Business Associations/Corporations Outline

Considerations when choosing and entity (top is most important)
Ethics (ethical considerations) (overlaps w/ lawyer as business person)
Conflicts (could be conflict w/ current employer or between the owners)
Want to always check for conflicts first
Competence (can you adequately perform as attorney)
Lawyer as Business Person (overlaps w/ ethics)
Scope of engagement
What does lawyer need to do
How long/duration
Might have to hire expert in another legal area
Are you competent to handle this matter
What authority do you have on behalf of business
How will you get paid? (stock, interest, salary, cash)
What do you charge for services?
Agreements Among Owners
Who is liable?
Dissolution—what happens then
Duties/roles/compensation between owners
Fiduciary duties
Ultimate authority (who has it)—management decisions
Profits/losses—how are owners sharing them
Business/Marketing Plan
Location—local/regional/global
Financing (often breaks into 2 categories)
Debt
Equity
Employee’s of business or salaried (benefits)—authority
Marketing/advertising
Product production
Timeline for getting things done (where heading in future)
o   Feasibility (barriers to entry—can they really do this)
o   Budget
o   Physical plant (buy/rent/build)
·         Business Relationship to 3rd Parties
o   Who’s liable
o   Other interested parties in business (are there any)
o   Product production
·         Compliance w/ laws/Agreements
o   Type of company?
o   Do they need licenses
o   Do they need to form an entity at all?
o   Patents/copyrights (intellectual property)
o   Contracts (types)
o   OHSA, environmental laws (compliance w/ or subject to?)
o   UCC
o   Securities regulations
·         Record Keeping
o   To avoid potential conflicts w/ their current employer
o   Retention and destruction policy of business records
·         Do you need other professions? (need other lawyers who are experts in other areas)
o   Licenses/permits/regulatory issues
o   Patents v. copyrights (IP-intellectual property)
o   Insurance
·         Tax Planning
o   Circumstances of parties involved
·         Succession & Estate Planning issues
o   Personal relationships
o   Future (bring kids into business)
o   Estate planning w/in compliance w/ peoples current plans
·         Buy/sell agreements between owners
 
How do you create an entity—considerations that must be made
·         Incorporated v. unincorporated
o   Incorporated—formed under a corporate statute
o   Unincorporated—not formed under a corporate statute, so must be some other form of entity
§ Ex: LP, LLP, LLLP, LLC, etc.
§ Reasons not to incorporate
·         Many new entity options
·         Tax purposes
o   C-corporations as subject to double taxation
§ Corporation taxed on income
§ Shareholders taxed on dividends
·         Closely held v. Publicly held
o   Closely held—no market for buying an interest in the entity
§ Generally not as many owners
§ Many states have statutory close corporations
·         Have to make special filing
·         Can be restricted in number of owners
o   Publicly held—traded in some way (generally traded in stock market)
·         Federal v. State income classifications
o   What is the entity for state law v. federal law purposes
§ Federal tax purposes
·         2 or more owners—partnership, corporation, or S-corporation
·         1 owner and unincorporated—disregarded entity or C or S-corporation
o   C-corps—subject to double taxation
o   S-corps & partnerships—considered to be flow-through entities—only pay 1 tax
§ Entity itself does not pay income tax
o   Prior to 1977 there were statutes stating if met certain # of corp characteristics, you were corp for fed tax purposes
§ IRS came up w/ check the box regulations:
·         If you were corp for state law purpose, you were for fed tax purpose
·         If unincorp, you get to choose as long as you are consistent
o   Exceptions:
§ Partnership if 2 owners
§ 1 owner—disregarded entity
§ if unincorp and want to be corp for fed tax purpose, you must make certain elections
§ no LLC classification for fed tax purposes
·         General Entity Information and definitions
o   Default Rules: (aka Gap fillers)—“unless you agree otherwise, this is what you are”
§ Worried that people wouldn’t always agree, or remember to include provision
§ Default rules are freedom of contract principle—whenever it says “unless agreed otherwise,” you are free to agree otherwise
o   State business organization statutes generally govern how entities are formed, etc.
§ Sometimes overridden by Fed law—Ex: securities and exchange commission (SEC)
§ MO statutes follow pretty closely to uniform partnership act of 1914
o   Limited Liability: agree to put certain assets at risk, generally means you cut off vicarious liability
§ Vicarious Liability: liability for actions of other partners
§ Most common ways to liable anyway:
·         Closely Held Corps—fairly easy for directors and officers to be personally liable
o   Ex: personal guarantee: contract away liability protection—agree to be personally liable
·         Own wrong doing
o   Ex: if you commit a tort personally liable, but wont be vicariously liable for other partners torts
·         Piercing Corporate Veil: something about way entity is set up allows the court to look through the “corporate shield”—generally special situation
·         Federal statute preempts on certain things for liability
o   Ex: federal withholding taxes (taxes taken out of employee paychecks to pay federal income taxes)
 
Agency Law (a lot derived from case law)
·         Business Organization Statutes—tell who has authority for an organization
·         Types of Authority:
o   Actual Authority: asks what the agreement is between the agent and the principle
§ Barton v. Snellson
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