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Business Structure


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A presentation on legal considerations when choosing a business structure.

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Business Structure

  1. 1. Which Business Structure Is Right For Me?<br />Jeffrey M Glazer<br />Glazer Legal Services<br /><br />608-277-1778 (p)<br />
  2. 2. Better Question – What Is A Business?<br />Legally recognized<br />Organization<br />Designed to provide goods and/or services<br />
  3. 3. Why?<br />Share Resources/Information<br />Efficiency/Combined Resources<br />Limited Liability<br />
  4. 4. How?<br />Agree<br />Offer/Acceptance/Consideration<br />Act in Furtherance of the Agreement<br />Purchase property in joint tenancy/name of organization<br />Distribute receipts to parties to agreement<br />
  5. 5. Now…<br />Which Business Structure Is Right For Me?<br />Sole Proprietorship<br />Partnership, Limited Partnership (LP), Limited Liability Partnership (LLP), Limited Liability Limited Partnership (LLLP)<br />Cooperative, Limited Liability Company (LLC)<br />C-Corp, S-Corp, <br />
  6. 6. Sole Proprietorship<br />One person<br />Start doing business<br />Unlimited personal liability<br />Business taxes are personal taxes, plus self-employment tax<br />
  7. 7. Partnerships<br />Uniform Partnership Act: Wisc. Stat. § 178<br />Uniform Limited Partnership Act: Wisc. Stat. § 179<br /><ul><li>A partnership is an association of 2 or more persons to carry on as co−owners a business for profit.</li></li></ul><li>Partnerships<br />How do you know if a partnership exists? § 178.04<br />If a partnership doesn’t exist, a partnership doesn’t exist<br />Joint property does not, of itself, indicate partnership; do the co-owners share profits<br />Sharing gross returns does not, of itself indicate partnership; do persons also share the property providing the returns<br />The receipt by a person of a share of profits of a business is prima facie evidence that that person is a partner in the business<br />
  8. 8. Partnerships<br />Rights and Duties of Partners<br />Repaid contribution<br />Share equally in the profits and losses<br />Indemnity<br />Repay loans with interest<br />Equal management rights; decision by majority, except actions in contravention of partnership agreement which must be unanimous<br />An Accounting<br />Fiduciary Duty <br />Partnership Interest Is A Personal Interest<br />Taxes are personal; partnership is not taxed<br />
  9. 9. Partnerships<br />Partners are agents of the partnership<br />Can bind partnership<br />conveyance of partnership property<br />Admissions are evidence against partnership<br />Can accept notice<br />But can’t, without unanimous consent:<br />Assign partnership property to creditors<br />Dispose of the goodwill of the business<br />Perform an act that would frustrate the business<br />Anything else that the partnership says <br />
  10. 10. Partnerships<br />Unlimited liability<br />Joint and several<br />Personal<br />Limited Liability Partnership (LLP)<br />Registered<br />Liability of partnership is still joint and several, but limited to partner’s contribution<br />
  11. 11. Partnerships<br />Dissolution<br />Partnership has an express termination date<br />The date<br />Will of any partner that hasn’t assigned/charged interest<br />No term date: express will of any partner<br />Expulsion of any partner<br />Death or bankruptcy of any partner<br />Decree of court<br />Upon Dissolution, Partnership can:<br />Assign rights and obligations<br />Wind up<br />
  12. 12. Partnerships<br />Winding Up<br />Count up all assets<br />Partnership property<br />Contributions of partners<br />Pay liabilities<br />Non-partner creditors<br />Partner creditors<br />Partner Contributions<br />Distribute remaining profits<br />
  13. 13. Limited Partnerships<br />General Partners<br />Manage Partnership; joint and several, personal liability<br />Limited Partners<br />Cannot participate in management; Liability is limited to contribution<br />Requires registration of LP<br />Dissolution:<br />Removal of limited partner does not<br />Removal of general partner might<br />Taxed like partnerships<br />
  14. 14. Limited Partnerships<br />Not the same as Limited Liability Partnerships which are general partnerships with all partners having limited liability<br />LLLP – Limited Liability Limited Partnership<br />General partners also have limited liability<br />Wisconsin does not recognize<br />
  15. 15. Partnership v Corporation<br />Partnership: does not exist absent its partners; if a partner leaves, there is no partnership<br />Corporation: exists independent of its constituents, but is owned by its constituents; limited liability for actors<br />
  16. 16. Limited Liability Company<br />Can elect direct or pass-through taxation<br />Limited liability of members and/or managers<br />Member-Managed<br />All members are agents of the organization<br />Manager-Managed<br />Only Managers are agents of the organization<br /><ul><li>Duties of all Members and/ Managers:
  17. 17. Fair Dealing
