Our experienced team of Charleston business organization lawyers represent professionals, entrepreneurs and business owners in the formation of new businesses, converting businesses to other entity forms, moving businesses from another state, or restructuring existing business throughout South Carolina. Our lawyers serve business clients of all sizes with a commitment to quality representation, integrity and responsiveness. Please contact our law firm to see how we can work with you and your business organization – 843-564-5115.
Overview of Business Organization Law
When a new business owner or entrepreneur decides to start a new business in South Carolina or purchase a business, most often the initial considerations are: (a) how to organize the company; and (b) what business organization form will be the most appropriate. Deciding what business organization forms (e.g., sole proprietorship, general partnership, limited partnership, limited liability company, or corporation) will be the best depends on various tax and other factors and considerations. For example, some businesses, especially newly organized startups with undeveloped revenue streams it would simply not make sense to incorporate as a South Carolina corporation. While other businesses, like banking and insurance institutions, must, by law, be incorporated as a corporation. On the other hand, business owners involved in a wide range of business activities, can generally choose the form of business organization that best suits the business’ ownership and operational structures – and usually the selection with be a South Carolina LLC.
Choice of Business Organization Forms
An important consideration in any formation of a business is that of determining the tax and non-tax choices of the available business organization forms. Other pages of our law firm’s business transaction sections discuss in detail the various tax choices that a business owner should contemplate.
Non-tax business organization considerations involve the process by which the business owners (with the guidance of their business attorneys and accountants) compare the various types of business organizations available under the laws of the relevant state. In short, the most important considerations a business owner should consider when selecting the most appropriate business organization form is: (1) the best liability shied to protect the personal assets of the business owners; (2) the best business asset protections offered by the particular business entity; and (3) the best management structure.
The principal business organization forms are sole proprietorships, general partnership, limited partnerships, corporations, and LLCs. Choosing the most appropriate business organization can be daunting and complex for many business owners. Because the stakes are high in choosing the correct business organization, the selection process should be undertaken with diligence and care. The following are few business organization issues that our Charleston business organization lawyers encourage every business owner to consider:
Choice of State Law in Business Organizations
When forming a business organization, all but the most sophisticated and high stakes businesses should be organized and domiciled in state where the principal operations of the company will be conducted. In other words, for the majority of businesses operating in South Carolina it would not be appropriate to organize the business in a foreign state, such as Delaware, Wyoming, Nevada, etc. In most situations, the business should be organized in the the home state of the business owners.
However, business owners may sometimes select a foreign state to organize the business due to home state business organization rules that are less favorable. Moreover, it sometimes happens that a business is organized with multiple owners in different states. In these situations the business owner will need to determine where the primary operations will be conducted and decide whether domicile the business in that state. If operations will be conducted by the business owners (or other employees, agents) in multiple states, the company will need to consider applying for authority to transact business in each and every state in which it has operations.
Different Classes of Business Owners
Generally speaking, business owners may be divided into three classes: (1) individuals forming single-owner business organizations; (2) a business entity forming a single-owner business organization; and (3) two or more natural persons or business entities (or trusts) forming multi-owner business organizations.
An individual forming a single-owner business entity may elect to form the business as a sole proprietorship, a single-shareholder corporation, or as a single-member LLC. A business entity forming a single-owner business entity may elect to form a single-shareholder corporation or as a single-member LLC. Two or more persons or business entities forming a multi-owner business organization may elect to form their business as a partnership, limited partnership, limited liability partnership, multi-shareholder corporations, or multi-member LLCs.
Three Business Organization Law Issues That Matter
Business owners are primarily concerned with three important business organization law issues. The three issues are as follows: (1) limited liability; (2) business asset protection; and (3) management structure.
The first issue that is typically of concern to business owners is whether they will be personally liability for the debts incurred by the business. The business owners of LLCs and corporations generally have no personal liability for the debts of the company, except insofar as these liabilities did not arise from the owner’s personal misconduct or grant of a personal guaranty.
