 |
 |
|
 |
|
 |
|
|
|
|
|
|
|
| 1. Why is it important to adhere to the “corporate formalities”? |
| |
Disregarding corporate formalities may result in loss of the liability shield. Mere formation and conduct of business through a LLC or corporation does not necessarily limit personal liability. Under certain circumstances, members of LLCs or shareholders of corporations who ignore the separation between the individual and the company can be held personally liable for the obligations of the LLC or corporation, as the case may be. LLCs are so easy to set up, that often times the LLC member(s) will fail to sign an operating agreement, keep separate books and records, and do business through the LLC checkbook and maintain stationery and signage reflecting the LLC name. “Piercing the corporate veil” of an LLC or corporation is easier with smaller or inadequately capitalized companies. Clients should do everything possible to adhere to the formalities and keep the business separate from the individual. |
| 2. What is a buy-sell agreement? |
| |
A buy-sell agreement is an agreement between the owners of a business or between the owners of the business and the entity to purchase and sell the business a price determined by the agreement. The buy-sell agreement can prevent others from acquiring an interest in the entity, reduce the value of the ownership interest by imposing restrictions on transfers, make for a smooth transition of the control of the company and provide a method of funding the buy-out of the withdrawing member. A buy-sell often contemplates the purchase of insurance to fund the purchase of an ownership interest. |
| 3. What are the types of business organizations available to me? |
| |
Several. Depending on your situation, and what you are attempting to achieve, you may consider the following entities: Stock Corporation (shareholders; profit-making entities); Nonstock Corporations (nonprofit, no part of corporate income distributable to its officers and directors), C Corporation or S Corporation ( C is taxed as a separate entity and S is a pass-through entity to shareholders); Professional Service Corporations (for licensed professionals); Partnerships (passing tax liability through to partners), Limited Liability Companies (can be pass-though, like a partnership with limited liability protection) and Sole Proprietor (business conducted by an individual as sole proprietor). |
|
|
|
|
