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2 BFUG Conference - Business Entity Selection


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2 BFUG Conference - Business Entity Selection

  1. 1. Urban Food, Farm & Agriculture Law Practicum Selecting the Appropriate Legal Structure Mitchell Widener
  2. 2. Urban Food, Farm & Agriculture Law Practicum What is a Business Entity? • Anything other than a natural person that can enter contracts, incur debts an hold assets in its own name. 1. 2. 3. 4. 5. Corporations LLCs Cooperatives 3LC Nonprofit
  3. 3. Urban Food, Farm & Agriculture Law Practicum Corporations • Comprised of three different groups of people: Shareholders, directors, and officers • The shareholders own stock; the directors and officers run the company • Who’s liable? (who gets sued if something goes wrong?): • Shareholders have no personal liability • Generally, directors and officers have no liability besides personal wrongful action (stealing money, etc.) • Who’s taxed? Corporations are double taxed • Corporation itself gets taxed as a separate entity • Shareholders subject to individual tax on own shares
  4. 4. Urban Food, Farm & Agriculture Law Practicum Corporation Formation • Articles of Incorporation must include – Name of the corporation – Name and address of each incorporator – Statement of the corporation’s purpose – Information about corporation’s stock • Bylaws – Establish procedure, responsibility and meeting regulation – Adopted by the Incorporators at the Organizational Meeting – Amended, repealed, created by shareholders Corporations not required to have bylaws
  5. 5. Urban Food, Farm & Agriculture Law Practicum Is a corporation for you? • Typically, not ideal for small businesses. • Usually used by the largest of companies • Disadvantages for small businesses: – Establishing and maintaining a corporation is tedious and complex – Double-taxed
  6. 6. Urban Food, Farm & Agriculture Law Practicum Limited Liability Company (LLC) • Who’s in control? – Member Managed: Better for LLCs with fewer members – Manager Managed: Better for larger LLCs • Who owns it? Members. They put in the money and reap rewards • Liability: No personal liability for members • Taxes: each member/s profits taxed at the individual level • Formation – Articles of Organization: Name, address, etc. – Operating Agreement : contract between members of an LLC which govern its affairs and business operations and the relationships of its members an mangers • LLC does not require an operating agreement
  7. 7. Urban Food, Farm & Agriculture Law Practicum Is an LLC for you? • Advantages – No personal liability – Flexibility in management • You choose how the LLC operates: membership, management, etc. • Disadvantages – Filing procedures different in ever state – Unfamiliarity with the business structure Verdict: • Run your own business with only have a few members?  member managed LLC seems like the right fit. • Don’t have the money?  manager managed LLC works. You still control the day-to-day activities.
  8. 8. Urban Food, Farm & Agriculture Law Practicum Cooperatives • Co-ops are groups of individuals or businesses who come together to form a working group. • The group pools its resources to assist in developing and marketing • Benefits: small groups who generally would not have the resources to market on their own – Strength in numbers
  9. 9. Urban Food, Farm & Agriculture Law Practicum Cooperatives Organizational style very similar to a corporation • Control: Directors or officers • Money: shareholders • Liability: no liability • Taxes: shareholders and corporation – Agricultural co-ops may receive tax-exempt status • Formation: Articles of Incorporation
  10. 10. Urban Food, Farm & Agriculture Law Practicum Is a Cooperative for You? • Advantages: – Access to established marketing groups – Access to supplies • Disadvantages – Less control – Percent of profits must go towards co-op
  11. 11. Urban Food, Farm & Agriculture Law Practicum Nonprofits • Corporation established specifically for the purpose of serving a public need – Profits go towards furthering that public need • Organized like a corporation (shareholders, directors, officers) • Money: Shareholders cannot earn income from nonprofit, but directors/officers may be paid • Liability: same as corporation • Tax: **most agricultural nonprofits are tax-exempt
  12. 12. Urban Food, Farm & Agriculture Law Practicum Is a Nonprofit for you? • If you primarily want to make a profit, then no • However, if you a religious organization or community development, for example, that wants to grow, then yes. – The profits would just need to go back towards the public interest or need
  13. 13. Urban Food, Farm & Agriculture Law Practicum L3C • A combination of nonprofit and LLC – A Low Profit LLC • Nonprofit The company was primarily formed to further a public purpose. • LLC The company may produce income • Appropriate purposes: religious, charitable, scientific, educational – May not attempt to influence legislation or participate in political campaigns • **not tax exempt • Present in only 9 states: Michigan, Illinois, Louisiana, Maine, North Carolina, Rhode Island, Utah, Vermont, and Wyoming