What Are the Main Types of Business Organizations That Benefit from A Business Lawyer?
You may associate the term "business lawyer" with "corporate attorney," but even small businesses, partnerships and sole proprietorships will benefit from legal counsel. Our Coeur d'Alene law firm assists the following business organizations:
Legally considered a separate entity from the owners, Corporations have tax efficiencies and limited liability, but more complex rules, regulations, and formalities to follow.
Businesses that are owned and operated by one person are sole proprietorships. They are easy to get up and running and manage, but the owner may be held personally liable for business debts.
Consisting of two or more people, partnerships bring people together own and operate a business. Together, they share in the profits and losses of that business.
Limited Liability Partnerships (LLPs)
Taxed like partnerships. LLPs provide personal liability protection for the owners. Also, a partner may not be held responsible for the misconduct of other partners.
Limited Liability Companies (LLCs)
LLCs offer the best of both worlds, limited personal liability like a corporation, and pass-through taxation like partnership. An LLC also requires very few formalities, making it much more flexible then a corporation, and an LLC can be taxed like a corporation if it chooses.
What Services Do Business Attorneys Offer?
Business attorneys provide legal counsel for a business's entire lifespan, from concept to dissolution and every step in between. In Idaho and Washington, business lawyers make sure you are following and meeting all applicable state regulations, in addition to any federal ones.
From business formation to startup planning, this is Charles Bean & Associates' A to Z guide on how an Idaho business lawyer can help you.
Business Formation in Idaho: Your Starting Point
There are pros and cons to each business entity. When starting a business, you need to consider:
- If and when you want the ability to raise capital.
- How much the business formation and ongoing operation costs are.
- If you need or want a legal separation between your business debts and personal debts, and any liability your business may incur (legal judgments, etc.).
- How much and when you will pay taxes. Some entities are "pass-through," and others are double taxed liked a corporation.
- How complex operating the business can and should be. Think about governing boards, shareholders, working with a partner, the need to hire employees, etc. LLCs are far less complicated to operate and thus the preferred business entity providing limited liability.
- If you plan to run this business by yourself, or if down the road, it could be a joint venture with other parties.
- How your business may grow, downsize, or change in the future.
A business attorney will help you carefully consider the strengths and challenges of each business entity. That includes discussing the type of business you are starting, the type of liability associated with that type of business, whether partners make sense, and what your short-term and long-term goals are. It is not always an easy decision to make, and an experienced business lawyer can help you weigh the pros and cons.
In the world of business entities, an LLC is considered the new kid on the block. It was not until 1988 that the IRS formally accepted LLCs and determined that LLCs should be taxed as a partnership allowing for pass through taxation. And in 1994, the state of Idaho passed the predecessor to today's Idaho Uniform Limited Liability Company Act. For many small and medium-size businesses in Idaho, an LLC is the entity of choice because personal assets are protected. And unlike a corporation, the owners do not pay taxes twice—at the corporate level and again on individual taxes.
There are also many advantages to a limited liability company. An LLC has a significant amount of leeway in how the business is run. The complexities of a corporation do not bog down this entity. But saying you are operating an LLC and then actually doing it correctly are two different things, and the law knows the difference. LLCs must create and run according to the operating agreement that they made. For example, owners need to show evidence of the separation between their personal assets & expenses and business assets & expenses. At all times an LLC must be run and operated in a manner that is completely separate from the personal lives of the LLC’s members.
In a partnership, two or more people come together to share in the business's profits and losses. A partnership is a "pass-through" entity and does not, as an entity, pay taxes. The partners pay taxes on their own income taxes. Unlike an LLC or Corporations, the partners are personally liable for any of the partnerships liabilities.
Corporations are a more complex entity, but they offer several benefits. Legally, a corporation is separate from the people that formed it. Their personal assets are protected from any business-related lawsuits and debts. Corporations are more complex to operate, as they require a governing board of directors and other formalities.
