BUSINESS LAWThis page is designed to give you an overview of the basic tenets of business law. More than coincidentally, these are the areas of practice in which we have experience or specific knowledge, and which we would be pleased to represent you. Please choose one of the areas of law listed below, to jump to that section: Business LawBusiness law involves the formation, operation, and dissolution of various forms of businesses permitted in Texas. The main types of businesses are sole proprietorships, general partnerships, limited liability partnerships, corporations, and limited liability companies. Each type has advantages and disadvantages. The Law Offices of Carole A. Faulkner will help you select the form of business most appropriate to your individual circumstances. Sole ProprietorshipsFavored by many because of low startup and administrative costs. No paperwork has to be filed to establish the business, although local permits may be needed. Decision making is simple: the owner of the business decides. An additional benefit is that the owner will typically have to prepare only one tax return. A disadvantage is that the owner is personally liable for all debts incurred by the business. There is no protection of the owner's personal assets.PartnershipsGenerally, a partnership is a business association formed by two or more people. Partnerships can be further classified into General Partnerships or Limited Partnerships.General Partnerships can be formed by oral agreement, though for clarity and enforcement reasons they should be expressed in writing. No filing with the Secretary of State is necessary. Each partner can be sued individually or jointly for all debts of the partnership. The personal assets of the general partners receive no protection from creditors. Limited Partnerships are created by filing a charter with the Secretary of State. The cost of filing, of course, adds to the startup costs. The partnership is composed of general partners and one or more limited partners who operate as silent partners. The limited partners typically contribute capital but do not participate in the decision making process. A limited partner's liability is limited to the amount of money contributed, and his assets are protected from creditors. General partners, by contrast, make the day-to-day decisions of the partnership. Their liability is not limited, and creditors of the limited partnership may pursue general partner's personal assets. A limited partnership must file an informational tax return, but no tax is paid directly by the partnership. CorporationsCorporations are formed when articles of organization are filed with the Secretary of State. A corporation is an entity much like a person in that it can sue or be sued in their own name. Corporations may also own property in its own name. The owners of the corporation are called shareholders and their liability is limited to the amount of their investment. A Board of Directors, elected by the shareholders, manages the affairs of the corporation. Officers of the corporation run the day-to-day activities. A corporation can be "closely held" meaning it is owned by only a few people or it can have shares sold on the recognized markets, and may be owned by millions of different shareholders. For tax purposes, corporations are divided into Subchapter S Corporations and C Corporations. In order to qualify for tax treatment as a Subchapter S corporation, there must be fewer than 35 shareholders, all of whom must be individuals. It is up to the individual corporation to decide whether or not they wish to be considered a Sub-S Corp. Treatment as a Subs Corp. is considered an elective status. In electing Subs treatment, a corporation files an informational tax return but income is divided among the shareholders and is included on their individual tax returns. A C corporation pays taxes based on corporate earnings.Close CorporationA Close Corporation is formed the same as a regular corporation, except that the shareholders determine that they want to run the corporation without a Board of Directors. This decisions must be unanimous. The Articles of Incorporation which are filed with the Secretary of State indicate that the corporation is "Closed" and will be run under a Shareholder's Agreement. The Shareholder's Agreement sets forth the duties, responsibilities and power of each person who will run the corporation. The shares of stock which are issued by a closed corporation indicates on the back of the certificate that it is a "closed corporation and may be run under a shareholder's agreement". A Closed Corporation gives the shareholder's the protection of a corporation without the formality requirements of a regular corporation.LIMITED LIABILITY COMPANIESA Limited Liability Company (LLC) is a mixture of a subchapter S corporation and a limited partnership. The owners are called members rather than shareholders and it is run by managers rather than officers or directors The Texas Legislature recently created a new type of business entity called a limited liability company (LLC), pursuant to the Texas Limited Liability Company Act. It has the characteristics and benefits of both a corporation and a limited partnership. A LLC may engage in any lawful business unless the business is for a limited purpose which is limited in its articles of organization or the business is governed by another corporate law which prohibits the entity from doing business as a LLC. A LLC may have the powers of a corporation under the Texas Business Corporations Act. A LLC is organized and structured much like a standard Texas corporation. It is formed by the preparation and filing of Articles of Organization by an organizer. This is similar to filing Articles of Incorporation by an incorporator for a Texas corporation. LLC name requirementsA LLC's name must contain the word "limited", the abbreviation "Ltd." or "L.C". It may be preferable to use the word L.C. to avoid confusion with limited partnerships or registered limited liability partnerships. A LLC may also do business under an assumed name in which case it must file an assumed name certificate. LLC's are owned by members as compared to shareholders in a corporation. A member may be any person, whether (1) partnerships,(2) limited partnerships,(3) limited liability companies,(4) foreign limited liability companies,(5) trusts, (6) estates (7) corporations, (8) custodians,(9) trustees,(10) executors, etc.. Members may be divided into one or more classes or groups with differing rights, powers, and duties. Its owners or investors are called members rather than shareholders. It may be evidenced by a membership certificate similar to a stock certificate. The stock may be subject to a contract and have restrictions, just like corporate stock. This way you can control the ownership of the LLC. Members, like shareholders in a corporation, do not own any specific property in the LLC; all of the assets in a LLC are owned by and in the name of the LLC. Tax BenefitsPlease contact your CPA for information on these benifits. Tax ConcernsPlease see your CPA for information on these benifits. Management & Personal LiabilityOne of the most significant features of the act, is how LLC's are managed. Many investors have liked the limited partnership form of business because they can invest money in a business and not be liable for the business' debts or failure. One drawback of a limited partnership is that the limited partners cannot direct the partnership's day to day affairs and retain their limited liability. Now an investor can invest in a LLC and become a member or a manager. As a member or manager, the investor can have direct input and manage the LLC's day to day affairs without