Business & Corporation Frequently Asked Questions
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Starting A Business
Should I start my own business?
Most small business owners usually start their business with some initial hesitation. To start and effectively run a business requires much work and dedication. You will be your own most important employee, so an objective appraisal of your strengths and weaknesses is essential. Knowledge of the industry and how it operates in your area, as in the Houston, Texas area, can be critical. A small business attorney in Houston, Harris County, Texas can advise you effectively on the industry practices in business contracts, customary contract negotiation practices, local and state tax issues, employee and employer law, what business entity would be most effective, shareholder rights, corporate law, and a whole host of legal issues that are part of owning and operating a business. In most businesses bad debts can become an issue, and a collection attorney becomes a necessary evil. When a client or a customer fails to pay, every dollar that is not collected is a dollar of profit lost. Metaphorically, that dollar comes straight out of the business owner's wallet. Douglas M. McIntyre can help collect that bad debts in a cost effective manner, often on a contingency fee basis. Bill collectors that only use the phones can often waste time and money, especially on a debtor who is really strained financially. Often such a debtor understands that they do not need to worry about paying that debt until a lawsuit has been filed. Only when a civil litigation attorney or collection lawyer has either sent a demand letter or filed a lawsuit, do they need to consider payment. In Houston, Harris County, Texas acquiring an existing business should begin with hiring an attorney. Purchasing a business always involves a significant financial undertaking. The evaluation of the business should involve an accountant and an attorney. Negotiating the price, and arranging the contractual structure can help save money even years in the future. Contract negotiations should begin after the business entity has been formed. The inclusion of real estate, equipment and machinery, as well as employees, are all important. Covenants not to compete can help retain key employees. Also, a Noncompetition Agreement is must between buyer and seller, for a period of years, within a certain geographical area.
Am I a self-starter?
How well do I get along with a variety of Personalities? How good am I at making decisions? Do I have the physical and emotional stamina to run a business? How well do I plan and organize? Are my attitudes and drive strong enough to maintain motivation? How will the business affect my family? If you can honestly answer these questions in the positive, then starting a small business may be right for you. Relying on people with experience and success in the professional skills needed for the business at hand, is critical. Hiring a good collection attorney, or a good corporate lawyer, as well as tax professionals, can pay dividends. In Houston, Harris County, Texas, Doug McIntyre often deals with considerations of what business entity to choose, that is, whether a corporation, or a Limited Liability Company, or a Limited Liability Partnership, or a plain Partnership, or a Limited Partnership, or just an Assumed Name is best for the protection afforded and costs (read taxes, audit fees, and legal fees) incurred. Self discipline in the operation of the business is also important. The protections offered by corporations, Limited Liability Companies, Limited Liability Partnerships, and Limited Partnerships can be lost if the business entity is not treated with the proper respect for its existence. In other words, if the corporations, Limited Liability Companies, Limited Liability Partnerships, and Limited Partnerships formed by you are operated as though they were your personal "Piggy Bank", then the insulation of your personal assets could be lost. This usually only happens when a large bill goes unpaid, or a creditor somehow become angry enough to sue, and to then spend the money on legal fees to develop a case to show that it would be fair to "pierce the corporate veil", or otherwise avoid the protection that your choice of business entity should afford you. Adequate capitalization at some point is also required. Whether a corporation, Limited Liability Company, Limited Liability Partnership, or Limited Partnership, the amount of money invested should be enough to expect success as commercial venture in that industry.
What business should I choose?
Usually, the best business for you is the one in which you are most skilled and interested. If you are going to spend all that time working, whether it is a corporation, Limited Liability Company, Limited Liability Partnership, or Limited Partnership; having some degree of enjoyment is helpful. As you review your options, you may wish to consult local experts and business persons about the growth potential of various businesses in your area. Matching your background with the local market will increase your chance of success. The choice of the business entity or vehicle, such as corporations, Limited Liability Companies, Limited Liability Partnerships, and Limited Partnerships, should be made only after thoughtful legal advice. And don't be afraid to review this decision periodically.
What is a business plan and why do I need one?
A business plan precisely defines your business, identifies your goals and serves as your firm`s resume. Its basic components include a current and pro-forma balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers and others about your operations and goals. The choice of business entity formed to operate the business is important, whether a corporation, Limited Liability Company, Limited Liability Partnership, or Limited Partnership, there protection and tax implications can effect profits.
