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BUSINESS LAW

In our business practice at JAMES M. KOSMAS, P.A., we counsel clients as to the best type of entity to suit their needs. We form corporations, limited liability companies (LLC), and other entities.

We also prepare various types of business contracts including employment agreements, consulting agreements, confidentiality agreements, and acquisition agreements.

Corporations / LLCs

Forming a business, or creating an entity for an existing business, is a complex series of tasks that require expert legal advice. JAMES M. KOSMAS, P.A. will ask the right questions of the business owner(s) to ensure the entity is properly created and/or the existing business is properly transferred to that entity.

All too many business owners (including experienced ones) attempt the "Do it yourself" method of establishing entities for their new expanding business operations. Anyone can go on the Secretary of State's website, print and fill out a form, and mail it in with a check. Are you now "incorporated"? Maybe, but the failure to comply with a litany of corporate formalities may render that corporation useless (and in the long run, very expensive).

Perhaps you've seen those Internet incorporation services that claim to set up entities for a fraction of what attorneys charge. Are they right for you? Usually not. First, they only generate forms and boilerplate documents. Second, these services are prohibited from offering any legal advice of any kind (if they do, it may constitute the unauthorized practice of law). Finally, your business is not a form! Shouldn't you at least ask an attorney a few key questions?

Choice of Entity Decision

If you're reading this, you likely are either thinking about starting a business and aren't sure which form of entity is best for you; or, you're already in business and either 1) are still operating as a sole-proprietorship or general partnership and have liability concerns; 2) aren't sure whether your existing entity is still the proper one; or 3) have an entity that may not have been properly set up or maintained. The proper choice of business entity is a critical decision, and you can't make an intelligent choice without solid legal advice. Make a mistake here, and you'll likely pay for it later. JAMES M. KOSMAS, P.A. will consult with you (and your partners, if any) to properly determine which form of business entity is right for you and your business. We ask you questions based on years of experience that most non-lawyers simply aren't familiar with.

Incorporation

Choosing to incorporate your business is an important step but it must be done right! That is why you need an attorney. Merely filing Articles of Incorporation is insufficient to provide your business the liability protection and tax advantages you seek. For tax purposes, corporations are either "C" corporations or "S" corporations. By default, all newly formed corporations are "C" corporations. "S" corporation status can be elected at the outset of the incorporation, and under limited circumstances, at a later date.

A "C" corporation is a completely separate taxable entity from the shareholders. All profits are retained by the corporation, which pays its own taxes. Traditionally, shareholders in a "C" corporation simply pay themselves a salary so that the corporation has little or no income at the end of the taxable year. Any retained earnings are taxed at the corporate level, and if those profits are later paid out as dividends to shareholders, they are taxed again at the personal level. This is commonly known as "double taxation" and should be avoided at all costs. It is for this very reason that no individual or small group of investors should ever hold real estate in a "C" corporation.

An "S" corporation is commonly called a "pass through" entity. Even though an "S" corporation has its own taxpayer ID number, all profits (and sometimes losses) pass through to the individual shareholders. This can be a huge advantage in start-up phases, especially where the shareholder is an active participant and wants to use the start-up losses to offset profits or wages on his or her personal return. Which is right for you? Sounds confusing? Only your C.P.A. can give you specific tax advice. JAMES M. KOSMAS, P.A. asks the right questions, and coordinates with your tax professional, to help you select the right corporation for your business.

Limited Liability Companies

Although newer than corporations, LLCs have the same liability protections as a corporation, and usually with far fewer formalities.

Depending on elections made by the LLC and the number of members, the IRS will treat an LLC as either a corporation, partnership, or as part of the LLC's owner's tax return (a "disregarded entity"). Specifically, a domestic LLC with at least two members is classified as a partnership for federal income tax purposes unless it affirmatively elects to be treated as a corporation. And an LLC with only one member is treated as an entity disregarded as separate from its owner for income tax purposes (but as a separate entity for purposes of employment tax and certain excise taxes), unless it affirmatively elects to be treated as a corporation.

An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification must file an "Entity Classification Election" to elect how it will be classified for federal tax purposes. Generally, an election specifying an LLC's classification cannot take effect more than 75 days prior to the date the election is filed, nor can it take effect later than 12 months after the date the election is filed. An LLC may be eligible for late election relief in certain circumstances.

An LLC is either "member-managed" (managed by all of its members) or "manager-managed" (managed by one or more designated managers). A manager can, but need not be, a member of that LLC. Is an LLC right for you? Again, it depends. If you simply want to provide additional liability protection without a complicated set of ongoing formalities, LLCs work well. If you need to take advantage of certain tax benefits, a corporation may be best. JAMES M. KOSMAS, P.A. can form your Limited Liability Company and create Operating Agreements and all other instruments required for the LLC.

Partnerships and Agreements

OK, so you've formed your corporation or LLC. Now what? Are you (and possibly your spouse) the only members or shareholders? If not, your minority owner(s) will have substantial rights that require extensive disclosure. The majority owner(s) also have extensive fiduciary duties (that most didn't even know existed).

All too often, business "partners" fail to adequately discuss their rights and obligations to each other at the outset of their business relationship. Further, few partners reduce their agreements to writing, leaving the situation ripe for future confrontation when one partner has a different recollection than the other. As used on this page, the term "partner" refers to shareholders in a corporation, members in an LLC, and partners in a limited or general partnership. JAMES M. KOSMAS, P.A. can discuss your relationship with other partners, ask the right questions, and draft an agreement that clearly specifies each partners' rights and obligations toward each other. We ask the critical "what if" questions that few partners know how to ask themselves. The result… a better business relationship for all. We see far too many partnership disputes in our office that could have been avoided if the partners had taken a few precious minutes to consult with an attorney before going into business. Unfortunately, these disputes often end up in litigation, which is very expensive and time consuming.

Business Buy-Sell Transactions

Thinking about buying a business? Maybe not all of it, but as an incoming partner? Thinking about selling your business (in whole or in part)? If the answer to these questions is "yes", then JAMES M. KOSMAS, P.A. can draft business buy-sell agreements to protect your rights and limit your liabilities. For example, should you buy the existing business entity or form a new entity and purchase just its assets? Each has complex answers that will depend on the individual circumstances of the transaction. If you are buying, how much is the business worth? After the sale, do you want a restriction on the seller's ability to set up a competing business? For how long? Will that restriction be enforceable? If you are selling, how are you allocating the purchase price? If you don't, the IRS will do it for you (and you won't like it)! Is the buyer coming in with all cash, or are you financing part of the sale? If the latter, do you have built into your agreement default provisions that allow you to "take back" the business that is not yet paid for? These questions and more need to be addressed with an attorney who understands the small business arena and is experienced with both buyers and sellers.