Strictly Business

A Business Law Blog for Entrepreneurs, Startups, Venture Capital, and the Private Fund Industry.

Corporation Archives

Limited Liability Examined: Part 1 – Common Questions Related to Limited Liability in the Context of a New Business

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Do I need an LLC or corporation for my new business or is it safe to operate as a sole proprietor? Is purchasing insurance enough protection? If I form a limited liability company or corporation, is it still possible that I can be held liable for something? How can I make my entity “bulletproof?” Will my LLC provide asset protection to me? What can I do to limit my contract liability? If I decide to form a limited liability company or corporation, are there costs or downsides?

These are common questions we get from clients. In this series of posts, we’ll tackle these questions and maybe a few others and try to provide some practical guidance and suggestions. [Read more…]

When does a deal involve securities regulation? Part 5: Corporate Stock

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This post is the fifth in a series exploring when securities laws impact business transactions.

In my previous posts, I provided a general overview of the definition of a “security” under federal securities laws, and covered when various categories of instruments constitute a security, including partnership and limited liability company interests and promissory notes. In this post, we’ll explore when corporate stock falls within the definition of a security under federal law. [Read more…]

Does a negative “Say on Pay” vote trigger a breach of fiduciary duty claim?

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The Dodd-Frank Act, passed in 2010, includes the so-called “Say on Pay” provision for publicly traded companies. This provision requires that, at least once every three years, the shareholders of a publicly traded company must vote on its executive compensation arrangements. In addition, the shareholders also vote at least once every six years on the frequency of the “say on pay” vote.  Shareholders are able to elect whether the vote will happen once every one, two, or three years.  In most companies, the shareholders have chosen to have the “say on pay” vote conducted annually.  Publicly traded companies are also required  to disclose, in any proxy solicitation asking for the approval of a merger, acquisition, or other sale of the company, any compensation from “golden parachutes” that would be triggered.  Shareholders also have a chance to “approve” (or not approve) such golden parachute payments. [Read more…]

How the Federal Government Taxes LLCs

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One of the benefits to using a limited liability company is the flexibility of being able to choose how the entity is taxed. After a new LLC is formed, its owners must decide the method by which they would like their business taxed. By default, an LLC is treated as a pass-through entity, which means that it does not pay federal taxes directly, but its income or loss is allocated to the owners, who then pay taxes on that income. If the LLC has only one member, it files no tax return and all transactions of the LLC are treated as transactions of the owner for tax purposes. If the LLC has more than one member, the LLC files a partnership tax return, which reports the LLC’s income and how that income is to be allocated to each owner. Partnership style taxation is governed by Subchapter K of the Internal Revenue Code. However, the owner(s) of an LLC, whether the LLC has a single member or multiple members, may choose to have their LLC taxed as a corporation. In this case, the LLC can be taxed as a so-called “C Corporation,” which is governed under Subchapter C of the Internal Revenue Code, or an “S Corporation,” which is governed by Subchapter S. This ability of LLC owners to elect the company’s means of taxation is called the “check the box” regulations. [Read more…]

Even in deals with “yourself,” you still need proper legal documents.

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One situation I often encounter with small businesses is that sometimes they don’t always document the transactions they enter into with their owners and other related parties. For instance, let’s say that two owners of a corporation decide that their corporation needs more funding. However, they don’t want to invest more equity into the business. [Read more…]

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