquisitions
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Divestitures
Q: What factors should be considered in choosing the type of business form for my business?
One of the first and most important decisions you make when starting a business is selecting the right organizational structure. The first question you have to ask yourself is “to incorporate or not to incorporate?” Deciding how to classify your business is a complex issue that can have long-standing implications. Because the needs of every business are different, and the law varies from state-to-state, it is worth an hour or two with a knowledgeable attorney and accountant to investigate all of the issues that will affect your decision. There are six key factors organizers of a new business should consider when selecting a legal business structure. They are the (1) liability obligation of the individual owners, (2) income tax obligation of the business and its individual owners, (3) legal filing formalities, (4) financing and liquidity of equity investments, (5) management flexibility and (6) life of the business. It is important to evaluate these factors to determine which structure is best for a business.
Q: What is the difference between subchapter C and S corporation?
The main difference between a subchapter C and an S corporation is the level of corporate tax treatment. A C-corporation is set up as a separate legal entity from its shareholders and owners. In other words, the activities of the C-corporation (sales, expenses, assets, liabilities} are totally separate from the personal activities of the shareholders and owners. Because the activities of the C-corporation are separate, the liabilities of the corporation cannot be transferred to the shareholders. This separation, sometimes called a “corporate shield”, protects the shareholders from the debts and lawsuits of the corporation. A C-corporation pays taxes at the corporate income tax rate. An S-corporation is a special kind of corporation, which allows the protection against liability of a corporation but which pays taxes at the individual tax rate. The S-corporation is incorporated in the same way as the C-corporation, but within a specified time after incorporation, and if certain eligibility requirements are met (corporation must be domestic, not be affiliated with a larger corporate group, have no more than one hundred shareholders, have only one class of stock, not have any corporate or partnership shareholders, and not have any nonresident alien shareholders), an S-corporation can file a form with the Internal Revenue Service to “elect” Subchapter S status. The S-corporation's profits then are taxed at the tax rate of the individuals who own the corporation, instead of the corporate tax rate.
Q: What does it mean to “pierce the corporate veil”?
The corporate veil, known sometimes as corporate shield, is a term used to describe the separation of a corporation from its owners. As a separate entity, a corporation or limited liability company (LLC) is set up to "shield" the owners of the corporation (or members of the LLC) from personal liability for the debts or negligence of the business.
The phrase “piercing the corporate veil” is used to describe the action of a court to hold corporate shareholders personally liable for the debts and liabilities of a corporation. Corporations are separate entities from their shareholders and in normal circumstances, if a corporation is sued, the individual shareholders and officers cannot be brought into the lawsuit. But there are cases in which the corporation's officers and shareholders could be sued for negligence or for debts; the action of bringing in these shareholders to be sued is called "piercing the corporate veil" or "lifting the corporate veil."
Two instances in which the corporate veil might be pierced by the court, allowing shareholders to be sued is in the case of fraud, in which the corporation was found to be a sham that was set up for the purpose of carrying on fraudulent deals or for fraudulent purposes or in the case of egregious and willful activity by corporate shareholders or officers which put corporate gain over public good.
Q: What is the difference between a joint venture and a partnership?
It is quite normal to think of joint venture and partnership business as one. However, they are two entities, which have very clear-cut differences.
Joint venture involves two or more companies joining together in business. In partnership, it is individuals who join together for a combined venture. Two or more companies, which are listed in the stock market often, engage in a joint venture to overcome business competition. While engaging in partnership, the individuals involved become partners in an organization for the sake of profit.
A Joint Venture can be termed as a contractual arrangement between two companies, which aims to undertake a specific task. Whereas a partnership involves an agreement between two parties wherein they agree to share the profits as well as take the burden of loss incurred.
In partnership, the persons involved are co-owners of a business venture, aimed at making profit. But in joint venture, it is not just profit that binds the parties together. Joint ventures can be formed for specific purposes. For example, companies may join together and fund for the development of a particular thing that could be of use to their respective business. Normally the companies engage in joint ventures, as sometimes it could be quite expensive for undertaking certain ventures like research and development individually.
While partnership can last for many years till the parties involved have no differences, companies are involved in a joint venture for only a limited period till their goal has been achieved. In a joint venture, the members have come together for some specific purpose, while in a partnership the members have joined together for only business.