assuming personal liability for the company's debts. Both members and managers are not liable for the LLC's debts, including but not limited to, a judgment, a decree, or an order of the court against the LLC. The articles of organization must specify how the LLC will be managed. The regulations, if adopted, (like a corporation's bylaws) should state how the LLC will be managed. Regulations may reserve the right to manage the LLC to the members, in whole or in part, or delegate the same to managers. Managers may be given the powers and duties that directors and officers would have in a corporation. Therefore, a LLC is managed by its officers, managers or manager in the same or similar fashion as a corporation is managed by its officers and directors. A LLC does not require its managers to be natural persons. A LLC uses regulations to provide its rules. The regulations should be in writing. A corporation is governed by its bylaws. LLC regulations, although in form similar to corporate bylaws, are in substance, more like a partnership agreement. Managers are elected annually by the members, they do not need to be residents of Texas or members of the LLC. The act also provides that managers may designate one or more persons who are not managers to be officers of the LLC. The officers may be given the powers as stated in the regulations. ARTICLES OF ORGANIZATIONThe LLC's articles of organization are filed with the Secretary of State's office by an organizer. A corporation files articles of incorporation signed by an incorporator. An organizer is the person who signs the articles of organization and files the same with the Secretary of State's Office. The Articles of organization are similar to Articles of Incorporation and must contain the following:
Contract LawA contract is an agreement between parties.The glue that binds parties to contracts is called "consideration." It's what you get in exchange for performing your side of the bargain. A contract can fail if no consideration has been exchanged between the parties. A contract entered into as a joke, by a minor, or under force of threat is probably invalid. Similarly, one cannot enter into a contract for illegal services. For example, a contract between two parties to murder a third will not be enforced by a Court.Not all contracts must be written.A deal reached orally is sufficient to bind the parties. A document is preferred
because the terms are easier to prove if litigation later develops or if the
parties disagree. Certain contracts, however, must be expressed in writing.
Most notably, a contract to buy or sell land. Consult your lawyer if you're
not sure whether or not you need a written contract. Organizing the LLCIf the articles are approved by the Secretary of State's Office, the LLC will be issued a Certificate of Organization, which is similar to the issuance of a Certificate of Incorporation which is given to a corporation. Thereafter, the LLC must be organized with an initial meeting like a corporation. To complete the organization of the LLC, the members should meet and agree to regulations and reduce the same to writing. This is similar to adopting corporate bylaws. The managers named in the articles of organization may adopt initial regulations for the LLC. The regulations, like a partnership agreement can contain provisions for the regulation and management of the LLC as long as the same are not inconsistent with law or the articles of organization. It is advisable for the members to sign the regulations so they will be bound by contract similar to the way a partner is bound by the partnership agreement. VotingThe LLC's regulations may specify the manner and procedure for voting by the members. This is similar to the voting rights that shareholders have in a corporation. There may be one or more classes of members and the same applies to voting rights. A LLC may have voting and nonvoting members. Distribution of propertyThe regulations should state the manner in which cash or other assets will be distributed. In the absence of a provision in the regulations, the distribution shall be made on a pro rata basis in accordance with the agreed value of the contributions of each member. Transferability of interestsA member may sell or assign his or her membership interest much like stock certificate. The assignment does not give the assignee or purchaser the ability to exercise the rights or power of a member. An assignment simply entitles the recipient to take the distributions that the assignor was entitled to. One can only become a member of a LLC on the consent of all other members in the company. Of course, the regulations may provide for a majority vote. New membersAfter a LLC has been organized a person may become a new member pursuant to the terms of the regulations. In the absence of regulations, a person can only become a member of the LLC by unanimous agreement. One can only become a member of a LLC upon the consent of all the other members in the company. Of course the regulations may provide for a majority vote. Registered agents & officesLLC's are required to maintain registered offices and agents like corporations. The registered agent accepts important documents, notices, and filings such as a summons in a lawsuit. A member, manager or nonmember/manager may be the registered agent. Amendment and mergersThe articles of organization and regulations may be amended (just as corporations). Established and existing businesses and corporations may be merged into or converted to a LLC, however, this may constitute a dissolution of the corporation for tax purposes, therefore, you should have the decision reviewed by competent tax counsel prior to making the decision. DissolutionA LLC may be dissolved as follows: 1. As stated in the articles of organization or in the regulations,A LLC may continue its existence if all of the remaining members vote to continue the business.
Some special factors to consider before forming a LLC are as follows:
Most of these concerns are becoming minimized since many other states are enacting LLC legislation. ConclusionLLC's are unique and provide some interesting advantages over both corporations and partnerships. As you know general partners, including a general partner in a limited partnership have unlimited liability. Investors and business persons wanted to avoid the double taxation that can occur when one does business as a corporation, in the past, people have chosen partnerships for their tax advantages. Now, most everything to be done in a business can be done in a corporation or a partnership, can be done in a LLC. Copyright:Copyright is a form of protection provided to the authors of "original works of authorship" including, literary work, dramatic, musical, artistic, and certain other intellectual works, both published and unpublished. The 1976 Copyright Act generally gives the owner of the copyright exclusive right to reproduce the copyrighted work, to prepare derivative works, to distribute copies or phone records of the copyrighted work, to perform the copyrighted work publicly, or to display the copyrighted work publicly. The copyright protects the form of expression rather than the subject matter of the writing. It is created at the same time the original work is created. No filing is required, but it is inexpensive and may entitle you to rights and protection if your copyright is infringed upon.
Trademarks:A trademark is a word , name, symbol or other device which is used in trade with goods to identify and indicate the source of the goods and further to distinguish them from the goods of others. A service mark is the same as a trademark except that it identifies and distinguishes the source of a service rather than a product. |