Small businesses do not have in-house corporate counsel.  While many companies do not think of contacting a corporate lawyer until there is a legal problem, the best time to hire a business lawyer is before your business gets into trouble. It is easier, quicker and cheaper to prevent legal problems than it is to solve them after they have arisen. Further, if your company runs into legal problems, you will be better off if you already have an established relationship with a corporate attorney who knows your business. The Huffman Law Firm, P.A. strives to establish long term relationships with businesses in order to protect their long term interests. Richard Huffman has an undergraduate degree in Business Administration as well as a Masters of Business Administration (MBA). He is a part ownder  of several small businesses. He understands the needs of small companies.

There are numerous situations where a business needs the advice of a business attorney. The Huffman Law Firm, P.A. can act as your corporate counsel and guide you from the formation of your company to the dissolution of the business and everything in between. Your company may need to enter into a lease or contract. You may have litigation issues involving business disputes with suppliers or contractors or you may need a corporate attorney to help you collect a debt. Your business may need to buy or sell real estate. The selling of real estate may require you to consider a 1031 tax free exchange. Your business may have concerns about how to handle an employment situation. There are more legal issues faced by companies than can possibly be discussed at one web site that require the assistance of a business lawyer. Thus, let’s focus on the common issue every company must face – the formation of your business.

With its expertise as a corporate lawyer, the Huffman Law Firm, P.A. can help you in the initial stages of establishing your business. We will work with you and your accountant to determine the most effective type of business organization for your particular needs. Based upon your unique circumstances, you may need a sole proprietorship, a partnership, a corporation or a limited liability corporation. The business structure you ultimately choose can have broad implications on how your business is operated. The following is a simple overview of different legal structures.

What is the easiest way for me to start a business?

The simplest legal organization for a business is a Sole Proprietorship. A Sole Proprietorship is a business that is owned by just one person. You do not need to file any papers with the North Carolina Secretary of State. Rather you simply start operating your business.

Although no papers have to be filed to start a sole proprietorship, there are often certain legal requirements one must meet. For example, your company may have to comply with local registration, business license, or permit laws. There also may be zoning issues which effect whether you can operate the type of business you want at a certain location.

One of the biggest downsides to a sole proprietor is that you can be personally liable for any debt incurred by your business. If your business doesn't pay a supplier, defaults on a debt, or loses a lawsuit, you may have to pay this debt out of your personal assets.

There are also only limited tax advantages to a sole proprietorship. The owner of the business and the business are one and the same for tax purposes. Thus, any income your business receives is attributed to the owner individually. As a result, the owner of a sole proprietorship usually has to pay quarterly estimated taxes to both federal and state governments. The owner of the company must also pay a self-employment tax covering Social Security and Medicare expenses. The main tax advantage is that a sole proprietor can often deduct certain expenses as business expenses and thus reduce the overall tax liability. <<top>> or <<Questions>>

A friend and I want to start a business together. Can we enter into a partnership?

Yes. Partnerships can be an effective way for two or more people to work together. If you are going into business with others, the Huffman Law Firm, P.A. can work with you as your partnership attorney to protect your interests. Although you and your potential partner may have a great relationship at the start of the business, there are numerous minefields that can destroy your business. A properly drawn partnership agreement can help minimize these. The law does not require you to enter into a partnership agreement. However, you would be foolish to go into business with someone else without an agreement outlining the rights and responsibilities of each partner. You do not need to file the partnership agreement with anyone. However, you may need to comply with certain business license or zoning requirements.

A well prepared partnership agreement should include a "buy-sell agreement." A buy-sell agreement allows you to plan for what will happen when one partner leaves the partnership. A buy-sell agreement lets you and your partner decide ahead of time how one partner can buy the departing partner's interest so business can continue as usual.  An experienced partnership attorney, like Huffman Law Firm, P.A., can provide such documents for your partnership.

As with a sole proprietorship, partners are personally liable for all business debts and obligations. If your partnership doesn't pay a supplier, defaults on a debt, or loses a lawsuit, you may have to pay this debt out of your personal assets. Depending on the terms of the partnership agreement, all partners may be held jointly and severally liable for the partnership debts. That means that you could personally have to pay the full amount of a partnership debt.

Generally, each partner has the authority to enter into a contract for the partnership. Thus, you could be held liable for debt that your partner entered into even if you did not want to incur that debt. You can avoid this liability if the third party knows that your partner did not have the authority to enter into the debt without your approval.

A partnership is not a separate tax entity from its owners. Thus, the partnership does not pay any income taxes. Rather, each partner reports the income he or she receives from the partnership on his or her individual tax return. In addition, each partner must make quarterly estimated tax payments to federal and state governments. Although the partnership does not pay income tax, it still must file certain reports with the government.  Partnership law can be complex and you should seek advice from a partnerhip lawyer. <<top>> or <<Questions>>

How is a corporation different from a sole proprietorship or partnership?

