Transcript - Tiffany & Bosco PA

STARTING OFF ON THE RIGHT
FOOT: BUSINESS FORMATION
AND OWNER AGREEMENTS
James P. O’Sullivan & May Lu
Tiffany & Bosco, P.A.*
Camelback Esplanade II, Third Floor
2525 E. Camelback Road
Phoenix, AZ 85016
(602) 255-6017; (602) 255-6032
[email protected]; [email protected]
* Offices in Phoenix, AZ and Las Vegas, NV
Disclaimer
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Information presented here is general information.
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Choice of the right legal strategies for your business
depends on your fact situation and how the law and
market conditions apply to that situation.
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Consult professional advisors such as your
accountant, insurance professional and business
attorney.
INTRODUCTION
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Why Bother?
CHOOSING A BUSINESS ENTITY
FORM
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Comparison of Business Structures Chart
Available Legal Forms
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Sole Proprietorship
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Partnerships
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Corporations
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Limited Liability Company
Sole Proprietorship
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Limited value, considering allowance of onemember LLC in Arizona and many other
states
Partnerships
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General Partnership
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Limited Liability Partnership
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Limited Partnership
General Partnership
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In a general partnership, all partners
subject to personal liability!
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Innocent Partner Still Liable
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“Thelma and Louise” Rule
Limited Liability Partnership
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If general partnership or limited
partnership, easy and wise to switch to
LLP
Limited Partnership
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Still need at least one general partner
 Usually ‘money’ person and ‘manager’
Unlimited liability for general partner
Corporations
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‘S’ Corporation
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‘C’ Corporation
C Corporation
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Default whenever a corporation is created
Limited liability for shareholders
Corporate Formalities
S Corporation
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Tax Election of a C Corporation or
Limited Liability Company
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Protection still the same
S Corporation
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Relatively confining requirements
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Corporation of state or U.S. territory;
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Limits on who can be shareholders;
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No more than 100 shareholders;
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Only citizens or residents of U.S. may be shareholders;
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Only one class of stock (can have voting/non-voting).
Limited Liability Company
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Limited Liability – Even for one member
Ability to Elect Federal Taxation as
Corporation or Partnership
History of LLC Statutes
Limited Liability Company
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Management
 Member-managed
 Manager-managed
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Very Flexible Organization
No Annual Reports in AZ
Typically, Less Formalities to Operation
than Corporations.
Arizona Corporation Commission
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www.cc.state.az.us
Search Corporations, LLCs, Trade
Names, & Trademarks
Check Name Availability
Forms, Instructions, and Fees
Arizona Secretary of State
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http://www.azsos.gov/business_services/filings.htm
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Search Partnerships, Trade Names &
Trademarks
Checklist for Limited Partnership Filings
Applications for Trade Names & Trademarks
Forms, Instructions, and Fees
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OWNER AGREEMENTS
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Different Types, But Similar Issues:
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Partnership Agreement (Partnership)
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Articles of Incorporation, Bylaws, Shareholder
Agreement (Corporation)
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Articles of Organization, Operating Agreement
(Limited Liability Company)
Money Concerns
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How does money come in?
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Debt (Personal Guaranties)
Equity
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“Sweat” Equity
Money Concerns
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How does money come
out?
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Return on Investment
Profits and Losses
Compensation to
Owners/Employees
Governance and Management
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Differences Among Business Entity Forms
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Board of Directors, Officers and Shareholders
Partners
Managers and Members
Governance and Management
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You’re not the boss of me! (Are you?)
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What duties and rights do the parties have?
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A.R.S. Section 10-732
Governance and Management
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When, Where and How Do They Meet?
What Must They Do to Act?
Records and Oversight
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Access to Internal Information
Audits
Financial Reporting
Tax
Protection From the Outside
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Insurance
Indemnification
Restrictions on Transferability
Spousal Provisions/Consents
Grounds for Business Divorce
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Breaches
Dissolution
Release from Guarantor
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Indemnification
Security for Payment
Exit and Termination
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Triggering Events
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Death, Disability
Divorce
Termination
Tag Along/Bring Along
Non-Compete/Trade Secrets
Exit and Termination
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Call Right?
Right of First Offer/Refusal?
Buy-Sell Rights?
Shotgun?
Valuation of Business
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Book Value
Fair Market Value Determined by Appraisal
Fixed Initial Price + Annual Increase Based
on Earnings/Other Factor
Amount Offered by Bona Fide 3rd Party
Purchaser
Value on Company’s Earnings * Some
Multiplier
Payment Terms
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Cash
Promissory Note
Cash and Promissory Note
Life Insurance/Disability Insurance Proceeds
Security for Payment
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Pledge of Stock
UCC Lien
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Against assets of the company and/or owner
Personal Guaranty
Saving the Marriage (or at least the business)
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Alternative Dispute Resolution
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Informal Negotiations
Formal Negotiations
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Mediation
Arbitration
Saving the Marriage (or at least the business)
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Litigation
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Restraining Order/Injunction
More Legal Considerations
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Notices
Choice of Law
Attorneys’ Fees
Attorney Representation Provision
QUESTIONS?