Business & Succession Planning
Succession planning is not a one-time event. Identifying both internal and possible external candidates is very much an evolving situation. In some instances, "passing the torch" to new leaders or owners is planned well in advance and flows smoothly. But in other cases, some emergencies arise. No matter what is happening in the C-suite, day-to-day operations can still go smoothly.
No one owns and operates a business forever. When the time comes to retire or move on, a buy-sell agreement lays the groundwork for how the existing owner's shares will be distributed. If a partner passes away, an established buy-sell agreement can alleviate any questions and prevent litigation from their estate.
Commercial Real Estate Transactions
If you don't exercise your due diligence when buying commercial real estate, you could be in for some surprises down the road. Purchasing a commercial property is complex and requires a careful review of existing lease obligations, financials such profit and loss statements and rent rolls, zoning regulations, easements, possible boundary disputes, and covenants. This task involves knowing the right questions to ask, what agencies have what paperwork and leaving no stone unturned.
Contracts, Negotiations, & Disputes
Contracts and negotiations are not the time to be downloading free templates from the internet, no matter how "simple" or standard they seem. Such contracts sound favorable in the short-term, but often, have expensive long-term consequences for a business. Every contract has its own unique set of terms and every state has its own requirements. An experienced lawyer can guide you through what terms are appropriate that in the end may make you money, as well as save you from costly mistakes.
And in the event of a dispute, a business attorney is a level-headed, experienced professional who will help find a fair middle ground when emotions run high. You will not be left vulnerable to agreeing to an unfair situation or settlement.
Corporate Governance and Boards
Governance documents set the groundwork for how a corporation will operate. Some of these guidelines are standard practice but can be tailored to your industry and company. And when it comes to boards, transparency is critical. It's essential to document meetings, board decisions, how board members are chosen and what their responsibilities/voting powers are.
Distribution and Sales
New business owners must be fully aware of any applicable laws before they distribute and sell their products. Some industries, like wine and alcohol, are more restrictive than others. Do not make the mistake of setting your sights high, only to find out you can't sell your product or services in certain jurisdictions. Make sure your business goals and plans align with Idaho and federal laws.
Employment & Human Resources
Once business owners hire an employee, the need for human resource policies comes into play. Some small and medium-sized businesses are not big enough to require or justify a full-time human resource employee or dedicated department, but laws still must be followed. A business attorney can help establish company policies and practices aligned with state and federal laws.
A big part of being a business owner is managing employees. Do you know what the law considers a "reasonable accommodation" and what to do if an employee asks for one? What is permissible if a pregnant employee requests light duty, but there is no such thing at your business? Do you have defined and scalable disciplinary actions for behaviors like last-minute call-ins, poor performance, and delinquency?
Employee contracts are a powerful tool to attract and retain the best employees and protect trade secrets and other intellectual property. Businesses must be careful not to "overpromise," as well as be aware of the employee contract standards for their industry.
Employee Handbook Drafting
An essential part of an employee handbook will be deciding whether to include a non-disclosure agreement (NDA), also called a confidentiality agreement. Some businesses will want to protect their ideas, communications, negotiations, and products. To do so, they need a legally binding contract. Instances, where you may ask your employees to sign an NDA, include when you are purchasing a business or selling one, as well as communications with potential high-level employees and vendors, and service providers. Protected information can consist of trade secrets, marketing plans, customer, or employee information, and "behind the scenes" information like software codes or engineering designs.
Treating employees fairly and equally seems like common sense, but the law goes deeper than that. A business owner must balance the business's best interests with its employees' rights under the EEOC. This undertaking sounds simpler than it is, especially during already tense situations like layoffs or disciplinary actions.
Partner & Shareholder Agreements
Under Idaho law, corporate shareholder agreements are a powerful document. They can include rules for:
- Restricting the board's power
- Changing how distributions are made
- How a director can be selected and how long they can serve in that position
- Changing voting power
- Any events where shareholders may request the dissolution of the corporation.
