Whether you have an ongoing business or are thinking of starting one, a lawyer can guide and counsel you through all of the issues you will face.
· Create the proper form of business ownership for you
· Review and negotiate your loans, contracts and leases
· Inform you of new developments in the law particular to your field of business
· Tend to your ongoing State law filings and obligations
· Represent you in litigation
· Advise as to labor board, equal opportunity or other agency issues.
Limited Liability Company
In an “LLC”, all members are shielded from liability beyond their investment and if properly structured, will permit pass-through partnership taxation. Members may share in management decisions without risking loss of their limited liability. This hybrid form of business organization shares corporate and limited partnership attributes. It is best used when there are at least a few members and should not be used if you are doing business in a state that does not recognize LLC’s.
General partners can share in the responsibilities of the business. This form of ownership is useful where each partner has a distinct contribution to make. For some people, the most distinct advantage provided by a partnership is that income and losses to the partnership are “passed through” to the partners’ personal tax calculations. The major drawback is that general partners are completely exposed to personal liability.
Limited Liability Partnership
The “LLP” is actually nothing more than a general partnership which has made a statutory election to limit some or almost all of the liability of its partners. The Partners make an election by filing a limited liability registration form with the Secretary of State (R.I.G.L. 7-12-56). This form has some tax benefits while providing some protection from liabilities. Rhode Island’s law protects one partner from the tort liability arising from the acts or omissions of another partner.
In a limited partnership, only the general partner is exposed to personal liability. The limited partners are protected beyond their investment while still getting the benefit of flow through taxation. In order to be considered a limited partner, however, one must give up all say in management. The success of the business often depends on the skill of the general partner.
Often the form of choice, the corporation is characterized by what is known as “corporate attributes”:
· the officers are protected from most liability
· management is centralized and not spread among partners
· interest in the corporation is freely transferable
· continuity of life, even if an officer, director or stockholder leaves or
S Corporation vs. C Corporation
An S corporation permits taxation once on a flow through basis, unlike a “C” corporation where income is taxed at the corporate level and then distributed as salaries or dividends. However, there are size and other restrictions imposed on an “S” corporation.
Comprehensive discussion should be had before your lawyer selects the form best suited to your needs.
Starting your own new business
A careful start-up plan fashioned by our attorneys should minimize your exposure through rough times, and set you on the path of success. If you are planning to start your own business, consider the following:
· It is essential to set the realistic initial capitalization and aim for zero
liability over that amount. In other words, know what you can spend
and set up your limits for the start up period.
· Since you are facing a period of uncertainty, it is inadvisable to
commit to long term obligations; try to negotiate short term leases or
a longer term only with a provision allowing cancellation with notice.
Let your lawyer review your lease for you.
· If you own the space in which your business operates, do not rely on
business profits to pay the mortgage during the start-up phase. A
bad quarter can start a domino effect resulting in the loss of the
business and the property.
· Be very careful how you sign contracts and avoid doing so in your
individual name whenever possible. The goal is to limit recourse to
your business assets only and prevent anyone from looking to your
home or personal bank account in satisfaction of business debts.
· Be sure that you are properly insured, considering business
interruption insurance, all-risk insurance, liability insurance
and disability insurance.
Financing your business
Businesses require infusions of capital at many stages. New ventures or established businesses developing new products or services need funding, usually from institutional lenders. Your lawyer can review your financial needs with you and your accountant. They will negotiate the terms of the loan and review all loan documents. Although you may focus on the amount of the loan and the interest rate, they carefully negotiate terms regarding guarantees, amounts and types of security, cross collateralization, negative covenants and other restrictions found buried in loan documents. See your lawyer before you sign any commitment letter.
Sale or Transfer of Your Business
Every business has a natural life cycle. In addition to helping you start a business and meeting issues such as financing and lease negotiation during the life of your business, your lawyer should be an integral part of the sale or transfer of your business. Should the sale of your business be structured as a stock sale or an asset sale? Will you be paid at the closing table or do you need guarantees and security that you will be paid over the negotiated period of time? your lawyer will work with you in structuring the sale of your business.
Often, a small family-run business is transferred over time to family members instead of being sold to outsiders. We will work with you to structure the transfer and discuss issues such as voting control, discounts for minority ownership and other important issues as you transfer the reins of your business to a new generation.
Businesses often need attorneys to resolve their business disputes. We can work with you in presenting or defending your claims before the Courts of Rhode Island Because of the great expenses and time delays often found in the court system, Alternate Dispute Resolution (“ADR”) has grown in importance. Two forms of ADR are available – arbitration and mediation – and both can be used to reduce the expense and delays of the Court system.
Two parties present their cases before an arbitrator or a panel of arbitrators, who then render a decision. The parties can agree that the arbitrator’s award will be binding and enforceable by a Court. As your attorney, Your lawyer will prepare your case in a similar manner to the way we would present your case before a Court. Your lawyer will proceed through a discovery phase and prepare you for the arbitration hearing.
Mediators, on the other hand, do not make decisions. Mediators, who do not represent either party, work with the parties in a confidential setting, to help them find a resolution to their dispute. By increasing communication, helping the parties develop options and seeking a “win-win” solution, mediation is a form of dispute resolution often favored by parties who need to work together in the future – such as spouses in a divorce and business entities that will need to work together in the future (real estate agents, labor and management, buyers and sellers).
Unlike the binding nature of arbitration, mediation is a voluntary process that is not binding; however, research shows that when parties create their own resolution through mediation, compliance with the decision is greater and party satisfaction is higher. Parties take responsibility for their decisions and don’t leave the decision to judges or juries.