Selecting the Type of Business Organization
Getting the Business Going
Providing the Regularly Required Periodic Services of a Business Organization
Preparing Standard and Special Business Contracts
Advice Regarding Tax Matters
Advice Regarding the Purchase or Sale of a Business Entity or its Assets
Assistance to Foreign Business
Importing or Operating in Colorado
Common Language Definitions for the Types of Business Organizations
Selecting the Type of Business Organization
The choice of business organization can advance achieving business goals.
The firm provides advice in selecting business entities. The types of entities
considered, by way of example, include sole proprietorships, general
partnerships, limited partnerships, limited liability companies, C corporations,
and S corporations. To determine the appropriate choice of entity, clients must
consider factors including the nature of the business they plan to transact, the
property the organization will own, the short and long term prospects for
profits and losses, the short and long term financing needs, the objectives of
the business investors, the management needs for the organization, the projected
number and type of employees and agents, and the number, nature and type of
liability the owners and investors are willing to assume. In addition, the firm
will prepare all of the documents necessary to form the entity and to document
the relationship among the owners and investors. These documents may include
articles of incorporation or organization, bylaws, partnership agreements,
operating agreements, and subscription agreements, as well as ancillary
documents such as shareholder's agreements and loan documents.
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Getting the Business Going
The firm will assist the new business as it starts up. These services may
include preparing employment agreements, drafting consulting agreements,
preparing or reviewing leases for office or retail space, registering trade
names or trademarks, and filing appropriate fictitious name certificates. In
addition, the firm can assist with the myriad of other requirements that face
most new businesses including, for example, evaluating and obtaining adequate
insurance, obtaining appropriate state and local permits and licenses, making
necessary tax filings, establishing bank accounts, qualifying to do business in
other states, obtaining tax identification numbers, and preparing permanent
business books and records.
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Providing the Regularly Required Periodic Services of a Business Organization
All businesses, whether new or well established, need regular periodic attention
to the details required by the laws that permit their formation and operation.
If you have had prior experience in operating a business, you are probably
familiar with many of these requirements. The firm can assist you in identifying
and fulfilling these requirements. In addition, we can teach you how to perform
many of these functions for your business.
One important requirement for corporations and limited liability companies is
conducting annual meetings of shareholders or members and meetings of directors
or managers (which meetings may include elections of managers, board members or
officers depending on the form of organization you have selected). There is also
the need to prepare accurate minutes of these meetings. The minutes must include
the determinations or decisions the owners or management made at the meeting.
The organization's legal documents and state law may require the consent of the
shareholders, members, managers, board members, or officers, as appropriate, in
order for the organization to take certain actions. It is particularly important
that the organization's records reflect these decisions. Accurate record-keeping
is essential in order to establish that the organization's activities from its
inception were duly authorized and are enforceable. These records can become
critical when the entity seeks financing, either in public markets or from a
lending institution. In addition, detailed records may be indispensable when the
owners decide to sell all or part of the business or its assets. Record-keeping
also becomes important in the event that the organization's activities are
subjected to legal action or to inquiry from governmental authorities.
Most states require that corporations and limited liability companies file
annual or biennial reports to remain in good standing and continue to do
business. It is not legal for such entities to do business in a state in which
they are not duly authorized and in good standing.
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Preparing Standard and Special Business Contracts
The firm's attorneys are experienced in developing standard form contracts that
a business can use on a repetitive basis. Examples of businesses where this kind
of contract would be useful include: the equipment leasing business; licensing
the use of software; standard purchase agreements relating to products sold; the
banking business; and the documentation used in the travel and resort business.
It is extremely important that this documentation be prepared correctly in the
beginning and be reviewed periodically to ensure that it conforms to changes in
the statutory and decisional law. Special business contracts are those contracts
used to document a transaction which has features unique to the particular type
of property or which has terms and conditions that are unique to the transaction
and address the special needs of the parties to the transaction. In either
circumstance, documenting the transaction to reflect accurately and clearly the
intention of the parties and to carry out those intentions is a role that is
uniquely within the expertise of the lawyer. The lawyers of the firm are
well qualified to serve in that role.
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Advice Regarding Tax Matters
Tax issues permeate nearly all business issues and transactions. The lawyers of
the firm are sensitive to the tax implications of the transactions of the
businesses they advise. The lawyers of the firm are skilled in working with
special tax advisors, whether accountants or lawyers, engaged by its clients in
appropriate circumstances.
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Advice Regarding the Purchase or Sale of a Business Entity or its Assets
The decision to buy or sell a business is one of the most important and most
complicated decisions many business people will make in their business careers.
The lawyers of the firm are prepared to assist the client purchasing a business
or its assets in structuring the acquisition and in negotiating and drafting the
purchase agreement. Advice rendered during the negotiation of a purchase
contract should include advice regarding the details of the purchase with
special focus on any security interest retained by the seller to secure any
portion of the purchase price unpaid at closing. The lawyers, in consultation
with the client, will negotiate the appropriate access to the books and records,
customer lists, personal and real property, and related matters to permit the
client to complete appropriate due diligence prior to completing the purchase.
Additionally, they will advise the client so that he or she will obtain the
appropriate representations and warranties from the seller, current through the
date of closing. These representations and warranties are important to protect
the buyer against loss in the event that the circumstances of the business are
different from those the seller led the buyer to believe to exist when promoting
the sale of the business. The lawyers will advise and assist with the review of
appropriate public records to determine that the property being purchased is as
it has been represented. They will complete the follow up work that may be
required post-closing so that the purchaser is assured that the business will be
available to operate.
