USA Corporate Law
Corporate law is the body of laws, rules, regulations and practices that govern the formation and operation of corporations. It’s the body of law that regulates legal entities that exist to conduct business. The laws touch on the rights and obligations of all of the people involved with forming, owning, operating and managing a corporation.
Our team provides a wide range of corporate services to businesses of any size and in any stage of development. In many cases, we provide incorporation services and continue on as general counsel, advising on operational issues that the business may encounter. Some of the services we provide for our clients include: business entity formation, regulatory compliance, maintaining corporate records, structuring business acquisitions, handling employee immigration issues, advising on employment issues, complex corporate mergers, and outside general counsel advisory.
Business Entity Formation – Types of business legal structures
Business formation is a necessary early step when starting a business. The way in which your business is formed will determine the personal liability of the founders, how taxes are paid, and other important details. The main business legal structures are:
- Sole Proprietorship - The sole proprietorship is the most simple form of business entity. There is no formal procedure to form a sole proprietorship and there are few formal accounting requirements. There are no separate tax forms; you file taxes on your own personal income tax return. You can easily exchange personal and business assets. This is how most bloggers and freelancers operate. Owner is personally liable for all of the business’s debts and liabilities—someone who wins a lawsuit against your business can take owners personal assets. There’s no real separation between owner and the business, so it’s more difficult to get a business loan and raise money (lenders and investors prefer LLCs or corps).
- Partnership -Partnerships share a lot of similarities with sole proprietorships—the key difference is that the business has two or more owners. There are two kinds of partnerships: general partnerships (GPs) and limited partnerships (LPs). In a general partnership, all partners actively manage the business and share in the profits and losses. Unlike a general partnership, a limited partnership is a registered business entity. To form an LP, you must file paperwork with the state. In an LP, there are two kinds of partners: those who own, operate, and assume liability for the business (general partners), and those who act only as investors (limited partners, sometimes called “silent partners”). Limited partners don’t have control over business operations and have fewer liabilities. They typically act as investors in the business and also pay fewer taxes because they have a more tangential role in the company.
- Limited Liability Company (LLC) - A limited liability company takes positive features from each of the other business entity types. Like corporations, LLCs offer limited liability protections. But they have few paperwork and ongoing requirements, and in that sense, they are more like sole proprietorships and partnerships. Another big benefit is that you can choose how you want the IRS to tax your LLC. You can elect to have the IRS treat you as a corporation or as a pass-through entity on your taxes. Owners don’t have personal liability for the business’s debts or liabilities. You can choose whether you want your LLC to be taxed as a partnership or as a corporation. It’s more expensive to create an LLC than a sole proprietorship or partnership (requires registration with the state).
- C Corporations - A C-corporation is an independent legal entity that exists separately from the company’s owners. Shareholders (the owners), a board of directors, and officers have control over the corporation, though one person in a C-corp can fulfill all of these roles, so it’s possible to create a corporation with you in charge of everything. With this type of business entity, there are many more regulations and tax laws that the company must comply with. Methods for incorporating, fees, and required forms vary by state. Owners (shareholders) don’t have personal liability for the business’s debts and liabilities. C-corporations are eligible for more tax deductions than any other type of business. C-corporation owners pay lower self-employment taxes. You have the ability to offer stock options, which can help you raise money in the future. Its more expensive to create than sole proprietorships and partnerships. C-corporations face double taxation: The company pays taxes on the corporate tax return, and then shareholders pay taxes on dividends on their personal tax returns. Owners cannot deduct business losses on their personal tax return. There are a lot of formalities that corporations have to meet, such as holding board meetings and shareholder meetings, keeping meeting minutes, and creating bylaws.
- S Corporations - An S-corporation preserves the limited liability that comes with a C-corporation but is a pass-through entity for tax purposes. This means that, similar to a sole prop or partnership, an S-corp’s profits and losses pass through to the owners’ personal tax returns. There’s no corporate-level taxation for an S-corp. Owners (shareholders) don’t have personal liability for the business’s debts and liabilities. No corporate taxation and no double taxation: An S-corp is a pass-through entity, so the government taxes it much like a sole proprietorship or partnership. Like C-corporations, S-corporations are more expensive to create than both sole proprietorships and partnerships (requires registration with the state). There are more limits on issuing stock in S-corps vs. C-corps. You still need to comply with corporate formalities, like creating bylaws and holding board and shareholder meetings.
- Nonprofit - A Nonprofit Corporation is an incorporated entity designed to perform activities and enter transactions without the traditional intent of generating profits. A Non-Profit Corporation provides for many of the same shields from liabilities to its shareholders that a traditional Corporation provides. Contrary to its title, a Non-Profit Corporation can in fact generate profits, but that must not be its primary intent, and all profits must be used in furtherance of the non-business goals of the Non-Profit Corporation. There are no capital distributions or dividends paid to shareholders in a Non-Profit Corporation.
Mergers & Acquisitions (M&A)
Mergers and acquisitions (M&A) are defined as consolidation of companies. Differentiating the two terms, Mergers is the combination of two companies to form one, while Acquisitions is one company taken over by the other. M&A gives buyers looking to achieve strategic goals an alternative to organic growth; It gives sellers an opportunity to cash out or to share in the risk and reward of a newly formed business.
We have professionals with knowledge and experience with Merger & Acquisition transactions for companies from a wide range of industries. Our practice areas include Structuring the Acquisition, International and Domestic Tax Planning, Securities and Corporate Law issues, Legal Due Diligence, Reviewing and drafting of term-sheet, definitive agreement, escrow agreement, stock swap agreement, etc.
Stages involved in any M&A:
This step primarily focuses on the business assessment of the target company. Not only the latest financials of the target company are scrutinized, its expected market value in future is also calculated. This close analysis includes the company’s products, capital requirements, brand value, organizational structure, etc. This process is mainly to scan for a good strategic fit for the acquiring company.
Begin acquisition planning
The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger or acquisition the target company is.
Perform valuation analysis
Assuming initial contact and conversations go well, the acquirer asks the target company to provide substantial information (current financials, etc.) that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target.
Once the target company is selected, the next step is to start negotiations to come to consensus for a negotiated merger or a bear hug. This brings both the companies to agree mutually to the deal for the long term working of the M&A.
M&A due diligence
Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc.
Purchase and sale contracts
Assuming due diligence is completed with no major problems or concerns arising, the next step forward is executing a final contract for sale; the parties will make a final decision on the type of purchase agreement, whether it is to be an asset purchase or share purchase
Financing strategy for the acquisition
The acquirer will, of course, have explored financing options for the deal earlier, but the details of financing typically come together after the purchase and sale agreement has been signed.
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