Business Matters Q & As

Entity Formation

If you are a business owner or aspiring entrepreneur, one of the most important legal issues to consider is how you structure your business. There are a wide variety of entity forms to choose from. Each form has advantages and disadvantages in terms of simplicity, flexibility, cost (both to form and to operate), taxation, control, continuity, ownership transferability and liability protection.

Hubbard and Rotthier can assist you in selecting the right business entity for your business start-up or professional practice. He offers assistance with the following types of entities:

  • Limited Liability Company (LLC);
  • Series Limited Liability Company (SLLC);
  • Professional Limited Liability Company (PLLC);
  • Corporation (C-corporation and S-corporation);
  • Non-profit Corporation;
  • Professional Corporation (PC);
  • Professional Association (PA);
  • Limited Partnership (LP); and
  • Registered Limited Liability Partnership (LLP)

Governance Agreements

Once an entity is formed, management and investors should adopt governing agreements addressing such issues as: capitalization, election of officers, management responsibilities, tax matters, restrictions on transfer of ownership, voting rights, distributions, and winding-down the business. We regularly prepare:

  • Bylaws
  • Company Agreements
  • Partnership Agreements
  • Trust Agreements
  • Buy-Sell Agreements

Critical to this process is making sure that you do not violate state or federal securities laws.

Entity Maintenance

It is important to understand that you can lose your limited liability protection if a court finds that you are using your business entity to defraud someone, or that you have not taken appropriate steps to keep your business separate from your personal affairs. You need to work closely with your lawyer and tax professional to ensure continued limited liability protection. To this end, Hubbard and Rotthier offers Consulting Services.

We offer competitive flat fee rates for entity formation and document preparation services. Call us today to schedule a consultation to identify the most advantageous entity structure for your business.

Business Purchase and Sale

Whether you are an investor evaluating opportunities or a business owner looking to sell, it is important to work with an experienced attorney who can protect your interests. Our firm is experienced with purchase/sale agreements in numerous industries and with all of the following issues that arise in structuring and negotiating such agreements:

  • Binding and nonbinding letters of intent
  • Confidentiality and nondisclosure agreements
  • Stock versus asset sales
  • Due diligence
  • Collection of accounts receivable
  • Tax consequences
  • Seller-financed promissory notes and security agreements
  • Noncompete and nonsolicitation agreements
  • Business transition consulting agreements
  • Commercial real estate lease and sale agreements
  • Employment agreements

Before you begin the process of negotiating the purchase or sale of a business, you should contact an experienced transactional attorney. What you say today can and will be used against you throughout negotiations and, if things fall apart, in a court of law.

Selling a Business

If you are considering selling your business in order to retire, or for financial or other reasons, you need a business lawyer who can negotiate and close a fair contract with speed and precision. Our firm has extensive experience in the complexities of buying and selling a business. We can help you capture the true value of your business while protecting you against liability.

Buying a Business

Buyers need an experienced attorney who can perform due diligence before making a purchase. As a buyer you need to know the full scope of assets that are being purchased, as well as the amount of debt and other contractual obligations the company may have. In addition to due diligence performance, we will also negotiate a contractual agreement that will clearly articulate your rights and obligations.

General Counsel Services

Like good in-house counsel, we work with each client to understand its business model and industry in order to provide customized service targeting each client’s unique needs and available resources. A general counsel relationship can save time and money in the analysis and resolution of all kinds of business matters, because your lawyer already knows you and your company, including the family or personal factors that can exert a major influence on your options and objectives.