If the client is the seller of the business, the firm will provide many of the
services set forth above except it will approach the problem from the seller's
perspective. Particular emphasis will be given to the representation and
warranties which the seller may be asked to give so that they are drawn in a
manner that clearly defines their scope and duration. Additionally, special
concerns need to be addressed if the seller is to carry back a note for a
portion of the purchase price to ensure that the assets of the business are not
wasted should the business fail. The seller must be protected in the event that
those assets which may be returned are, even when combined with the purchase
funds already received, substantially less valuable than when they were sold.
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Assistance to Foreign Business Importing or Operating in Colorado
The lawyers of the firm have had substantial experience dealing with business
people from Latin and South American countries. The firm has gained this
experience as much by luck and location as by plan.
As a result of the volume of work that the lawyers of the firm have done in the
Rocky Mountain resort communities, with particular emphasis in Vail, the firm
has been fortunate in representing many property purchasers and developers who
are doing business for the first time in Colorado and who are importing their
business skills from Latin and South America to projects that they undertake in
the Colorado mountains. This background has given the lawyers a unique ability
to explain Colorado’s law and its application to our foreign friends, helping
them to understand the manner in which business in done in Colorado, which often
differs from their experiences in their home countries. The lawyers of the
firm are sensitive to the need to work through the details of money transfers,
currency exchanges, and property titles, and can provide advice on the importing
of materials for use in the project.
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Common Language Definitions for the Types of Business Organizations
Sole Proprietorship
A sole proprietorship is the simplest form of business entity and does not
require any formal legal action to set up. A sole proprietorship is, by
definition, owned by a single operator. Depending on the state where the sole
proprietorship operates, the business will probably need either to register to
do business or at least register its name in order to reserve its use. Sole
proprietorships are required to obtain appropriate business licenses and
permits. In addition to simplicity, the sole proprietorship offers flexibility
to shift personal funds and property into the business with minimal legal and
tax consequences. The primary disadvantage of using a sole proprietorship is
that it subjects the operator to unlimited personal responsibility for the
liabilities of the business. As a result, the sole proprietorship should only be
selected in a limited number of business contexts.
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General Partnerships
A partnership is an association of two or more partners, who can be individuals,
corporations or other entities, who each agree to contribute money, property or
services and share management responsibilities. The partners share profits
and losses as well. In a general partnership, all partners have the authority to
bind the partnership and are all individually liable for the debts and other
obligations of the partnership. A partnership is not taxed as a separate entity;
the profits and losses of the partnership are shared by the partners as provided
in the partnership agreement. Thus, the profits and losses flow through the
partnership to the individual partners, who are taxed at the rates then
applicable to each respective partner.
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Limited Partnerships
A limited partnership is similar to a general partnership except that it will
have certain "limited partners" whose personal liability is limited to the
amount of each limited partners' investment in the partnership. A limited
partner may not participate in the management of the limited partnership if he
or she wants to retain this limit on personal liability. Each limited
partnership must have at least one general partner who manages the partnership
and remains personally liable for the obligations of the partnership. Generally,
limited partnerships are taxed in the same manner as the general partnership.
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C Corporation
A corporation is a separate legally recognized entity which is distinct from its
owners, managers and officers. The owners, or shareholders, elect a board of
directors who are responsible for the day to day operations of the corporation.
The corporation's primary advantage as a choice of entity is that it affords all
of the shareholders with limited personal liability. Generally, a shareholder's
liability is limited to the amount that each invests in the corporation. To
ensure this protection, it is important to capitalize the corporation adequately
and to observe the requirements for maintaining it noted above. Regular
corporations, or C corporations, are taxed as separate entities. In addition, as
profits are paid as dividends to the shareholders, the shareholders must also
pay taxes on the same dollars earned by the corporation. This concept of "double
taxation" makes the C corporation form often unadvisable for a small or start-up
business.
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S Corporation
An S corporation, formerly known as a Subchapter S corporation, is like a C
corporation, except for tax purposes. An S corporation is taxed like a
partnership in that it passes its profits and losses through to its shareholders
in proportion to their shareholdings. This avoids the double taxation problem of
the C Corporation. The S corporation is not appropriate for all businesses,
because the law limits the number of its shareholders to 35, requires generally
that the shareholders be individuals, as opposed to corporations, partnerships
or other entities, and restricts the corporation to issuing one class of stock.
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Limited Liability Company
Many states have adopted laws which recognize a relatively new form of entity
known as a "limited liability company." This hybrid form of entity affords
its owners, known as "members," with limited liability, like a corporation, but
treats them like partners for tax purposes. The limited liability company is
similar to an S corporation but does not restrict the number or nature of its
members or the equity structure of the entity. It allows the members to
structure sharing profits and losses without regard to the members' percentage
of ownership as a partnership does. A limited liability company is operated by
the members or by managers who are elected by the members. The transfer of
interests in a limited liability company is subject to certain restrictions
which are similar to the restrictions on transfer of partnership interests. The
operating agreement governing a limited liability company must be drafted
carefully in order to ensure that it receives the tax treatment and retains the
limited liability characteristics set forth above.
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