Q: What is a non-profit corporation?
The difference between nonprofit and for-profit corporations is that nonprofits use their profits to advance their programs, while for-profits distribute their profits to their owners or stockholders. Nonprofit organizations fall into five main categories:
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Trade associations, organized to advance a group of people who have a profession in common (for example, Association of Research Librarians, International Association of Meeting Planners). This group also includes chambers of commerce and unions.
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Charitable organizations, which must generally demonstrate a benevolent component. This is a diverse category, including religious groups, museums, environmental and educational organizations, libraries, and the many helping groups referred to as "charities." They are also referred to as 501 (c)(3) organizations, because that is the number of the IRS Code under which they are described.
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Social clubs, such as country clubs and fraternal organizations.
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Governmental groups, including city, county, state, and federal agencies.
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Political groups, generally organized to promote certain policies, issues, or candidates for political office.
Q: How often should a corporation hold meetings and update its minutes?
As the owner of a corporation, you are required to hold annual shareholders' and directors' meetings, maintain corporate records, and document major corporate decisions. If you neglect these formalities and your business runs into legal trouble, a court may decide to disregard your corporate status -- and hold you personally responsible for the corporation's debts. While you don't need to document routine business decisions, you should prepare written minutes or consent resolutions for events or decisions that require formal board of director or shareholder participation. These include, but are not limited to, the following:
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the proceedings of annual meetings of directors and shareholders
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the issuance of stock to new or existing shareholders
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the purchase of real property
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the approval of a long-term lease
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the authorization of a substantial loan or line of credit
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the adoption of a stock option or retirement plan, and
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the making of important federal or state tax decisions.
If you document important corporate decisions, whether through formal written minutes or less formal consent resolutions, you'll protect your limited liability status -- and you'll have solid documentation if key decisions are later questioned by creditors, the courts, or the IRS. In addition, keeping good corporate records allows you to note the reasons for making critical decisions; this can head off controversy and dissension in your ranks in the future.
Q: Is it a good idea to have a Buy-Sell Agreement?
Every corporation with more than one shareholder should seriously consider a buy-sell, or buyout agreement the moment the business is formed or as soon after that as possible. A buy-sell, or buyout agreement, protects the shareholders when one wants to leave the company (and also protects the shareholder who is leaving). If a shareholder wants out of the business, wants to retire, wants to sell his shares to someone else, goes through a divorce, or passes away, a buy-sell agreement, or buyout agreement, acts as a sort of "premarital agreement" to protect everyone's interests, setting the price and terms for a buyout.
Q: What is involved in a corporate merger?
A corporate merger is the decision of two incorporated entities to reorganize their two separate organizations into a single entity. Mergers of this type usually involve businesses that offer similar or at least complementary products, with an eye toward increasing the amount of market share they jointly hold by combining their resources under one corporate umbrella. As with most merger situations, a corporation merger can take on several forms, and must comply with any regulations that are in force in the state where the merger is recorded and the new corporate entity is incorporated.
Before a corporate merger can commence, the shareholders as well as the governing board of each company involved must agree to the terms of the proposed merger. This often involves the formulation of plans that identify the operating structure for the proposed combined company, as well as identifying the benefits that will be derived from the union. Generally, shareholders must receive some sort of assurance that their shares will convert with ease and will retain their value before granting their assent. Once all parties concerned are in agreement, the actual execution of the merger begins.
Q: How long may a foreign national stay and work in the United States with an H-1B Visa?
The United States H-1B visa is a non-immigrant visa, which allows a United States company to employ a foreign individual for up to six (6) years, subject to annual numerical limits as set out more fully below. Individuals can not apply for an H-1B visa to allow them to work in the United States. The employer must petition for entry of the employee and may begin applying for the H-1B visa six months before the actual start date of the visa. The initial visa may be granted for up to three (3) years. It may then be extended, in the first instance for up to two (2) further years, and eventually for one (1) further year, to a maximum of six (6) years. Those wishing to remain in the United States for more than six (6) years may, while still in the United States on an H-1B visa, apply for permanent residence (the "green card"). If such employees do not gain permanent residence when the six (6) year period runs out, they must live outside the United States for at least one (1) year before an application is made for them to enter on an H or an L visa.
