Frequently Asked Business Law Questions35+ Years Of Experience & E-Discovery
I’m starting a new business but not sure that it will be immediately successful. Should I start as a solo and later convert to an limited liability company or a corporation once the business is established?
NO! Even if your business is not a huge money making endeavor right from the start, you are better off starting as a limited liability company or S-corp (small corporation). One of the major benefits of having an entity as the owner of the business instead of just you as an individual is that liability for any issues that arise are with the entity and not you as an individual. This means your personal assets (savings, income acquired outside the business, etc.) are protected from any claims of anyone because of the operation of your business.
Should I consider using another state like Delaware or Nevada for my business?
North Carolina is the best choice as the state in which to start your business if you are based in North Carolina.
Do I need more than one person to form a limited liability company or s-corp?
No, single member limited liability companies and corporations who make the s-corp selection are valid and still protect the owner from the possibility of subjecting their personal assets to any liability that the company might incur.
Does my limited liability company have to file a separate tax return?
Both limited liability companies and s-corps are “pass through” entities for income tax purposes. The income from the business is shown on the personal income tax return of the owners.
If I’m part of a partnership and want out, can we just decide to stop working together and shake hands on the division of assets?
For all concerned, a partnership should be dissolved using a written agreement that details the intention of each partner to end the relationship and how the assets and debts will be divided. It doesn’t have to be a long or complicated document, but it is always best to have as much detail as possible so that if issues arise later there is something to refresh everyone’s memories.
How do I decide if I should form a limited liability company or a corporation?
That decision is very fact specific and best made after a discussion with your tax advisor or CPA and your business attorney.
What happens to my business if I am unable to continue or die?
Under the best circumstances, you have created a succession plan for your business that includes details on who takes over in the case of your incapacity and/or death. While you can designate in your will what happens to your business after you die, a better solution would be to have a document that is in the hands of your successor that can be used to carry on the day to day operation of the business in case your death is sudden and unexpected.
Can I terminate my business location lease because COVID has made it unprofitable?
As with many legal questions, it depends. The specific terms of the lease may define circumstances that will allow you to terminate the lease. Additionally, the specific facts of the situation may allow for termination of the lease under “impossibility of performance” if the business is in person customer driven and a jurisdiction mandated the closing of the business for public health reasons.
Why do I need an operating agreement (by-laws for corporations)?
An operating agreement can detail not only how the business will operate generally but also include plans for continuation of the business if the owner (or one of the owners) in unable to continue working in the business or dies. Operating agreements can be used to indicate to banks and other businesses you deal with that you have the authority for act on behalf of the business. Operating agreements detail basic operation principals and can be used to change presumptions created by state law.