With a potential for rapid growth, it is important that the “rules of the game” are established right from the start. A proper business structure helps to avoid unnecessary disputes in the future, whether among founders or between the business and third parties such as service providers, employees, and investors.
An LLC, for example, may be adequate for a small and closely held business, but can be highly cumbersome when multiple shareholders, investors, and holders of options are involved. Conversely, a complex structure such as a limited partnership structure or a multiple shareholder C-Corp may be inefficient for a small business, but may be a viable route for an VC fund or a mid sized enterprise.
Business structure can take many forms, such as a common law partnerships, a limited liability company, an S-Corporation, a C-Corporation, or a limited partnership, among other types of entity structures.
Issues may arise in the future that you and your business partners may not even be considering today. For example, a business partner may make multiple investments in the business, and years down the line may require that the funds be repaid with interest, or that he or she be granted additional shares. Similarly, a business partner may become disinterested and quit working on the business, but still insist on the recognition of his or her large ownership percentage.
These issues, as well as many other issues should be addressed from the start. Other examples include: spending authority, tax liability, contracting authority, non-compete provisions, management limitations, death or incapacity of a member, bankruptcy of a member, acceptance of new members or partners, loans to the business, capital calls, share dilution, removal of partners, and many, many more issues.
Our law firm is experienced with the preparation and negotiation of business structures. If you are opening a business by yourself, or entering into a business with a third party, contact our attorneys today for legal guidance with your business structuring.
Additionally, with 10 years of commercial litigation experience, our law firm understands how disputes can best be avoided through business structuring and, in the unfortunate event of a business dispute, our attorneys have seen how specific clauses within operational agreements can play an important role in the outcome of litigation.
Among the business structuring matters that we handle are:
- LP Agreements
- Subscription Documents
- Fund raising
- Intellectual Property Protection
- Federal and State Compliance
- Partnership Agreements
- Operating Agreements
- Shareholder Agreements
- Licensing Agreements
- Employment Agreements
- Options Contracts
- Convertible Notes
- SAFE and KISS Documentation
- Letters of Intent
- Corporate By-laws
- Mergers and Acquisitions
In addition to structuring for corporate and contractual efficiency, tax implications must always be considered. Our team works together with external CPAs and tax counsel in order to help our clients to fully analyze not only the business strategy behind a specific structure, but also the tax implications.