Business Organizations FAQs

  • Joint Venture vs. Partnership (In what ways are joint ventures and partnerships alike?)
  • Personal Liability for Business Debts and Obligations (What are the possible consequences of personal liability for business debts and obligations?)
  • Top 10 Reasons to Contact an Attorney before Selecting a Business Entity (http://www.sternbergandzeid.com/faqs/general-faqs/faqs-archives/top-10-reasons-to-contact-an-attorney-before-selecting-a-business-entity/)
  • What to Expect: A Chronology of Buying a Business (http://www.sternbergandzeid.com/faqs/general-faqs/faqs-archives/what-to-expect-a-chronology-of-buying-a-business/)

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Most people approach a new business opportunity with great enthusiasm. While this enthusiasm provides much of the needed fuel to help a new business get started, businesspeople must arm themselves with important legal information that will guide their most basic decisions. The form a business organization selects creates specific legal consequences for matters as diverse as taxes, insurance, and management. Once formed, a business faces challenges in its relationships with its shareholders, creditors, employees, and other businesses. Every business concern has important legal issues that can dramatically affect the likelihood of future success. Experienced lawyers can help create a business strategy that manages legal risks.

Business successions take place upon the death or withdrawal of a business owner. Depending on the form of the business, transfers of ownership interests may not achieve a complete change of control. Careful estate planning can minimize problems and facilitate business owners’ goals.

Closely held businesses involve a small number of shareholders, and are common forms for family-owned corporations. Due to their low number, shareholders often assume management and direction of the company. This consolidation of responsibilities can lead to specialized legal issues.

Directors’ and officers’ liability occurs when corporate representatives undertake actions that are illegal, unauthorized, or damaging to the business. While the corporate structure offers protection from liability in most instances, some actions or decisions can expose directors and officers to legal risks even if made in the course of business.

Dissolution of a business may happen for a variety of reasons including management deadlock and lack of profitability. Since most business organizations exist in legally-mandated forms, they must use statutory procedures to close their doors. State laws help protect shareholders and creditors of dissolving companies.

Formation and business planningcontinues long after the articles of incorporation are first written. Businesses must plan for profitability, tax consequences, employment issues, and other concerns. Business forms can change with commercial needs and realities, and savvy businesspeople will keep an open eye for changing risks and opportunities.

Franchising allows a company to use several small businesses to distribute its products and services while maintaining a consistent public image. When a company grants a franchise, it lets another business use and profit from its successful business plan. State and federal laws strike a balance between larger corporations and the small business owner seeking a franchise.

Joint ventures involve two or more companies or individuals in a partnership for a particular purpose. Each contributing member provides capital, expertise, technology, or other special resources to the venture. Special legal liabilities apply to the members of the venture.

Limited liability companies allow their owners to enjoy the tax status of a partnership and the limited liability of a corporation. This relatively new business form is gaining in popularity nationwide, with special state laws addressing formation and operational issues.

Mergers, acquisitions, and divestituresinvolve structural changes to a company, either through the purchase or the sale of the company or its components. These corporate changes may affect shareholder rights and raise antitrust issues.

Nonprofit and tax-exempt organizationsincorporate in order to pursue an organizational goal in the public interest. Nonprofit corporations exist under state law, but must apply to the Internal Revenue Service for tax-exempt status. Although the application process is lengthy, qualifying organizations realize substantial financial benefits.

Partnerships can arise in some instances even when the partners do not intend to form a distinct organization. While some types of partnerships do not impart the liability limitations of other business forms, they do have favorable tax implications. Increasingly, state laws provide for new partnership forms that grant more liability protection.

Reorganizations allow bankrupt businesses to regroup in order to stay open and satisfy creditors as much as possible. The commercial bankruptcy option has many advantages over liquidation, which requires selling off many assets and after which the business ceases to exist.

Shareholders’ rights include certain powers of control over the corporation. The corporation must protect shareholder interests, and perform certain legal duties in order to preserve shareholders’ prerogatives and options.

Trade associations connect individual businesses and business groups to work together for common goals. Trade associations provide a forum for brainstorming, political action, and industry standardization.

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