BLOGS   WRITE NEW BLOG   EDIT BLOGS  
RSS
What Is Business Law?
OFFLINE

Posted On 03/19/2012 15:02:56 by tallylawyer

What Is Business Law?

by: Thomas R. Thompson, Esq.

Tom Thompson, Esq

1. What is business law?


Business law and corporate law are broad legal fields which encompass the formation of business entities, their management and legal issues surrounding transactions between each other . Some of the more important areas of corporate law include sales, secured transactions, negotiable instruments, and debtor and creditor law. Business law overlaps, but also includes the formation and management of business entities. An attorney with experience in business and commercial law can help you with all of your questions.


2. I am an entrepreneur looking to start up my business. What business formation should I be looking into?


A business owner must be aware of the primary business organization forms, their characteristics, and the law that governs their management and formation.

A Sole Proprietorship is created when an owner simply begins business under his own name. It is simple and cheap to form and is usually chosen by one-person businesses. The owner owns all of the assets. The owner also has unlimited personal responsibility for business liabilities. The owner is taxed on all income from the business at applicable individual tax rates. The owner may need to register a ficticious name with the Florida Department of State.


A General Partnership is formed when two or more persons carry on as co-owners of a business. Each partner participates in the management, owns the assets, and shares the profits and losses. Each partner is personally liable for business related obligations and are taxed on their individual tax returns.


A Limited Partnership differs from a general partnership in that there is at least one limited partner who contributes capital, but does not have substantial management control. The limited partner is allowed limitation of liability to the extent of their capital contribution to the partnership.


A Limited Liability Company combines elements of partnerships and corporations. LLCs must file articles with the state like a corporation. As in a limited partnership, the owners only risk losing money that has been invested into the LLC and only LLC assets are used to pay its debts. However, an LLC is not a separate taxable entity, and LLC owners report profits and losses in their individual tax returns.


A Corporation is a separate legal and taxable entity. One must comply with statutory formalities to set up a corporation. Barring certain exceptions, the owners of the corporation are protected from the corporation's liabilities and they file their own tax returns.


3. What are the differences between subchapter C and S corporations?


The Internal Revenue Code allows for two different levels of corporate tax treatment. Subchapter C corporations include most large, publicly-held businesses. These corporations face double taxation on their profits if they pay dividends: C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, which are subsequently taxed on the shareholders' individual returns.


Subchapter S corporations must meet certain requirements that allow the business to insulate shareholders from corporate debts but avoid the double taxation imposed by subchapter C. To receive subchapter S treatment, corporations:


  • Must be domestic;
  • Must not be affiliated with a larger corporate group;
  • Must have no more than one hundred shareholders;
  • Must have only one class of stock;
  • Must not have any corporate or partnership shareholders; and
  • Must not have any nonresident alien shareholders.

Additionally, after a business is incorporated, all shareholders must agree to subchapter S treatment prior to electing that option with the Internal Revenue Service. The limitations imposed by the subchapter may affect the transferability and marketability of corporate shares. It would be good to seek advice from an accountant who offers business advice as well as from a qualified attorney as to which entity is best for your situation.


4. What types of legal procedures should corporations maintain?


Once incorporators establish a new business, the named directors must ensure that it maintains its legal status. Depending on the business form, certain legal formalities must be followed for this purpose. Once incorporated, an ongoing business's obligations include:


  • Obtaining federal and state tax identification numbers for the business and filing needed tax returns annually;
  • Issuing shares of stock as required by the articles of incorporation and federal securities law;
  • Establishing and maintaining corporate books and records, including accounting ledgers, shareholder records, and all corporate minutes;
  • Calling and conducting an initial meeting of the board of directors or the shareholders, as required in the articles of incorporation;
  • Conforming all decisions and procedures as set forth by the articles of incorporation;
  • Recording all actions and decisions of the board of directors in the corporate minutes; and
  • Maintaining annual registration with the state government as required by law.

Additionally, some businesses must comply with licensing requirements or regulatory standards to preserve their status. These businesses may need to maintain further records or use special procedures or equipment based on rules for their specific industries.


Most concerning, a failure to abide by corporate obligations and formalities can result in personal liability for directors, officers, or shareholders for business obligations and debts. Because of these harsh consequences the specific legal requirements vary depending on the business.


5. What are the possible consequences of personal liability for business debts and obligations?


Personal liability can devastate the accumulated wealth of a lifetime of work. This form of liability opens the individual to claims for a wide range of business obligations. Most people realize that personal liability may extend to business losses, but other obligations may also reach individuals, including:


  • Damage awards in lawsuits;
  • Tax deficiencies and penalties; and
  • Back wages and benefit payments.

Example: Sam operates a trucking company as a sole proprietor. One of his drivers causes an accident that kills or severely injures several people. If the company's insurance and assets are inadequate to cover the damages awarded in the wrongful death suit, the plaintiffs may try to enforce the judgment against Sam’s personal assets.


The limited liability offered by incorporation shelters business owners from personal liability. Certain types of insurance can also help cover business owners, directors, and officers. However, if an owner or director performs certain personal acts, behaves illegally, or fails to uphold statutory requirements for corporate status, he or she may face personal liability despite the corporate shelter.


6. What is "piercing the corporate veil?"


Sometimes, courts allow injured or aggrieved plaintiffs to receive compensation from corporate officers, directors, or shareholders for damages rather than limiting their recovery to corporate resources. This procedure avoids the usual corporate immunity for organizational wrongdoing, and may be imposed in a variety of situations. The specific criteria for piercing the corporate veil vary somewhat from state to state and may include the following:


  • If a business is indistinguishable from its owners in practical terms, courts will not allow owners to benefit from limited liability.
  • Example: Sam’s Trucking Company and Sam share the same banking account. Sam signs business contracts in his own name. Sam may be liable for breaching a business contract because he and his company are legally indistinct.
  • If a corporation is formed for fraudulent purposes, courts will allow recourse to the owner’s assets
  • If a business fails to follow corporate formalities in areas such as record-keeping and decision-making procedures, a court may impose liability on the individuals controlling the business.

The potential for personal liability encourages businesses to observe legal requirements and to avoid damage to third parties.


7. What if I have further questions?


For almost twenty years, the law firm of Thompson, Crawford & Smiley, located at 1330 Thomasville Road in Tallahassee, has represented and offered advice to business owners on all issues they are usually faced with. We typically offer a free consultation of 30 minutes for new clients. Please call us at 850-386-5777 with your issues on business formation, business transactions, employee management, or liability protection, or visit us on the internet at www.tallahasseetriallawyer.com.


If you have any questions about business law or find yourself in need of more answers contact me for legal information or counsel

Thompson, Crawford & Smiley, P.A.
1330 Thomasville Rd.
Tallahassee, FL 32303

http://www.tallahasseetriallawyer.com/
(850) 386-5777 - phone
(850) 386-8507 - facsimile
tom@tcslawfirm.net

Thompson, Crawford & Smiley, PA
Working for You

Click Here For Past Articles























*** Copyright 2007 to Present © Tallahassee Grapevine ***