From a legal standpoint, corporations are as different from sole proprietorships and partnerships as day is to night. Unlike a sole proprietorship or a partnership, a corporation is a totally separate legal entity from the owner of the company. This is true even if there is only one shareholder of the corporation. Because the corporation is a separate legal entity from the owner(s), there are different filing requirements and different liability and tax issues.  The following is a brief summary of corporate law.

In order to create a corporation, you must file Articles of Incorporation with the North Carolina Secretary of State. The name for your corporation must be unique, that is, it can not be the same as any other corporation filed with the Secretary of State. To determine if the name you want to use has been taken by someone else, go to the website of the North Carolina Department of the Secretary of State:

Note that the name you choose must end with the word Corporation, Incorporated or Limited, or an abbreviation of one of these words.

Once you determine the name of the corporation, Articles of Incorporation must be filed with the Secretary of State. The current filing fee for Articles of Incorporation is $125.00. Articles of Incorporation generally are not long or complex documents. However, there are certain legal requirements of what must be included in the Articles of Incorporation.

Corporations are, in the eyes of the law, totally separate from the owner of the corporation. As a result, the owner has no personal liability for the actions of the corporation. Thus, the shareholder(s) can not be found personally responsible for the debts or liabilities of the corporation. For example, let’s say you owned stock in Enron. When it went bankrupt, you, as a shareholder, were not responsible for debts of Enron. The same is true of a small closely held corporation. Even if you are the sole shareholder and run the business on your own, you are not liable for debts incurred by the corporation.

There is a major exception to the limited liability aspects of a corporation. For the shareholders to have limited liability, the corporation must act like a corporation. If you form a corporation by filing Articles of Incorporation with the Secretary of State and thereafter ignore all the rules about operating a corporation, a creditor can “pierce the corporate veil” and you can be held personally responsible for the corporation’s debts. To maintain your limited liability, you need to comply with the rules of running a corporation. For example, you must have corporate bylaws. You must issue stock to shareholders. There must be a Board of Directors for the corporation. There has to be a first meeting of the Board of Directors where they adopt the corporate rules. The Board of Directors must have at least annual meetings. The Board or the officers of the corporation must approve certain actions on the part of the corporation. Contact the Huffman Law Firm, P.A. in order to make sure your corporation complies with all corporate law requirements.

Corporations can also receive special tax treatment. Sole proprietorships and partnerships do not directly pay income tax. All of the income of those organizations is passed through to the owners. Corporations may be treated differently. The income of a corporation may be viewed by the IRS as totally different from that of the shareholders (depending on whether or not your corporation is an S corporation). In that case, the shareholders are taxed only on the dividends they receive and not on the entire income of the corporation.<<top>> or <<Questions>>

Is a limited liability company the best way to set up my business?

A Limited Liability Company is best for some people, but is not for others. Every situation is different. If there was one type of business that is best for every situation, then there would not need to be multiple forms of business organizations. A limited liability company (LLC) combines characteristics of both corporations and partnerships (or, for one-person LLCs, sole proprietorships). LLCs provide the corporation's protection from personal liability for business debts. On the other hand, it has the pass-through tax structure of partnerships and sole proprietorships.  The Huffman Law Firm, PA as an LLC attorney, can help guide you through LLC law issues.

Like a corporation, an LLC can be official only when Articles of Organization are filed with the Secretary of State. The name of your LLC must be different from the name of every other LLC filed in North Carolina. To determine if the name you wish to use is available go to website of the North Carolina Department of the Secretary of State:

The filing fee for Articles of Organization is currently $125.00. In addition to filing Articles of Organization, you must create a written LLC operating agreement. While the Articles of Organization are usually rather simple documents, the operating agreements are often quite complex. They usually define the LLC members' rights and responsibilities, their percentage interests in the business, their share of the profits and the procedure for dissolving the LLC. An LLC can be either “member-managed” or “manager-managed”. The majority of small LLCs are member managed. Each member of a member-managed LLC usually has equal rights in the management of the LLC.

Like shareholders of a corporation, all LLC owners are generally protected from personal liability for business debts and claims. This means that if the LLC can't pay a creditor, the individual owners are not legally responsible for the LLC’s debts. Like a corporate shareholder, LLC owners can lose only the money that they've invested in the LLC. That is why they are called "limited liability" companies. Also, like with corporate shareholders, an owner of an LLC can become personally liable for the businesses' debts if he or she treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.

The main difference between a corporation and an LLC is that an LLC is not considered separate from its owners for tax purposes. Like a partnership or sole proprietorship, the LLC income passes through the business to the LLC members, who report their share of profits on their individual income tax returns. Each LLC member must make quarterly estimated tax payments to the IRS. Like a partnership, the LLC must file a form with the government outlining the profit or loss attributable to each owner. <<top>> or <<Questions>>

As can be seen from the above, business law and corporate law is exceedingly complex. There are many different problems that can snare the uninformed business owner. If you have questions about the formation or operation of your business, please call the Huffman Law Firm, P.A.

1-800-222-3600