The second issue that is typically of concern to business owners, especially professionals, is whether the business assets will be protected from a business owners creditors in their individual capacities. State limited partnership and limited liability company statutes will address the rights of creditors who hold unsatisfied judgments against limited partners or members. Generally, the creditors may obtain charging orders in special circumstances but generally do not have any right to require a limited partner or member to sell LP or LLC assets in satisfaction of his or her debt to the creditor. However, sole proprietorships, general partnerships and corporations do not provide their business owners with business asset protections.
The third issue that is typically of concern to business owners is the management structure of the business organization form. In business where every owner participates in management (i.e., in sole proprietorships, LLCs in which each member is also a manager, general partnerships, and corporations in which each shareholder is also a director and an officers) business owners will not generally be concerned about this issue, since each of them has the authority to directly manage the business. However, regarding passive owners of business organizations (i.e., owners who do not directly participate in management), the issue of management is critical. Passive owners include limited partners of limited partnerships, non-manager members of manager-managed multi-member LLCs and shareholders who are not directors or officers of single or multi shareholder corporations). For passive owners, the corporate business organization form may be an attractive option from the viewpoint of management structure effectiveness due to the statutory corporate structure and maintenance requirements.
Business Organization Law Definitions
Business organization law means the field of state statutory and case law in connection with the creation of business organizations and with the legal rules that govern these business organizations and their owners, including rules governing the liability of owners for debts of their business organizations and the internal governance of economic and non-economic (such as voting, management structure, etc.) within business organizations. The primary fields of business organization law are sole proprietorships, general and limited partnerships, corporations, limited liability companies, and business trusts.
Business entities is defined as individual business organizations registered under the state business organization law to exist as legal persons separate from the respective business owners. In general, under state law business entities are authorized with the same powers as natural persons (e.g., the business entity may enter into business contracts, hire and fire employees, and to borrow and lend money.
A business organization form means a business organization structure that results from the application of set of statutory and common law rules that govern a type of entity (i.e., partnerships, limited liability companies, corporations, etc.).
The conversion of an entity generally means a change of the business entity’s business organization form. For example, ABC is a general partnership under the laws of the State of South Carolina. ABC’s partners decide to covert the partnership to a limited liability company to maximize the liability protections an LLC affords its business owners. The business owners effect this conversion by forming an LLC in the State of South Carolina (XYZ, LLC), with its principal office in Charleston, and distribute the partnership assets to the newly formed South Carolina LLC. After distribution of the assets to the XYZ, LLC, the partners dissolve ABC and issue membership interest in XYZ, LLC to the new members in exchange for the assets transferred from the partnership to the LLC.
Popular Legal Issues on Business Organizations
South Carolina business organization forms address the following set of legal issues: (a) the formation, operations, and termination of business organizations under each available business organization form; (b) the economic and management rights, duties, privileges, and liabilities of the business owners, officers, managers, agents, and employees of the business organization; and (c) the relationship between the business organization, the business owners, their managers, officers, employees and agents, and outside third parties, such as lenders.
The following are some of the more popular issues that courts across the country address in connection with business organizations, especially with limited liability companies: (1) cases involving the business entity status; (2) cases involving the nature of the ownership interest of the business owners; (3) cases involving the freedom of contract and contract enforceability; (4) cases applying contract interpretation in construing company agreements (such as operating agreements); (5) cases involving business entity conversions; (6) cases involving statutory charging orders; (7) cases involving rights of dissociated members or minority shareholders; (8) cases involving shareholder, partners or member disputes; (9) cases involving treatment of minority business owners by majority business owners.
Contact Our Charleston Corporate Lawyers
Our Charleston business organization attorneys have significant experience and resources to handle a wide range of business organizations in a diverse number of business industries. To schedule a consultation with one of our corporate lawyers today, please contact us online, email or give us a call at 843-564-5115.