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Business Services

Choice of Entity

The firm consults with clients and advises on the most appropriate type of business entity. Here are the most common types of business entities.

• C Corporation

• S Corporation

• Non-profit Corporation

• Limited Liability Company

• Partnership

• Limited Partnership

• Sole Proprietorship

In addition, special types of entities exist for particular purposes. These include:

• Professional Corporation, Limited Liability Companies and Partnerships

• Close Corporation

• Personal Service Corporation

• Specialized corporations in the banking and insurance businesses

The choice of entity considers a number of factors, including taxation, liability exposure, raising capital, type of products or services offered, and whether an interstate business is contemplated.

Succession Planning

Succession planning is necessary for most small businesses. Some of the reasons include keeping control within a family, preventing an owner from selling his interest to an outsider, and planning for death, incapacity or bankruptcy of an owner. Often a Buy-Sell Agreement is used. This is a legal document which governs when, how and at what price ownership interests may be transferred.

Contracts

It is essential that properly drawn contacts be used in business transactions. Contracts are made each time there is a business transaction, whether or not reduced to writing, and have different legal effects depending on their terms and how they are construed. Here are some of the essential clauses in a business contract.

• Subject. Is it clearly described such that each party knows what is to be accomplished and by whom? The object must be legal to be enforceable and cannot offend public policy.

• Parties. There must be at least two parties to the contract. Does the contract reflect all of the parties who are in fact involved? Failure to name a party could lead to the inability to enforce the obligations of that party.

• Consideration. In a sales contract, this is the price. It should state how much is being paid, when payments are due, the mode of payment (cash, property or services; whether personal checks are acceptable, etc.), the interest charged on deferred or late payments. If the transaction calls for deferred payments, the parties need to consider the security for the promise to pay in the future; a formal filing under the Uniform Commercial Code may be required to secure the obligation.

• Timing. Is the time set forth for performance or payment under the contract extremely important? If so, the contract needs to state this in a "time is of the essence" clause.

• Default provisions. What if one party defaults? What constitutes a default? What are the other party’s remedies?

• Guarantees. If one party is to guarantee the performance of another, this needs to be specified in the contract and acknowledged by the guarantor. Guarantees are frequently required when another party’s credit is being relied upon (e.g., a parent guaranteeing a child’s payment or an owner guaranteeing his corporation’s performance).

• Warranties. What warrantees, if any, are being provided with a product or service? The specification, or lack of specification, of warranties could drastically effect the legal liability of the parties to each other and to third parties.

This is far from a complete list. Such provisions as notices and filings under the Bulk Sales Act, licenses to use patents, copyrights and formulas, how notices are to be sent, what law governs the contract and many other provisions need to be potentially considered.

© 2002-2008. Robert E. Ciancola. All Rights Reserved.