  18. 18. Fiduciary Duty
  19. 19. Act in conformance with Criminal Law
  20. 20. No Willful Misconduct
  21. 21. May not derive improper personal benefit</li></li></ul><li>Limited Liability Company<br />Voting<br />Member-Managed: Pro-rata; not one person, one vote; greater than 50% of all shares<br />Manager-Managed: one person, one vote; greater than 50% of managers<br />Unanimous Membership Vote Required:<br />Amend Articles of Organization<br />Issue interest in LLC<br />Adopt/Revoke Operating Agreement<br />Allow LLC to accept additional contributions or redemption<br />Value member contribution<br />Authorize manager to act in contradiction to Operating Agreement<br />Change business form<br />
  22. 22. Limited Liability Company<br />Distributions – value of contribution<br />All items of income, loss and credits are passed-through to Members<br />Members taxed even if no distribution is made<br />May not make a distribution, if:<br />Would be unable to pay debts in ordinary course<br />FV Assets &lt; FV Liabilities<br />Dissolution and Winding Up: similar to partnership, except all Members must agree to dissolve<br />
  23. 23. Cooperatives<br />A minimum of 5 adults; minimum of 3 directors<br />Looks like a corporation<br />Articles of Incorporation<br />Meeting of Board and Members<br />ByLaws<br />Registered Agent<br />Acts like a partnership<br />Not necessarily capital stock<br />One member = one vote<br />No proxy voting<br />
  24. 24. Cooperatives<br />Officers and Directors not liable except:<br />Duty of Fair Dealing<br />Violation of Criminal Law<br />Willful Misconduct<br />Transaction in which officer/director received improper personal benefit<br />Directors who vote in favor of a negligent or bad faith distribution are joint and severally liable<br />Members are never liable for obligations of co-op<br />
  25. 25. Cooperatives<br />Net Proceeds minus <br />Operating expenses<br />Supplies and property procured for patrons<br />Cost of services to patron<br />Taxes<br />Reserves for depreciation, etc.<br />Remainder shall be paid and counts as income to co-op<br />Up to 5% may be saved for co-op education (expense)<br />Salaries of directors/officers/employees (expense)<br />Dividends to capital stock<br />
  26. 26. Cooperatives<br />Remainder shall be paid and is not income to co-op<br />Distributions and reserves to patrons/members; may be made in cash, credit, stock, property, etc.; may be made in accordance with patronage or stock ownership<br />
  27. 27. Corporations<br />S-Corp – Federal election<br />Receive pass-through taxation to shareholders<br />Requirements<br />LLC or Domestic Corporation<br />One class of stock<br />No more than 100 shareholders (spouses = 1)<br />All shareholders must be US citizens and natural persons<br />Profits and losses must be pro-rata<br />
  28. 28. Corporations<br />Organized under Wisc. Stat. § 180<br />Articles of Incorporation<br />Name of Corporation (Inc., Co., or Corp.)<br />Class, Series and Number of stock shares<br />Preferences and limitations of Class and/or Series, if any<br />Grant or limitation of Preemptive Rights<br />Name and Address of Registered Agent<br />Name and Address of Incorporators<br />
  29. 29. Corporations<br />Preemptive Rights: right of preference to any newly issued shares<br />Preferred Shares: non-voting shares with preference over common-stock to dividends<br />Participating Rights: rights to additional dividends if certain goals are met<br />Cumulative Rights: rights to dividends accumulate<br />Exchange/Convertible Rights: can exchange for other types of securities (convertible: can exchange to common)<br />Putable: may force redemption<br />
  30. 30. Corporations<br />Administrative Requirements<br />Board meetings<br />Must have at least one board member<br />Shareholder meetings<br />Proxy voting allowed<br />Cumulative voting for Directors<br />Voting Agreements allowed<br />Annual Report<br />Shareholders elect Board, Board selects Officers<br />
  31. 31. Corporations<br />Duties of Directors and Officers<br />Directors and Officers are not liable unless they violate a duty to the corporation<br />Advance shareholder interest; may also consider:<br />Effect on employees, suppliers, and customers<br />Effect on community<br />Any other factors the Director/Officer deems pertinent<br />Business Judgment Rule: Officers and Directors are presumed to act in the interest of the company, unless there is a violation of the duty of care<br />Duty of Care: standard of reasonable care while performing duties<br />Duty of Loyalty: must put corporation’s interests ahead of one’s own<br />
  32. 32. Corporations<br />Pros<br />Good for lots of shareholders<br />Very flexible for voting and dividends<br />Statutorily mandated procedures already exist<br />Cons<br />Double taxation<br />Corporation is taxed on income<br />Shareholders taxed on dividend (post-tax income)<br />Complex for small organizations<br />
  33. 33. We’re Done!<br />Partnerships<br />General, Limited, Limited Liability<br />Companies<br />Cooperative, LLC<br />Corporation<br />S-Corp<br />C-Corp<br />