Partnership agreements are equally important. When two or more people come together in a partnership or LLP, they may already know and trust each other. But for everyone's protection, partnership agreements should still be put in writing.
Public Benefit Corporations & Non-Profits
Public Benefit Corporations
The majority of states, including Idaho, have benefit corporation laws on the books. These laws state that Public Benefit Corporations (PBCs) must create or attempt to create a "general public benefit." This sounds well and good enough; PBCs must be realistic about their goals and intentions. The bottom line is that these promises are legally enforceable. If the business and operations fail to make "a material positive impact on society and the environment," certain parties, including owners, directors, and anyone else specified in the articles of incorporation or bylaws, can bring forth a benefit enforcement proceeding.
Establishing and operating a nonprofit requires careful coordination between state laws and federal laws. While the state of Idaho governs a business's nonprofit status, federal law regulates the tax-exempt status. Nonprofits also require a high level of transparency and reporting requirements.
Purchase or Sale of Business
Mergers and acquisitions often occur during a time of distress: a death, divorce, illness, or a disagreement among partners. Business owners' attention and time maybe elsewhere, and this is often an emotional time. Hiring an attorney to guide you through the sale process ensures that your business has been fairly assessed, all records are in place, and there is a smooth transition of ownership.
The startup planning phase of a business is akin to building a house's foundation. Any oversight or sloppiness now will affect your business from here on out. The old saying, "You don't know what you don't know," rings true for entrepreneurs and first-time business owners. It's tempting to want to hit the ground running, but all legal bases must be covered.
A lack of planning and insight into tax matters can result in penalties or fines. Working with a business lawyer helps you know when to pay taxes and keeps you abreast of any changing laws.
You could be taken to civil court if your business or business operations caused injury to a party, their property, or their reputation. If this ever arises, you will need an experienced business lawyer to represent you in civil court.
If your business creates a trademark, you need to file it to have legal protection properly. Also, you need to make sure your trademark is "original" and does not infringe on anyone else's.
Workers' Compensation Matters
Excluding most agriculture and domestic employees, employers in Idaho must have workers' comp insurance for their employees. Workers' compensation claims are more common than you think. They are likely a matter of "when" and not "if." According to the U.S. Department of Labor, in the first ten months of 2020, over 3,400 individual workers filed a claim in Idaho.
Wrongful Termination Claims or Litigation
Letting an employee go is never easy. When that person comes back with wrongful termination claims, it can be a nightmare. It would be best if you had all your ducks in a row when it comes to documentation and evidence to back up your decision to terminate an employee.
What Should You Ask a Business Attorney Before Hiring Them?
Choosing the right business lawyer takes careful consideration. Many business owners seek recommendations from their colleagues and consider reviews on the attorney rating site AVVO.com. When speaking with a potential business lawyer for your Idaho business, you can ask them the following questions:
- How much experience do you have with my industry?
- How and when will we communicate? Consider your preference for emails, phone calls, and conference calls.
- Are there areas of business law that you might refer out to another attorney or firm? A "yes" is not necessarily a bad sign. If an attorney is inexperienced in a particular area of law, it may be in your best interest to speak with someone more knowledgeable.
- Could there be conflicts of interest between me and any of your current clients? You want to find out if the firm represents your competitors and, in some cases, your former business partners.
- How do you bill—by the hour or flat fee? What are your prices?
- What tasks do you routinely handoff to a paralegal or assistant?
- Are there any professional organizations to which you belong?
- Are you licensed to practice in any other state?
Why Choose Idaho Business Lawyer Brian J. Bean?
Idaho business attorney Brian J. Bean brings a personalized, cost-conscious approach to business law. He is experienced in both business law and commercial real estate law. From relatively straightforward matters like starting a partnership to the complexities that require ongoing legal counsel, Brian J. Bean is knowledgeable and ready to listen. Contact Brian today to discuss your business law concerns.