To learn how your company can benefit from its own general counsel, contact Hubbard and Rotthier, Attorneys at Law. Our goal is to help clients make the most of market or investment opportunities while managing risk, avoiding liability and advancing broader family or business goals. These are some of the areas where a general counsel relationship can help you see beyond the immediate demands of a situation to support long-term goals:

  • Formation of new businesses, subsidiaries or divisions
  • Amendment of shareholder, partnership or operating agreements to accommodate changes in an ownership group
  • Implementation of a risk management program
  • Advice about important contracts, such as equipment or commercial real estate leases
  • Negotiation of employment agreements
  • Regulatory and licensing issues with state, county and local authorities
  • Management succession planning related to family businesses
  • Purchase or sale of businesses or business assets

How We Promote Long-Term Client Relationships

Our business clients enjoy the freedom of pursuing business opportunities without looking over their shoulder. Just as important, they have an advocate they can test ideas with and explore alternatives prior to committing valuable resources. We offer our clients our honest opinion and our support in the decisions they make.

If you believe your business would benefit from a general counsel relationship, call today for a consultation.

Frequent Asked Questions:

Q1: Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?

A: It is possible for either the husband or the wife to be the owner of the sole proprietor business. When only one spouse is the owner, the other spouse can work in the business as an employee. If a married couple who file a joint tax return elect to conduct their business activities as a qualified joint venture, (a trade or business in which the husband and wife materially participate in such venture), the spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture.

Q2: Are partners considered employees of a partnership or are they self-employed?

A: Partners of a partnership are considered to be self-employed. The partnership must furnish copies of Schedule K-1 to the partners by the partnership information return due date or extended due date. If you are a member of a partnership that carries on a trade or business, your distributive share of the income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.

Q3: I recently formed a limited liability company (LLC). The LLC has no employees.  Do I need a separate Federal Tax ID number for the LLC?

No, you will not need a separate Federal Tax ID number for the LLC if you are the sole owner of the LLC and the LLC has no employees. If you are the sole owner of the LLC and the LLC has employees, you will need to get a separate Federal Tax ID number, if you choose to have the LLC report and pay employment taxes with respect to employees of the LLC. If you are not the sole owner of the LLC, you will need a separate Federal Tax ID number for the LLC.

Q4: For IRS purposes, how do I classify a limited liability company? Is it a sole proprietorship, partnership or a corporation?

A:A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity disregarded as separate from its owner), a partnership, or a corporation. If the LLC has only one owner, it will automatically be treated as if it were a sole proprietorship (a disregarded entity), unless an election is made for it to be treated as a corporation. If the LLC has two or more owners, it will automatically be treated as a partnership unless an election is made for it to be treated as a corporation. If the LLC does not make a classification election, a default classification of partnership (multi-member LLC) or disregarded entity (single-member LLC) will apply.

Q5: Must a partnership or corporation file a tax form even though it had no income for the year?

A: A domestic partnership must file an income tax form unless it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.

A domestic corporation must file an income tax form whether it has taxable income or not.

Q6: Can you give me plain English definitions for the following: (1) a closely held corporation, (2) a personal holding corporation, and (3) a personal service corporation?

A: Generally, a closely held corporation is a corporation that, in the last half of the tax year, has more than 50% of the value of its outstanding stock owned (directly or indirectly) by 5 or fewer individuals. Generally, closely held corporations are subject to additional limitations in the tax treatment of items such as passive activity losses, at-risk rules, and compensation paid to a corporate officers.

Basically, a corporation is a personal holding company if both of the following requirements are met:

* Personal Holding Company Income Test. At least 60% of the corporation’s adjusted ordinary gross income for the tax year is from dividends, interest, rent, and royalties.
* Stock Ownership Requirement. At any time during the last half of the tax year, more than 50% in value of the corporation’s outstanding stock is owned, directly or indirectly, by 5 or fewer individuals.

A personal service corporation is a corporation where the main work of the company is to perform services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, the performing arts, or consulting. Examples may be law firms and medical clinics. Also, substantially all of the stock is owned by employees, retired employees, or their estates.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
Hubbard and Rotthier, Attorneys at Law 
Contact Hubbard and Rotthier, Attorneys at Law for a confidential consultation to assist you with your legal needs. Licensed to practice in all courts in the State of Texas.

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