Partnerships/LLC Formation
In addition to corporations (both S Corps and C Corps), limited liability companies (LLCs) are a popular legal entity used for establishing a business, especially one with multiple owners. Although both forms of business can shield personal assets, each one has its own distinct benefits and potential disadvantages.
Partnerships/LLC formation is a practice area that requires a thorough understanding of how the areas of business transactions, intellectual property, and dispute resolution intersect.
A company's success is intricately tied to the way it is structured and organized from its inception. Owner disagreements over matters that should be decided when the business is established can stifle growth, demoralize employees and waste valuable assets in costly litigation.
A well-defined ownership agreement can prevent internal disputes from escalating into protracted court battles or help companies avoid these situations in the first place.
A Cautionary Client Tale
How one company went through costly, acrimonious litigation because their shareholder agreement was created by an immigration attorney with no experience in legal partnership matters.
Read more…
How Nina L. Kaufman, Esq. can help
We've seen how bad relations among owners can destroy a business, especially if roles and expectations are not clarified from the outset. Based on our experience in forming our own business partnership, as well as numerous corporations and LLCs for clients, we help clients weigh the legal, tax and related issues to determine the best legal form of business for them–whether a company starts with one or multiple owners.
We also provide ongoing advice to ensure that carefully-drafted ownership agreements are in place and understood by all parties as the business grows.
Nina L. Kaufman, Esq. provides sound legal advice and assistance for a wide range of partnership/LLC formation issues, including:
Structure
- Forming corporations and limited liability companies
- Establishing partnerships
- Preparing and filing fictitious name statements ("DBAs")
- Preparing operating, shareholder and partnership agreements (including those of professional practices)
- Developing succession plans
Operation
- Setting roles each partner will play in the business
- Establishing compensation arrangements
- Allocating each partner's financial (and other) contributions
- Developing dispute resolution procedures
- Formulating exit strategies and valuation formulas upon buyout of an owner's interest
A Cautionary Client Tale
One client had started a clothing design company with his childhood friend. However, their shareholder's agreement had been prepared by their immigration attorney who had no legal background or expertise in partnership matters.
The agreement stated that our client would fund the company and the other partner would contribute the creative ideas and marketing know-how. Problems arose because the agreement provided no limits on how much our client was obliged to contribute financially or how much the other partner could spend. Not surprisingly, the partner was outspending what our client felt was necessary to keep the company afloat financially. Unfortunately, the situation ended badly in costly litigation.
This cautionary tale demonstrates the risk of using an unskilled attorney to prepare a shareholder agreement. Neither owner's obligations were clearly defined, nor was there a viable exit strategy–situations that could have been avoided had the client come to us first.
(Please see our suggestions on "Choosing Advisors" for ideas on what to look for when selecting an attorney.)
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