What do I need to succeed in a business?
There are four basics of success in small business;(1) Sound management practices.;(2) Industry experience.;(3) Technical support.;(4) Planning ability. Few people start a business with all of these bases covered. Honestly assess your own experience and skills; then look for partners or key employees to compensate for your deficiencies. Do not save foolish money on legal fees, or "over-lawyer" legal matters. Often, in contract negotiations, or acquiring a business, or merging with another business, a legal evaluation early in the process is money well spent. Reviewing or creating essential contracts with the landlord, or key employees or customers is best done at the start. A good business lawyer can help negotiate binding contracts when the parties are "all smiles." Many businesses are precarious, such as those with one or two huge customers, or those with a pending tax or employee issue that is large, or one in a dying industry. High hopes and unrealistic expectations will not pay the bills. Lawyers with business experience, and knowledgeable in the fields of debtor relations and creditors rights can recognize potential problems.
Why do I need to define my business in detail?
It may seem silly to ask yourself, "What business am I really in?" but some owner-managers have gone broke because they never answered that question. One watch store owner realized that most of his time was spent repairing watches while most of his money was spent selling them. He finally decided he was in the repair business and discontinued the sales operations. His profits improved dramatically. An acquisition or merger can help cut costs and increase profits; or it can sink the business. In many instances, the formation of a corporation, Limited Liability Company, Limited Liability Partnership, or Limited Partnership could help protect both the owner and the old company. A corporate transaction lawyer could set up a new entity, either a corporation, Limited Liability Company, Limited Liability Partnership, or Limited Partnership to operate the newly acquired business for a while before folding it into the old one. That way, the value of the business reputation of the old business can be assessed, unless you are already quite familiar with that value.
What about advertising?
How well you plan and execute an advertising program will influence your business growth. Because it is one of the main creators of your business` image, it must be well planned and well budgeted. Money spent on hiring a professional to create an effective advertising strategy is usually money well spent.
Where can I go for help?
The U.S. Small Business Administration has offices in nearly every major city in the country. SBA`s Office of Business Initiatives operates the toll-free Answer Desk at 1-800-8-ASK-SBA, to give callers direct referral to appropriate sources of information. Sponsored by SBA are a variety of counseling, training and information services including the Service Corps of Retired Executives (SCORE), Business Information Centers (BICs) and Small Business Development Centers (SBDC). In addition, procurement center representatives can be found at each major military installation. More than 2,700 chambers of commerce are located throughout the country to provide additional assistance. In Houston, Harris county, Texas the SCORE office is a good choice, especially if you are not as knowledgeable about the business as one of the retired executives they have available.
Do I need a computer?
Small business today faces growing inventory requirements, increased customer expectations, rising costs and intense competition. Computers can provide information that leads to better returns on investment. In addition, a computer with the appropriate software can assist you in most areas of your business. Much "off the shelf" software can help in accounting functions, and even with standard legal needs. Corporations can often be done on the Internet efficiently and correctly. Doug McIntyre often advises clients to do the incorporation themselves on the Internet, but to get legal assistance, that is, a good corporate lawyer, when a partner comes into the picture. If that is at the start, then that a consultation with a corporate or commercial attorney should occur as soon as possible after the business entity is formed. A Shareholder Redemption Agreement, otherwise known as a "Buy Sell Agreement" can be helpful for an exit strategy. Before buying a computer, it is wise to educate yourself on the different types of computers and the types of software that is available to your business. A good starting source is to consult the trade organizations that are connected with your type of business. Internet access can offer a whole lot of information sources that can help you operate more efficiently.
How much money do I need to get started?
Once you have taken care of your building and equipment needs you also must have enough money on hand to cover operating expenses for at least a year. These expenses include your salary as the owner and money to repay your loans. One of the leading causes of business failure is insufficient start-up capital. Consequently, you should work closely with your accountant to estimate your cash flow needs.
Types of Incorporation
What is a Corporation?
The corporation is a separate and distinct legal entity apart from the owners of the business. A corporation can own property, enter into contracts, and conduct business under its own name. It needs resources and investment in order to operate, and the amount of each varies from industry to industry.
What is the organizational structure of an LLC?
The company may be directly by the members, or members may designate a manager. If management is by the members then each member is a manager of the company. Management should be an odd number of members, with expertise in an number of areas.
What are the advantages of a corporation?
