Lieberman & Brandsdorfer, LLC serves as legal counsel to corporations, associations, partnerships, limited liability companies, and various businesses and individuals throughout the United States.  Experience includes counseling both for for-profit and nonprofit corporations. Attorneys in the firm draft articles of incorporation and bylaws; articles of association; articles of organization (LLCs); partnership agreements; shareholder agreements; operating agreements; Federal, State and local tax and report filings; personnel policies and manuals; employment and third party contracts. Attorneys in the firm also assist in the development and implementation of financial management systems; provide counsel on corporate organization, reorganization, restructuring, and diversification; instruct, advise, and train boards of directors and management regarding responsibilities, liabilities, and operations of business ventures.

Corporate law encompasses many legal areas and is alternatively referred to as business law by many attorneys as a means of indicating the inclusion of alternative business entities within the scope of the specialty. For our purposes, we will use the terms interchangeable as our firm provides the more expansive “business law” level of service although “corporate law” is the traditional nomenclature. Ironically, corporate law remains a specialty despite the common view that general legal practice encompasses much of business law as business entities are likely to be the clients requiring general legal advice and assistance. However, the intricacies of the business law specialty are often overlooked by general practitioners and may result in unforeseen consequences for a business entity.

The question remains, what is business or corporate law? In its most basic form, business and corporate law encompasses the formation, maintenance, and dissolution of business entities such as corporations, partnerships, limited liability companies, limited partnerships, and associations. However, in practice business and corporate law include many of the aspects of contract drafting, negotiations, employment issues, and tax issues, to name a few. For purposes of this discussion, we will focus on formation of business entity as to provide a basic understanding of where business meets business law.

If you have additional question or comments, please feel free to contact us by e-mail or contact us by telephone or snail mail.

Business Formation

The formation of a business entity is in many respects the simplest procedure involved in business law yet often results in complex and costly problems if not done properly. Generally, the first step in the formation process is the determination of what form of business entity is best for a specific situation. People usually have a business form in mind when they first contact an attorney to prepare the paperwork. For example, an entrepreneur may have used in the past or been advised by others that a corporation or limited liability company is the recommended business structure. However, without a proper analysis of the factual situation presented in a specific business venture, often the benefits associated with alternative business entities are overlooked and the potential costs associated with the person’s preferred business entity are never fully addressed.

As an initial matter, one must first select the state in which a corporation or business entity should be formed. This involves the filing of the required documents with the designated office of a selected state, such as Delaware or Maryland, and payment of the required filing fees. However, the first question that should be addressed is why form an entity in the selected state. For example, many people wish to form a Delaware corporation simply because “everyone else has one.” However, if your business is only going to conduct business within one state, often where you live, or has a limited number of owners or shareholders, the preferable state of formation is likely to be the state where business is to be conducted. As a practical matter, only one state will require periodic filings and payment of fees, and future changes to a business will only need to conform to one state’s laws, allowing for reduced legal fees and reducing the potential limitations on the action desired. However, if you intend to develop a business which will be sold to investors, going public, or in an industry which places value on incorporation or organization in a specific state, such as Delaware, formation in that state may be preferable. Accordingly, a closer analysis of the purpose and goals of the business venture is required prior to determining a state for formation.

Concurrently, one must consider the form of business entity desired. As mentioned above, the common forms of business entities are corporations, partnerships, limited liability companies, limited partnerships, and associations. However, an often overlooked yet most common business entity is the sole-proprietorship. As a legal matter, without formally filing the necessary documents with the proper state office, a business venture will generally default to a sole-proprietorship (one owner) or a partnership (two or more owners). Often this is critical when considering tax and liability issues in addition to ownership concerns. Accordingly, one must analyze the consequences of utilizing different types of business entities along with the purpose and goals of the business entity.

Once a form of business entity and state of formation has been selected, one most consider how ownership rights in the business entity will be allocated, and how to govern the entity. In many cases, these issues may not need to be addressed until after actual filing of the business formation documents with a state, it is advisable to consider them prior to formation since they may weigh on issues of stock classifications and powers, transferability rights, and governance. A few states may require the adoption of initial resolutions and governing procedures such as bylaws prior to filing incorporation documents (i.e. Massachusetts). Many points of contention between potential business associates during the discussion and review of documents such as bylaws, operating agreements, shareholder agreements, etc., should be resolved prior to actually forming the business entity as those issues may impact choice of business entity and cover items that it is advisable to have agreed to prior to entering into a business relationship. As a side note, non-profit or not-for-profit corporations often have no technical owners, although membership may substitute for ownership in the governing hierarchy. Accordingly, the ownership and governance structure of your business entity should be analyzed in advance of formation to aid in the development of the best organization for your specific needs.

The above discussion only briefly touches upon the first step in business law — the legal formation of your business. As we are sure you will appreciate, this basic presentation only raises some issues which in our opinion would be considered thoroughly prior to and during the formation of a business entity. Many additionally and more detailed issues should be considered when organizing a business. Accordingly, we hope that these initial points may help you develop your goals and consider your options more thoroughly.

If you have additional question or comments, please feel free to contact us by e-mail, or contact us by telephone or snail mail as our firm serves as corporate counsel to corporations, associations, partnerships, limited liability companies, businesses, and individuals throughout the United States.