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Many people believe corporate law only applies to large scale transactions, such as mergers and acquisitions. Despite this notion, corporate law is an actually quite an important field for many companies in the USA – even for small businesses like fashion boutiques, real estate firms and restaurants. It can have a profound impact on business planning, contracts, investments and funding strategies. The decision to do business in a corporate form also determines your risk should any problems or disputes arise later on.
It’s always a good idea to start with recommendations from family, friends and business associates. If you can’t find an attorney through your network of contacts however, online directories can prove to be invaluable tools.
The are numerous benefits to forming a corporation. Here are some of the key advantages:
Limited Liability: The ability to avoid creditors going against your personal property and home is one of the chief benefits of doing business corporately rather than individually or as a partnership.
Raising Capital: If you’re planning going public or raising capital by selling shares of the company, your business needs to be incorporated.
Tax Advantages: There are some significant tax advantages to forming a corporation. Some of the main benefits include the ability to deduct health insurance premiums and avoid Social Security, Workers Comp and Medicare taxes. Also, if the corporate entity meets certain requirements to be a “S-corp” under tax law, you’re able to avoid double taxation and are only taxed at the shareholder level. For more information on the types of tax advantages you’ll receive, you should consult with a local attorney who specializes in corporate law. Your consultation may include tax matters, if the attorney is experienced in that field, or collaboration with a tax professional.
Formation begins with the “articles of incorporation,” which is filed with your state’s secretary of state or business organizations office. Depending on your jurisdiction, this filing represents a small cost of doing business.
You must choose a name, but the selection of it has legal limits. Specifically, your business cannot use someone else’s name or one that implies that your business is affiliated with a governmental agency. Part of the services of a corporate attorney involve helping you avoid these pitfalls and even reserving the name you want to use so others can’t claim it.
The articles of incorporation will also have information for the public on the identity of the person that accepts official and legal documents for the entity (the registered agent), the location of offices and the names of the initial officers and directors.
In starting the entity, you will also need a set of corporate bylaws. These lay out a corporation’s purpose, how it will operate, the duties of directors and officers, the rights of shareholders and other details about the conduct of the corporation’s affairs. A top law firm that specializes in corporate law can offer recommended provisions that best fit the size of your entity and the likely board of directors.
One of the main reasons corporations are formed is so that the owners and shareholders won’t be held personally liable for debts should the company be unable to pay them back. However, in some cases courts can ignore the limited liability status and will hold them personally liable. This is called “piercing the corporate veil.”
If you are a creditor pursuing this type of litigation, you may need a corporate lawyer with expert knowledge. This may become necessary if the corporate entity does not have enough property against which you can pursue the debt or files bankruptcy.
Grounds for piercing the corporate veil include:
In many cases, all of the business property is owned by the individual owners of the business. With the right legal professional nearest you to handle collections, you may be able to collect fees for your own goods and services and other money owed you.
Management and shareholders, especially in a small business, may have disagreements about control of the business or its finances. Some of these center on whether particular business transactions are authorized, while others may involve the legitimacy of votes on the election of directors or shareholders and other matters.
With the presence of a corporate attorney at meetings, you might be able to avoid these questions. Such a lawyer may offer reasonable opinions on matters such as a quorum or how to treat directors or shareholders abstaining from voting on certain matters.
Shareholders may accuse officers and directors of malfeasance. In these types of cases, a top corporate lawyer may afford representation in litigation known as shareholder derivative suits. In these suits, shareholders sue on behalf of the corporate entity often to recover unfair gains realized by one of the insiders. One scenario involves that of the self-dealing director, in which the director causes the entity to purchase items at inflated prices from another company he or she owns. A director also violates his or her duty to the company by appropriating a corporate opportunity for his or her own benefit. Should the shareholders be successful, the recovery does not go to them. Instead, any funds lost are put back into their corporate coffers.
Bringing shareholder derivative litigation can have practical barriers. Namely, a majority of the shares represented would have to authorize such an action. In closely-held corporate entities, the majority shareholders may be the ones engaged in the wrongdoing. With the number of documents and the complexity of the issues, a shareholder derivative suit may come with a high cost.
Sometimes, those involved in the entity can become deadlocked or one shareholder is so oppressed by the others that continuing the corporate relationship is not feasible.
For these situations, shareholders may bring lawsuits to dissolve the corporate entity. Having a corporate attorney in your area who specializes in dissolution can help you decide whether affairs have reached the point of deadlock or whether you have other ways of securing your rights in the entity.
One of these is exercising “appraisal rights” if you dissent from a major act of the corporation, such as voluntary dissolution or other major change in corporate structure. In appraisal litigation, experts will state what they believe to be the reasonable value of the shares of the dissenters. The court will then determine how much the corporate entity must pay the dissenting shareholders.
Corporate existence can also end by a voluntary act of the shareholders. For this, a local attorney can prepare an “articles of dissolution.” This document signifies that the corporations life has ceased. If you and other shareholders wish to part ways, you might find the voluntary much more affordable than a lawsuit — even if you have good grounds to bring one.
Ending the corporate existence, however, does not mean all of the issues disappear. Prior to dissolution, you’ll need to go through a process known as “winding up.” The business liquidates the assets, pays the creditors and, if anything remains, distributes the rest to the shareholders. If a disagreement arises over dividing remaining proceeds, a corporate law firm can assist in facilitating a settlement to avoid a protracted lawsuit with great expense.
Do not confuse Chapter 11 bankruptcy with dissolution. The former remedy does not end the corporation, but allows it to readjust its debts. A local bankruptcy attorney can help you determine if your company needs this avenue and will prepare the necessary papers and reorganization plan.
When searching for legal counsel, it’s always a good idea to start with recommendations from family, friends and business associates. If you can’t find an attorney through your network of contacts however, online directories and websites can be incredibly helpful.
If you need the help of a corporate law firm near you, searching online is a viable option. There are a number of online directory websites that will provide ratings and reviews from previous clients. Pay extra attention to this, as it often reveals the attention to detail employed by the law firm. This is especially important because the practice of corporate law involves many documents that must be carefully prepared so that parties can clearly understand their rights.
When contacting a lawyer, ask if they offer a free consultation. Even if the answer is “no,” you can get great advice on the liability or tax consequences of incorporating your business and learn how to stay on top of potential threats. Should court action become necessary, determine if the law firm’s representation comes at a reasonable cost. The best advice will caution you against unnecessarily pulling time and money away from your business.