When starting a business, you must decide what form of business entity to establish. Depending on a number of factors, some of which hold greater weight than others, your choices might include: C-corporation, S-corporation, B-corporation, LLC, partnership, sole proprietorship, etc.
Entities are not one size fits all, so it is essential that you conduct a thorough analysis to identify which entity matches best with the ongoing needs and goals of your business.
Here are several key things to consider when selecting an entity for your business:
What is the long-term exit strategy for the founders?
Will the business be acquired in five or 10 years?
Will you pass the business on to children?
Will the business continue a noble cause indefinitely? (not-for-profit entity)
How will this venture be funded?
Will you self fund the venture?
Will you target VCs, angel investors, or friends and family to invest funding?
Will you apply for grants/donations/public funding?
Does the entity need limited liability protection?
This depends on the type of business. Limited liability protection is essential for most businesses even if you aren’t selling sharp, dangerous objects. It does not hurt to have an extra layer of protection and other stakeholders (including investors) will insist upon it.
It is useful so your personal assets will not be taken to pay debts of the company. Any kind of business can fall on hard financial times and into debt.
What is the expected financial performance the first 1-2 years?
Will the business be immediately profitable?
Will it run at a loss for a period of time?
Do the founders need a unique arrangement between one another?
If profits will be divided according to ownership, then your entity choices are open. If not, then an LLC that allows for customization might be best.
Will all founders be active or will they be passive?
LLCs allow for some passive structures.
Corporations can have SOPs to reward and incentivize active founders.
How many owners will the business have and will any be non-US citizens?
S corps have restrictions on who can be a shareholder.
How much record keeping do the founders want to do/want to pay for?
Smaller consideration obviously, but sometimes people really care about this. They know they are going to have a tough time remembering to maintain the formalities of a corporation so they opt for an LLC.
Record keeping can increase each year.
If the founders’ goals/plans for the venture change after a few years, can the chosen entity be converted or adjusted to align with these changes?
Perhaps you originally wanted to self-fund and now you want to raise capital from outside investors. Or vice versa.
Which state should be chosen for formation?
We usually look at either the state where the principal place of business will be, or a state like Delaware or Nevada with other advantages.
Don’t just follow the crowd.
As you can see, you must take the time to analyze your business’ needs to determine the correct entity for it. If you need help with choosing an entity for your business, please contact Optima Law Group at 858-964-4697 or email@example.com and we can assist you through the entire process.
Optima Law Group specializes in assisting our clients with all legal aspects of their mergers and acquisitions. A merger occurs when two companies combine into one entity while an acquisition takes place when a company purchases another company. We’ve seen many different outcomes, successes and obstacles throughout theses processes and would like to offer the following advice to a company considering a merger or an acquisition.
Make sure your corporate records, contracts, and other documents are in order prior to due diligence: If your company is being acquired or merged, all this will be disclosed during due diligence. Best to make sure all is in order ahead of time so you do not have to scramble to fix problem areas during the transaction and risk looking unprepared, unprofessional, or overvalued to the other party.
Identify the optimal structure for the deal: There are many ways to structure a transaction. Work with your legal and tax advisors to identify the optimal structure possible for maximum financial benefit and minimal risk. The earlier the better.
Perform thorough due diligence on the other party: Due diligence is your chance to gather all necessary information about the other party not only for practical purposes in carrying out the transaction, but also to make sure you are comfortable with the other party and there are no skeletons hiding in their closet.
Make sure your management team maintains its focus through the entire process: During a merger or an acquisition, it is essential that management does not lose focus on the company’s day-to day operations. A manager’s time is often stretched thin during the process but it is essential to not let the current company’s operations slide.
Recognize geographic challenges: If the two companies’ headquarters are located in two different countries, this could result in language barriers, along with varying performance motivators and legal differences. It is important to recognize these obstacles so strategies can be put into place to deal with them.
Identify cultural differences: If two companies have varying cultures, such as flexible work schedules, communication policies, dress code polices, etc., this can create problems during a merger or acquisition. Again, it is important to distinguish these differences so they can be dealt with early in the process.
Involve key personnel from the early stages: It is important to involve key personnel early in the process, including human professionals who are tuned into the companies’ cultures and talent pools. However, timing is critical and will depend on the circumstances. It is also a mistake for a company being acquired to let the cat out of the bag too early in the process.
Take an intellectual property inventory: The seller needs to provide the acquirer with complete list of its IP property, including patents, trademarks, licenses, software, third party contacts, domain names, social media accounts, etc. since these are some of the most valuable assets and can drive much of the valuation of the deal.
Hire proper consultants and an experienced legal team: it is essential to hire the proper consultants and legal team during a merger or acquisition since a company’s business leaders may not possess the specialized knowledge or skills necessary to successfully guide the company through the process. A merger or acquisition can also feel like a second job due to the time required. Allow your team to shoulder some of the load. Involve them early before a Letter of Intent (LOI), Term Sheet or other preliminary document is in place so all the necessary issues are addressed for as smooth a transaction as possible.
