Business Planning
Operating, owning or starting a business is increasingly complex. Good business planning, whether for new or existing businesses must take into account the legal issues the business will face and consider the best legal structure for the business in today's regulatory environment.
Mr. Hales will work with you to help you decide the best way to set up a new business or modify its existing structure. There are practical and legal issues to consider carefully in choosing the correct type of business organization to meet your specific needs. Options include a sole proprietorship, corporation. partnership and limited liability company. Your business purposes and your ideas about how the biasness will be managed, controlled, owned and wound up or sold should be thought through and explored to decide on the right business structure.
Once you decide on the legal structure of your business, Mr. Hales will draft the correct documents, policies and procedures you will need and advise you on legal compliance requirements to ensure that you follow the rules that apply to your business. There are different filing and regulatory obligations for each type of business organization.
Types of Business Organizations
Sole Proprietorship
A sole proprietorship is a business owned by a single individual or jointly owned by a married couple. The owner is free to operate as she or he chooses without the
input of partners, directors or shareholders. However, the sole proprietor is personally responsibility for all obligations, debts and other liabilities of the business. Creditors of the business may collect from the owner's personal assets. Insurance may provide protection from some liabilities but some debts and judgments may not be covered by insurance. As a sole proprietorship grows, it is usually wise to choose another type of business organization.
General and Business Corporations
A business corporation is the most complex form of business organization. It is created by filing Articles of Incorporation with the Secretary of State and has powers and liabilities independent of its stockholders. The corporation is a separate and distinct legal entity from the people who control, manage, and own it. As a separate entity, the corporation owns the corporate property, owes the corporate debt, is the debtor that gets sued or the creditor who sues. Its governing documents are its Articles of Incorporation and Bylaws. Day-to-day management of a corporation is performed by corporate officers, elected by and responsible to a board of directors who are in turn elected by and responsible to the stockholders that own the corporation. Stockholders, directors and company officers are almost always protected from personal loss, other than their own investments in the company's stock. However, Directors and Officers insurance is available and highly recommended for further protection.
Public Corporations
The best known type of corporation is publicly held, like General Electric or Microsoft where shareholders are members of the general public. Public Corporations are usually large and subject careful and complex regulation. However, the majority of corposant in the United States are privately held and may be Close Corporations.
Close Corporations
A statutory close corporation is characterized by its traditionally small size, its consolidated management structure, and statutory restrictions on the transfer of its shares. There are approximately 6,000 close corporations currently existing in Missouri. The statutory close corporation's shareholders generally may not transfer their shares of stock without allowing the corporation's other shareholders a right of first refusal. The close corporation election is made in the entity's articles of incorporation.
Professional Corporations
A professional corporation may only be organized to perform professional services, and the shareholders of the professional corporation in Missouri must be licensed or authorized to practice a certain profession, which includes accountants, architects, engineers, attorneys, dentists, physicians, veterinarians, real estate salespeople and registered nurses. The articles of incorporation filed to form a professional corporation must be accompanied by a certificate of the licensing authority of the subject profession. Professional corporations are managed in a manner similar to general corporations, though all directors and officers of a professional corporation, other than the secretary, must be qualified persons with respect to the underlying profession of the entity. The shares of a professional corporation may only be owned by similarly qualified persons, or by partnerships, other professional corporations or limited liability companies, which are wholly owned by other licensed individuals.
Subchapter S Corporations
When deciding whether to organize as a general and business corporation, it is important to take into consideration federal tax laws. The Internal Revenue Service distinguishes between subchapter S and subchapter C corporations. A subchapter C corporation must pay tax on its income before distributing profits to stockholders who then must also pay a tax on the income received from the corporation. This double tax may be avoided by smaller corporations with seventy five or less stockholders and only one class of stock. Those corporations may elect subchapter S status whereby corporate income flows through directly to the stockholders and is subject only to their individual income tax, not an additional corporate income tax.
Partnerships
A partnership is the joining of one or more individuals, corporations or other entities under a partnership agreement.
General Partnership
Missouri, like many states, adopted the Uniform Partnership law to regulate general partnerships. The advantages of a general partnership are that partners may conduct any legal business and the income and expenses of the partnership are directly taxable to each individual partner based on his or her proportionate interest of the partnership. The partnership files an information tax return and pays no income tax itself. However, the general partnership provides no shield to the partners from creditors of the general partnership. However a partner may be a limited liability company or corporation that does provide protection to is owners.
Limited Partnerships
Limited Partnership (LP)
A limited partnership is a statutory entity created by filing a certificate of limited partnership with the Secretary of State; a limited partnership must have at least one general partner and at least one limited partner. A general partner is liable for the obligations of the limited partnership, while the limited partner has no personal liability for them.
Limited Liability Partnership (LLP)
A limited liability partnership is a general partnership that elects limited liability partnership status by filing an application for limited liability partnership registration. Upon securing such registration, all partners in the limited partnership, though they remain general partners, are afforded the same liability protection enjoyed by limited partners in limited partnerships. Other than this limited liability component, a limited liability partnership maintains all the other characteristics of a general partnership.
Limited Liability Limited Partnership (LLLP)
A limited liability limited partnership is a limited partnership that elects limited liability limited partnership status by filing an application for LLLP registration. Upon securing such registration, all partners in the limited partnership, including the general partners, are afforded personal liability protection. Other than the limited liability component, an LLLP maintains all other characteristics of a limited partnership.
Limited Liability Company (LLC)
The limited liability company is a relatively new type of business organization dating only from the 1990s. It has become an extremely popular organizational choice for businesses throughout the United States. The LLC is owned by one or more Members and each Member�s management responsibility and financial stake may vary to meet their specific purposes and needs. While it is not a corporation, the LLC provides a corporate-like shield to protect owners from individual liability, partnership-like flexibility in capital and management structure and is a �pass-through entity� for federal tax purposes so as to avoid the double tax liability of a C corporation. Members of the company can be actively involved in the management of the business or it may be managed by Managers. In Missouri, a limited liability company can conduct any business activity. Limited liability companies are formed by filing Articles of Organization with the Secretary of State and governed according to the terms of an Operating Agreement. The Articles of Organization are relatively simple and can be filed in Missouri on the Secretary of State's website by filling in a form and using a credit card to pay the filing fee. However, the "devil in the details" is the LLC Operating Agreement which contains the procedures by which the LLC will be governed. It is the most imporant organizational document and must be carefully thought through and drafted by the business owner with the help of an experienced team including a business lawyer.
Low Profit Limited Liability Company (L3C)
The low profit limited liability company is a new variation of the LLC that is designed to be a for profit company with a socially beneficial purpose. While it is not recognized by the IRS as a tax exempt nonprofit organization it is intended to draw "Program-Related Investment" capital from private foundations to support a charitable, educational or religious purpose. Missouri law does not (yet) permit formation of an L3C. However, an L3C formed in another state can be registered to do business in Missouri with the Secretary of State as a foreign limited liability company. Legislation has been introduced but not passed in Missouri to authorize formation of an L3C in Missouri. See the .pdf copy of HB 1890 to the left from the 2010 Missouri legislative session. The law concerning L3Cs is evolving. A website maintained by Americans for Community Development is a good resource that tracks the L3C evolution.
