Business and Commercial Law
Q. I am about to go into business. Should I incorporate?
A. That question cannot easily be answered. There are several conventional ways to do business, some of which offer advantages over the others. The sole proprietorship, for example, creates no limitations on management or decision making, and the sole proprietor has total enjoyment of the profits, or the burdens of the losses. A partnership is an organization involving more than one person, in which each of the partners participate in the profits and losses. As with the sole proprietorship, and unless you form a limited liability partnership, there is no limitation on the partners' personal liability, and, in fact, each of the partners may be personally liable for the other partners' obligations. A corporation possesses the attributes of limited liability. As a general rule, the officers, directors, and shareholders are not personally liable for the corporation's debts. Thus, if your concern is to limit your liability, you should incorporate.
Q. What is a limited partnership?
A. It is a variation of the traditional partnership consisting of two or more persons in which there are one or more general partners (unlimitedly liable for the debts of the business with general power of management), and one or more limited partners who have no personal liabilities for the debts of the business, and very limited powers of management.
Q. Is there an income tax disadvantage to operating as a corporation?
A. Corporations are independent, separate tax-paying entities, with their own tax rates. Absent special circumstances and an election to be taxed as a "partnership," distributions by a corporation to its shareholders may result in double taxation, that is, taxable to the shareholders even though initially taxed to the corporation.
Q. What factors should be considered in determining whether to incorporate?
A. There are three basic variables, each of which required in-depth discussion with a lawyer and an accountant. Your accountant can best advise you on the difference in income tax treatment; your lawyer can best advise you on the advantages of limited liability and the costs and complexities of organization and operation.
Q. My debts exceed my assets. How do I go about being adjudged a bankrupt?
A. You must first file a petition with the bankruptcy courts. The petition must be supported by schedules listing creditors, details about your property and assets, and general information about your income and financial history. There will be a meeting of your creditors. There will be a gathering of your assets, and the court might examine you and/or witnesses, and, in general, look for any fraudulent conduct. Your assets will then be distributed according to the bankruptcy statutes, with the objective being to be released from debts. Generally speaking, you will not be released from alimony or child support obligations, or liabilities arising from fraudulent acts on your part.
Q. Must a contract be in writing to be binding?
A. No, not all contracts need to be in writing to be binding. Depending upon the nature of the agreement, certain oral contracts are as binding as if they were written. Some agreements, however, according to law, must be in writing in order to bind the parties.
Q. Can a person under 18 enter into a binding contract?
A. A person under 18 may enter into a valid contract, but the contract will be voidable at the "infant's" will.
Q. What is a Limited Liability Company?
A. The Limited Liability Company ("LLC") is a business form which, generally speaking, combines the income tax benefits of partnerships with the business advantages, including the limitation of personal liability, afforded by corporations. The laws that established and regulate LLCs differ from state to state, so a thorough analysis of the possible benefits and drawbacks should be made before you decide to establish the LLC as the operating structure for your business. The same is true of the Limited Liability Partnership ("LLP").
Q. How expensive is commercial litigation?
A. It depends on the number of hours devoted to the lawsuit, and that depends on the complexity of the issues. Of course, the best approach is one in the spirit of compromise, in an effort to settle before the expenses get out of hand. But, compromising claims sounding in unfair competition, or copyright and trademark infringement, or breach of contract, often becomes impossible until the discovery/inspection Frankenstein is completed . . . something which in and of itself may result in substantial fees and out-of-pocket expenses.
Q. Do I have to be "big business" to afford your firm?
A. Of course not. Despite decades of experience in representing national and international business entities in varied transactions and litigation, we do have a sliding scale of hourly charges for the small or medium sized business. And we have served as General Counsel to one of New Your City's premier chambers of commerce (consisting principally of small and medium sized entities) for over 30 years.