A Corporation is a separate legal entity with its own identity separate and apart from its shareholders (owners). As a separate legal entity, a corporation is responsible for its own debts. Normally, shareholders, directors, and officers are not responsible for corporate liabilities. If the corporation suffers losses, the corporation itself must bear those losses to the extent of its own resources, and not the personal assets of the individual shareholders. Thus, the corporation protects the owner of a business against personal liability. In Houston, Harris County, Texas, Doug McIntyre often deals with considerations of what business entity to choose, that is, whether a corporation, or a Limited Liability Company, or a Limited Liability Partnership, or a plain Partnership, or a Limited Partnership, or just an Assumed Name is best for the protection afforded and costs (read taxes, audit fees, and legal fees) incurred. Self discipline in the operation of the business is also important. The protections offered by corporations, Limited Liability Companies, Limited Liability Partnerships, and Limited Partnerships can be lost if the business entity is not treated with the proper respect for its existence. In other words, if the corporations, Limited Liability Companies, Limited Liability Partnerships, and Limited Partnerships formed by you are operated as though they were your personal "Piggy Bank", then the insulation of your personal assets could be lost. This usually only happens when a large bill goes unpaid, or a creditor somehow become angry enough to sue, and to then spend the money on legal fees to develop a case to show that it would be fair to "pierce the corporate veil", or otherwise avoid the protection that your choice of business entity should afford you. Adequate capitalization at some point is also required. Whether a corporation, Limited Liability Company, Limited Liability Partnership, or Limited Partnership, the amount of money invested should be enough to expect success as commercial venture in that industry.
What is a registered agent?
Most states require a registered agent. A registered agent is responsible for receiving any legal documentation on behalf of the corporation. Quite frequently, you can act as your own registered agent as long as your address is within the state that you are incorporating in.
What are the advantages of a S corporation?
An S corporation is the election of a special tax designation that must be applied for and granted by the IRS to corporations that have already been formed. This election, in general allows for the income of the S corporation to be taxed to the shareholder of the corporation as opposed to the corporation. The primary advantage of an S corporation is the avoidance of double taxation. That is, the avoidance of payment of income tax on corporate net income, and then the payment of a further tax on the dividend income that is derived from the corporation. Thus, an S corporation allows certain income, deductions, and losses to be passed through the S corporation to the individual tax return of each shareholder.
What is a Limited Liability Company?
An LLC or a Limited Liability Company is a separate legal entity (business structure) from the owners of the LLC. An owner of an LLC is frequently referred to as member. An LLC is frequently referred to as a hybrid of a corporation and a partnership. The members of a limited liability company are shielded from personal liability and profits and losses may pass directly to the members without taxation of the LLC itself.
What are the benefits of an LLC?
An LLC offers primarily two benefits. First and foremost, an LLC provides the members protection from personal liability. Additionally, an LLC provides certain tax benefits. That is, an LLC allows for pass through taxation. An LLC is similar to a corporation because it has a) limited liability; b) free transferability c) continuity; d) centralized management. The taxation of a limited liability company is comparable to an S corporation. However, unlike an S corporation an LLC can have an unlimited number of shareholders or "members" as they are known in an LLC. Additionally, there are no restrictions on who is a shareholder as there may be with an S corporation. Thus, an LLC is similar to a corporation because it allows for protection from personal liability and simultaneously it is similar to a partnership because it allows for pass through taxation. Therefore, an LLC is commonly referred to as "hybrid corporation/partnership".
Business Litigation
What is Business Litigation?
Business litigation involves business people representing a variety of industries on local, state and federal levels in matters pertaining to such diverse areas as:
Business Torts: including commercial defamation; trade dress, patent or trademark infringement (including Lanham Act suits); interference with contractual or economic relations; breach of fiduciary duty; fraud and misrepresentation; unfair and deceptive trade practices and other conduct or claims that affect the success of a business.
Class Actions: including securities fraud, commercial and tax issues, and minority shareholder rights.
Contracts: such as a service contract with a primary vendor, an output contract with a key supplier, a sales contract with an important customer, or any other kind of written or oral agreement.
Professional Malpractice: accountants, architects, engineers, doctors and lawyers all face the risk of malpractice claims that can jeopardize business, reputation and finances.
Securities and Antitrust: claims involving securities and investments, claims arising under federal law--for example, Rule 10b-5, the 1933 Act, the 1934 Act--or state securities laws.