Make sure the final deal documents are on point: Excellent deal documents will carry out the parties’ intent and agreement on all key issues, but also serve as a roadmap for the future.A year after the transaction is complete and a dispute arises as to a liability, milestone payment, or the like, the deal documents should clearly spell out to the parties what is supposed to happen. Clear deal documents will help prevent litigation and hard feelings down the road.
If you need help with a merger or acquisition, please contact Optima Law Group at 858-964-4697 or firstname.lastname@example.org and we can assist you through the entire process.
What is Intellectual Property, or “IP?” In simple terms, Intellectual Property is an intangible asset, including patents, copyrights, trademarks, secrets, etc. Your company’s intellectual property may be some of your largest and most valuable assets, especially during a sale. According to the U.S. Chamber of Commerce, America’s IP is worth $5.8 trillion, more than the nominal GDP of any other country in the world.
Since these precious assets give your company a unique competitive advantage, you must take all necessary steps to protect them. How should you protect these assets? With the help of an experienced and knowledgeable IP Attorney, you can create legal barriers to prevent your competition from stealing your company’s valuable knowledge, ideas, formulas, and everything else that your company has worked so hard to create.
It is critical that you hire the right IP Attorney to handle your Intellectual Property. Here are a few of the questions that you must ask a potential IP Attorney:
1. Does the IP attorney have experience in all IP legal practice areas: patents, trademarks, copyrights and trade secrets?
2. Does the attorney have experience in both IP protection and enforcement?
3. Does the attorney have the experience in freedom to operate analyses and IP legal opinions?
4. Does the attorney have detailed experience in IP portfolio management?
To learn why these questions are important to ask, along with other questions that you must ask, please request our free download - Ten Things to Look For When Hiring An IP Attorney.
If you need help on clarifying these questions, or finding an IP attorney who meets this criterion, please contact us at 858-964-4697 or email@example.com and we can assist you. We are also offering a complimentary Business Ambition session, along with a complimentary review of your intellectual property and referrals to attorneys that provide these services. Good luck finding the best IP Attorney to fit your needs.
Optima Law Group is pleased to introduce a new series on legal trends. We will examine current trends in the industry and how our firm is dealing with them and innovating for the benefit of our clients. We recently ran across an interesting article that addresses legal hourly legal fees, which just keep increasing.
Despite efforts by corporate clients to curtail legal expenses over the past decade, rates continue to steadily rise at many of the nation’s BigLaw firms. According to a recent article by the ABA Journal, a number of attorneys now have billing rates of as much as a whopping $1,500 per hour. Only five years ago, a billing rate of $1,000 rate was unheard of, yet firms just keep raising rates each and every year.
Optima Law Group strives to keep our rates competitive and to innovate billing practices in a number of ways:
Our firm operates in a semi-virtual environment, which greatly reduces our overhead costs. We pass this savings along to our clients.
We offer all-inclusive flat-fee arrangements, which ultimately reduce surprises and provides ultimate predictability to our clients.
We offer flexible payment plans to our clients.
We are always upfront with cost estimates for our clients, which provides them with cost predictability.
We often cap project fees for our clients.
We offer strategic pricing plans to save our clients significant money. For example, we offer patent portfolio maintenance (for companies with 100s of patents) for a reasonable, customized monthly fee.
Our team is always flexible and moves quickly to complete assignments, which saves our clients time and money.
Our firm is geared towards working with entrepreneurial clients, so we work within a not a one-size-fits-all nature.
Our team at Optima Law is always available for consultation on your business legal matters. Contact us at 858-964-4697 or firstname.lastname@example.org for a free consultation.
You may have been busy celebrating the holidays while President Obama signed “The Protecting Americans from Tax Hikes Act of 2015 (PATH),” bill into law on December 18, 2015. What does this mean for your business? As a new tax season is upon us, it is time to take note of the changes.
For the past few Decembers, Congress has passed “temporary” tax provisions but this new bill finally makes them permanent. This should give businesses confidence in 2016 as these important tax incentives has been extended through 2019, or permanently in some cases.
Here are a few of the bill’s notable Business Tax extenders:
Tax credit for research expenditures, which allows a qualified small business (i.e., a corporation or partnership with gross receipts less than $5 million in a taxable year) to elect a credit against payroll tax liability, up to $250,000, in lieu of taking a research tax credit.
Work opportunity tax credit. Allows a credit for the hiring of a qualified long-term unemployment recipient (unemployed for not less than 27 consecutive weeks).
Exclusion of 100% of gain on certain small business stock
Equalization of the tax exclusion for employer-paid mass transit and parking benefits. Expands such exclusion to include bike-sharing programs.
Increases the national limitation amount for the new markets tax credit through 2016. Extends through 2021 the period for carryover of unused limitation amounts.
Our team at Optima Law is always available for consultation on your business legal matters. While we are not tax lawyers, we do always keep tax consideration in mind in protecting and growing your business and routinely work with the best CPA and tax advisers to maximize your benefit. Contact us at 858-964-4697 or email@example.com for a free consultation.