BUSINESS LAW FAQs

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Commercial law or business law is the body of law that governs businesses and commercial transactions.

Some of the main considerations in determining what type of business for to chose include: -Taxes -Liability issues -How you will be raising capital -The management of the business

When starting a new business, several key decisions must be made regarding the organization, financing, management, and operation of the business. First, you should do your homework – research your business idea and prepare a business plan. Once you’ve decided to go ahead with your idea, you will need to determine the legal structure of your business (whether a sole proprietorship, partnership, LLC, corporation, non-profit, or a cooperative) and obtain financing for the start-up costs. After your business is formed, it must be registered with your state or local government – typically through filing a fictitious business name, or “Doing Business As,” statement – and obtain any permits and licenses required by your city or county. Certain industries require additional permits, such as a seller’s permit, or a license to sell alcohol. Finally, businesses must register for state and local taxes, typically including obtaining a tax identification number from the IRS. Upon formation of the business, then it is usually recommended the business establish policies and procedures for employment, operations, record keeping, and other important matters.

That depends on what type of business you own. Many businesses do not need any special licenses or permits in order to operate their businesses. However, some businesses that engage in certain trades or professions may need special licenses. For example, certain professionals such as doctors, lawyers, teachers and accountants need special licenses, issued by appropriate state agencies, in order to engage in the practice of their profession. Also, some businesses that engage in certain types of commerce such as alcohol or firearms may need special licenses in order to operate.

To form a limited liability company, the following simple steps are required:
1. Select a name in accordance with the state’s rules regarding limited liability company names. Certain words may be restricted from being used in an LLC name per your state’s laws.
2. Prepare and file the required paperwork with the Secretary of State in the state where the LLC is to be formed. Typically, Articles of Organization must be filed, but in some states the wording is slightly different. In some states, additional paperwork may need to be filed.
3. Pay the required filing fee.
4. Prepare an LLC Operating Agreement. This is the document that sets forth the rights and responsibilities of the LLC members. LLC’s can be “member-managed” or “manager-managed,” which is typically set forth in the Operating Agreement.
5. Hold the first meeting of the members to authorize the members (or a manager, if the LLC is manager-managed) to take actions necessary to start-up the business. Typically, the first orders of business include setting up bank accounts, setting up a record-keeping system, obtaining licenses and permits from local government offices, obtaining appropriate insurance for the business, leasing or purchasing offices and equipment, hiring employees, etc. As time goes on, it is important that the LLC conduct business in accordance with the Operating Agreement and state law requirements. Meetings should be held and important business documented. While an LLC does not typically need to follow as many formalities as a corporation, it is important that the members/managers conduct business with sufficient formality so as not to jeopardize the integrity of the entity’s limited liability status.

A corporation is a legal entity with a corporate charter from a state. To form a corporation, the following simple steps are required:
1. Select a name for your business. State laws restrict certain words or phrases that can be used in your business name – so make sure you check your state’s rules, which are typically available on the Secretary of State website.
2. Prepare and file the required paperwork with the Secretary of State in the state of incorporation. Typically, Articles of Incorporation must be filed, but in some states the wording is slightly different.
3. Pay the required filing fees.
4. Establish the corporate governance by choosing a board of directors and adopt corporate bylaws.
5. Hold the first meeting of the board of directors and authorize the directors and officers to conduct business. Typically, the first orders of business include issuing stock to the owners, setting up bank accounts, setting up a record-keeping system, obtaining licenses and permits from local government offices, obtaining appropriate insurance for the business, leasing or purchasing offices and equipment, hiring employees, etc.
As time goes on, it is important the board of directors, and officers, conduct business in accordance with corporate governance requirements. Meetings must be held at least annually, and usually more regularly, to document that the corporation is conducting business in accordance with state laws

A Limited Liability Partnership (LLP) has many of the same characteristics as a general partnership. However, there is one important advantage to the LLP business model. If a partnership is formed as an LLP then each partner is only personally liable for his or her own negligence or for the negligence of an employee under that partner’s direct supervision. So, if for example, the partners formed an accounting firm and one of the accountants is found guilty of malpractice then only the accountant who committed the malpractice would be personally liable for the damages that incurred as a result of his actions. It is important to note, however, that this limited liability does not extend to business debts which all partners would share in equally regardless of which partner was responsible for incurring the debt.

Corporations with more than one shareholder should seriously consider a buy-sell agreement. 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 providing for an orderly succession in such plans. Similar provisions are recommended for partnership.

Personal liability arising from business obligations can devastate the accumulated wealth of a lifetime of work. Personal liability may extend to business losses, but other obligations may also reach individuals, including:
Damage awards in lawsuits Tax penalties Back wages and benefit payments
Limited liability offered by corporations and other business entities shelters business owners from personal liability. Nonetheless, 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.

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