Frequently Asked Questions Business Law

Frequently Asked Questions Business Law

What is a business attorney?

Business attorneys help guide businesses through the myriad of state and federal laws that affect its business. They help with all aspects of entity issues (such as forming a corporation or other entity, corporate maintenance, selling additional shares, stock option plans, and dissolution), contracts (drafting, review and negotiation), disputes with third parties, and other issues that affect your business, such as employment issues, protecting intellectual property and regulatory compliance.

What is the difference between a corporation and an LLC?

Although the answer to this is much more complex than a paragraph, in short, although both provide personal asset protection when formed and operated correctly, the corporation has a few more “formalities” than an LLC (such as annual meetings/minutes). However, LLC’s can provide more flexibility in structuring profit allocations.

Do I need to file for a Fictitious Business Name?

You only need a Fictitious Business Name statement if you are operating under any name other than your legal name. For example, if your corporate name is ABC Company, Inc., but you market and promote yourself as the XYZ Company, then you would need to file a Fictitious Business Name State.

What is the difference between a C corporation and an S corporation?

Operationally, the two corporations are the same. The only difference is how each entity is taxed. A C corporation is subject to the double taxation, where the corporation is taxed once on its profits, and then if any shareholder dividends are issued, the shareholders are then taxed on receipt of those dividends (even though that money has already been taxed once on the corporate level).

With an S corporation, however, all of the profits and losses of the corporation flow down to the shareholder level where the money is only taxed once. Not every corporation can qualify to be an S corporation. For example, the corporation must has less than 100 shareholders, it must only have one class of stock (i.e., you cannot have common and preferred shares), and, generally speaking, every shareholder must be an individual or qualified trust (no entity ownership). There are additional rules and restrictions that apply.

What is a professional corporation?

A professional corporation is formed almost identically to standard corporation, but due to the nature of the professional services to be rendered by the corporation, there are limitations on how can be the shareholders, officers and directors of the corporation. Some professions that are required to use a professional corporation include physicians, psychologists, attorneys, chiropractors, dentists, and accountants. Some professional corporations in the medical industry allow related medical professionals to be shareholders (i.e., nurses, licensed marriage and family therapists, licensed optometrists, etc.

How often should the Shareholders for a corporation meet?

Under California law, shareholders must meet at least once per year. They can meet more frequently if issues appropriate for shareholder decision are raised, such as removal of directors, amendment of the Articles of Incorporation, or sale of the assets of the corporation. If all shareholders agree on an issue, they can sign a Unanimous Written Consent in lieu of a meeting.

How often should the Board of Directors for a corporation meet?

The Board of Directors should meet at least annually. However, since the Board of Directors provides guidance on the direction of the corporation, in the early stage of the corporation, it is often appropriate to meet at least quarterly, if not monthly.

Will a corporation really protect my personal assets from business debts?

Yes, if you follow a few simple rules:

  • Form the corporation fully and completely (this means issuing stock for consideration, electing directors, appointing officers, adopting bylaws and filing all required state and federal forms).
  • Adequately capitalize the corporation at its inception.
  • Follow corporate formalities (i.e., holding at least annual shareholder and board of director meetings and documenting those meetings with written minutes)
  • Do not commingle personal assets with business assets. This means keeping separate bank accounts and not paying personal expenses out of the corporate bank account.
  • Do not sign any personal guarantees. This puts you back on the hook personally for corporate debts and obligations.
  • Do not engage in any criminal activity or intentional torts. The corporation does not protect you from an intentional conduct.

Do I need a Buy-Sell Agreement?

Generally speaking, if you have two or more shareholders, then you need a Buy-Sell Agreement. It gives all of the parties to the agreement a way to exit the business, helps control who you are in business with, and provides a way for your heirs to get a reasonable value for your stock in the event of your death.

How do I dissolve a corporation?

To voluntarily dissolve a corporation you first need the vote of at least 50% of the voting shares. This can be done through either a noticed meeting or a written consent. Then, you need to give notice to all creditors (or potential creditors) and any shareholders that did not vote in favor of dissolution of the pending dissolution. Finally, once the business is wound up, debts are provided for, and assets are distributed, the corporation will need to file a Certificate of Dissolution with the Secretary of State. A Certificate of Election to Dissolve is also required if less than 100% of the shareholders voted to initiate voluntary dissolution.