Shareholder and Corporate Governance: shareholder inspection rights, duties of directors and officers, conflicts of interest, derivative actions, business judgment rule defenses, change of control provisions, dissent and appraisal proceedings, involuntary and judicial dissolution, minority shareholder rights and claims, and valuation of closely held corporations.
Telecommunications: technical and industry-specific issues, including issues arising out of the Telecommunications Act of 1996.
Why Should I Worry About Business Litigation?
If you run a business, chances are you either already are confronted with business litigation or will be in the near future. Almost all business people confront litigation or the threat of litigation in the course of their business, whether they are Fortune 500, small or medium size companies, closely-held or family owned businesses, internet start-ups or individual entrepreneurs. Even though you may have protected your personal assets by forming a corporation or LLC, litigation may put your enterprise at risk.
When you are threatened with litigation, accept the fact that it will probably cost you money to solve the problem, even if you are right. Ignoring the problem won't make it go away, especially if you have been served with court papers or a notice or demand pursuant to a contract. And, failure to respond in a timely manner may cause you to lose your legal rights. Nothing can prevent you from being sued.
What Can I do to Reduce my Risk?
Be proactive and anticipate that problems may arise. Retain a transactional attorney to assist you in drafting or reviewing contracts. Discuss your business with a qualified business insurance broker and ensure that you have the appropriate type and amount of insurance. Do not be afraid of a legal evaluation of a problem, usually that is not expensive. Then you can decide how much more legal work is justified.
Read all contracts carefully. If you have any contractual relationship with another party, read the contract carefully and understand your rights and obligations under the contract. Sometimes, a third party may be liable under your contract and be required to defend and indemnify you from a claim, lawsuit or damages. If this is the case, be sure to fully understand the third party's rights and obligations under the contract, as well.
If litigation is eminent, see if you can work it out. You may wish to try to work it out with your adversary prior to hiring counsel. Meeting your adversary half way may save you money and avert all out legal warfare. But remember, "Anything you say can and will be used against you in a court of law." In the event you can't work out your problem, assume that anything you say or any letter you write will later be presented to a court by your adversary. If you were able to work it out, it would probably be in your best interest to hire an attorney to draft a settlement agreement to ensure that the matter is properly resolved. Finally, remember that if you are the plaintiff, your chance of recovering monetary damages is only as good as your adversary's assets. Many judgment debtors don't voluntarily pay the judgment... you may have to find and forcibly take their assets (through the use of a marshal or sheriff) after the litigation has concluded, which may be more hassle than it's worth especially if your adversary doesn't have many assets.
Check out your insurance policy and contact your broker. Litigation regarding the matter at hand may be covered under your policy or under insurance that a third party was required to obtain on your behalf. Many contracts require one of the contracting parties to either provide insurance or list the other party as an additional insured. In the event you are covered, promptly notify the insurer in the manner required under the provisions of your policy. Many times the insurance company will hire an attorney to defend you.
Consult with an attorney. Most attorneys offer free initial consultations. Don't be afraid to ask the attorney questions and get a cost estimate. Just remember that litigation costs fluctuate and are very difficult to estimate. Keep the following questions in mind when selecting an attorney:
- Is the attorney qualified in the field of law you will be litigating?
- Are you comfortable with the attorney's approach?
- Does he or she consider solutions without resorting to litigation such as mediation or arbitration?
How is the attorney's fee structured?
Normally, attorney fees are either based on a contingency agreement or on an hourly rate. In a typical contingency agreement, the client does not pay the attorney up front. The attorney is only paid if there is recovery, and the fee is based upon a percentage of the final award (normally 33%-40%). The contingency fee can work out well for Internet start-ups, individual entrepreneurs or small businesses that are unable to afford to assert their legal rights against large corporations that appear to have an endless amount of funds to pay legal expenses. However, be sure you understand how expenses (such as copying, depositions, court costs, etc.) will be handled. Hourly fees are when the client pays the attorney his or her hourly billing rate plus expenses. Unlike a contingency fee arrangement, if the client pays the hourly rate, the entire award belongs to the client once litigation is successfully concluded. Whatever fee agreement you make with the attorney, be sure to get it in writing before proceeding!
Business litigation or the threat of litigation is something that almost all businesses confront in the course of their business. But, you do not have to give up your legal rights. While the advice in this article help inform you of basic issues relating to business litigation, nothing presented here is a substitute for qualified legal advice. Consult with an attorney that is qualified to advise and potentially represent you in your specific case.
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