- What is business law?
- What is a sole proprietorship?
- What is involved in properly setting up and maintaining your
business as a corporation?
- What is a Limited Liability Company and how is it set up?
- How often should a corporation hold meetings and update its
minutes?
- Is it a good idea to have a Buy-Sell Agreement for a corporation?
- Should I form an S-Corp, C-Corp or LLC?
- I'm worried about "training the competition." Is
there anything I can do to prevent this? I've heard that non-competition agreements
aren't enforceable. Is that true?
- What is “indemnification”?
1. What is business law?
Generally speaking, business law is the rules, statutes, codes, and regulations
that govern commercial relationships and provide a legal framework within which
businesses may be conducted and managed. Business law is highly diverse and
includes areas such as:
• banking and finance law,
• business formation and organization,
• business negotiations,
• business planning,
• transactional business law,
• employment law
• intellectual property
• acquisition,
• merger,
• divestiture,
• sale of businesses, and
• business litigation.
2. What is a sole proprietorship?
A Sole Proprietorship is an individual doing business for his own account and
is the simplest form of business. The sole proprietor may do business under
his name or an assumed name. The sole proprietorship is the most widely used
mode of business organization for small ventures with limited capital requirements
and low growth expectations. The main downside to the sole proprietorship is
unlimited liability. If the business becomes unable to pay its debts or suffers
a loss, the owner will be liable for the entire amount, and creditors of the
business can reach the owner's personal assets to satisfy the debts.
3. What is involved in properly setting up and
maintaining your business as a corporation?
To properly set up a corporation, you should consult with an experienced business
attorney and a certified public accountant to set up an appropriate legal and
tax structure for your venture. The attorney will make sure your corporate name
is available, prepare and file Articles of Incorporation with the Secretary
of State, and hold an organizational meeting where you will elect directors
and officers, issue stock, and take other needed actions. Either the attorney
or the CPA will request an employer identification number and, if necessary,
make the S-Election with the IRS.
4. What is a Limited Liability Company and how
is it set up?
Your business may have the flexibility of a partnership and the legal protection
of a corporation if it is a limited liability company ("LLC"). The
LLC uses an operating agreement, similar to a partnership agreement, to control
business, financial and tax provisions. Through its provisions, the operating
agreement determines whether the LLC is taxed as a partnership or corporation.
LLCS are owned by “Members” and run by the “Managers.”
They are not required by law to hold annual meetings, although we believe this
is a good idea. LLCs may have certificates of membership interests (similar
to stock certificates) and company minute books, but neither of these are required
by law. North Carolina permits single-member LLCs.
5. How often should a corporation hold meetings
and update its minutes?
At a minimum, corporations are required by law to hold annual shareholders
meetings and directors meetings. Any time a corporation undertakes a major change
or transaction, it should pass resolutions approving the actions. Failure to
adhere to the formality of regular meetings can jeopardize the corporation's
ability to shield its officers, directors and shareholders from personal liability
for the corporation's actions.
6. Is it a good idea to have a Buy-Sell Agreement
for a corporation?
If a corporation has more than one shareholder, a buy-sell agreement is recommended.
A shareholder's death, divorce, disability or termination of employment can
create serious problems for a corporation and its other shareholders. A buy-sell
agreement can help minimize these problems by describing what will happen in
those events. Similar provisions are recommended for partnership agreements
and operating agreements for limited liability companies.
7. Should I form an S-Corp, C-Corp or LLC?
C corporations get taxed on profits at corporate rates, and dividends are
taxed to the shareholders. S-Corps and LLCs (when approved by IRS, which approval
is generally not hard to get) are taxed at personal rates, form 1040, Schedule
C. C-Corps and S-Corps are subject to formal requirements, e.g., record-keeping,
annual reports, board of director meetings, etc. LLCs are exempt from most of
these requirements.
S-Corps are limited to 75 shareholders, to domestic capitalization, and citizens
or resident aliens. Generally, these shareholders must be natural persons. LLCs
are not so limited, and generally provide more accounting flexibility than either
C or S corporations.
Bottom line, check your accountant, preferably a CPA, and your attorney for
advice in your particular situation.
8. I'm worried about "training the competition."
Is there anything I can do to prevent this? I've heard that non-competition
agreements aren't enforceable. Is that true?
North Carolina courts take a dim view of these agreements because they can
limit an employee's ability to earn a living. These agreements, however, are
enforceable where there is a limitation on both the length of the non-competion
period and the geographic area of non-competition. Often, an employer’s
needs can be met with a Confidentiality Agreement instead of a Noncompete Agreement.
9. What is “indemnification”?
Indemnification is the promise to secure someone else against loss or damage.
Many commercial agreements allocate the risks between parties through indemnification
provisions. For example, a designer of a product will indemnify the manufacturer
against any claims that the product was negligently designed. The word is often
used in the computer industry in regard to users of a product, such as a software
program, who are protected by the manufacturer from any legal disputes or damages
that the manufacturer takes on in regard to the product.
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