Category Archives: Business Law

What’s the point of an LLC?

Every state in the country (including Missouri) allows a business owner to create a limited liability company (LLC).  So what’s the point?  Why operate your business as an LLC?  An LLC, along with other forms of business entities, provide two key benefits.  First, an LLC (when properly organized and properly maintained and operated) provides liability protection to its owners.  In other words, liabilities of the company remain only liabilities of the company, while the owner(s) is not financially at risk beyond their investment/ownership in the company itself. There are important limitations to this, but it is a tremendous benefit and protection to a business owner. Second, an LLC allows for what is called “pass through taxation.”  This means that the company itself is not liable for income taxes. Rather, income tax liability simply passes through to the LLC owners.  This stands in contrast to some types of corporations that require a sort of ‘double taxation’ where both the business itself and the owners are taxed.  Every business is different, but for many business owners, an LLC is an valuable tool—for the smallest one-person business to large international companies. 

Why Do I Need An Operating Agreement For My LLC?

An operating agreement is an agreement among the owners (called “members”) of an LLC, defining their ownership, management and other determinations. It would generally be in writing.

All sizes of companies need an operating agreement.  From the smallest 1-member LLC to a large multi-member LLC, an operating agreement is a critically important document.  While detail and complexity will vary dramatically between a small, simple company and a large company, the core components of an operating agreement are important for any type of business. An LLC operating agreement provides legally-binding details of how a company is operated, who owns it, how decisions are made, how additional owners are added (or removed), how profits are to be shared, how ownership interests can (or cannot) be transferred, and so on. Missouri law requires each LLC to have an operating agreement and while it is possible to maintain a “oral” operating agreement, such are inherently problematic and generally ill-advised. In many instances, a thorough written operating agreement can be simple and straightforward.

The Keys to (Very) Satisfied Clients

During my years of practice, I have always deeply valued the importance of client relationships and client service. Ultimately, it is my clients that have built my business and it is my clients that allow me to do what I love. With each family, individual or business, I focus on the following principles:

  1. Communication. Clear, timely, plain-language communication goes a long way! Follow up emails are great to keep clients posted on progress or to pinpoint additional needed information, but in-person meetings and phone calls are irreplaceable. I focus on keep keeping my clients informed on the status of our work and making sure to explain things in a straightforward and results-oriented manner.
  2. Great Legal Work; Great Results. I understand that my clients hire me to help them. Focusing on a client’s need(s) helps lead to great results. There is no doubt that spending time in the details (without charging any more for it) makes a significant difference in getting the timely results that every client is looking for. Engaging in regular continuing education courses and writing topical industry articles help me stay on top of the field.
  3. Long-term Commitment. When I begin working with a new client, I hope our relationship lasts for years. I am eager to stay in touch and meet with clients on an on-going basis. I typically do not charge any fee to meet or talk by phone to answer questions or provide ongoing guidance.
  4. Fair Fees. Clients love clearly stated, fixed-rate fees. I generally forego “hourly billing” in favor of fixed fees that we establish upfront at our first meeting. We also provide an “engagement agreement” that spells out all our fees in writing. I am committed to reasonable, fair and transparent billing—no surprises.

Trusts: When Would I Need a Trust?

A trust can be a wonderful tool to help set in place an estate plan that accomplishes a client’s goals. Situations, goals and life circumstances vary, so there really is no across-the-board answer as to whether a trust “makes sense” for a particular demographic of clients. Ultimately, putting in place a trust usually makes the best sense when a client wants to (i) avoid probate upon their death, and/or (ii) use assets, property and money for a specific purpose after their death. First, while there are some other ways to avoid probate, a trust generally does so in the simplest and most comprehensive fashion. Second, a trust is generally the only effective tool at carrying out plans or wishes that assets be used for a certain defined purpose after death. This can be particularly important when money will be needed to raise children or to fund education. However, the ability to control how assets are used is also tremendously important in circumstances where the (now deceased) creator of the trust wants to ensure that assets are not wasted away, wants to provide periodic payments for support, wants to delay all or some of the distributions and/or wants to provide for someone whose judgment or capacities may not be up to managing a large sum of money. In working with clients, I view a trust as a potential tool to accomplish the goals and plans of my client. Sometimes, we do not recommend a trust because it is just not needed to accomplish those goals. However, in many instances, this tool becomes very important and is a critical part of setting in place a comprehensive, complete and meaningful estate plan.

Estate Planning and Business Ownership

In the course or working with clients on their estate planning (will, trust, etc.), I frequently address ownership of a company. Most often this would be an LLC membership interest but could also be a corporation, partnership or other business entity. To effectively (and efficiently) address business ownership, there are a few viable options. However, every situation is different and actual, personalized counsel is tremendously important.

First, ownership of the LLC membership interest (or corporate stock shares) could be transferred into the name of the owner’s trust. This would, in most cases, allow for smooth transition to the owner’s family or other beneficiaries upon his or her death. Also, in the event of incapacity, trust ownership of the company would allow for quick and effective control by the named successor trustee. Probate would be avoided and a smooth transition would likely occur. This change of ownership would need to be clearly documented within the company’s records.

Second, the owner’s trust (or simply their intended beneficiaries if they don’t have a trust) could be named as the TOD (“transfer on death”) beneficiary/ies. This would leave present ownership of the LLC (or corporation) with the actual person (the owner) but would provide for an automatic transfer upon death. Probate would be avoided and a relatively smooth transition could occur. This type of TOD designation would need to be clearly designated in the company operating agreement and the related membership certificates.

Third, the owner could simply name, within their Will, who they want to receive the ownership units or stock shares of the company or corporation. This would be effective but would not avoid probate—so the time and cost to effectuate this ownership change would be less than ideal.

With any situation and any business and estate plan, the particulars and best methods vary from client to client and business to business. Importantly, other agreements within the company may have a significant impact on the owner’s ability to undertake such planning. The above overview is not legal advice and really does not replace legal advice. It is important to understand the goals, situation and business of each client and to facilitate an effective estate plan accordingly.

How Much Do Lawyers Charge? Flat Fees vs. Hourly Billing

In the course of my practice, I have learned the value that “flat fee” billing has to my clients. If you ask people what their least favorite part of working with their lawyer is, very often their answer will center on fees, the “billable hour” and increments of those hours that force them to worry about even calling their lawyer! Perhaps worse yet, clients can be left not having any idea what their final bill will be! At Schleiffarth Law Firm LLC, we charge only flat fees. Additionally, initial consultations are free of charge. My clients (and potential clients) can come in, meet with me for an hour, discuss their concerns, questions or case and leave with a precise fee agreement. Or they can even decide to not hire me (hopefully this is rare!) and there will be no bill, no charge, no fee. I have discovered that billing transparency, clearly defined fees and free consultations lead to happy clients.

How Do I Protect What I Own from Liability?

Clients frequently ask what types of steps can be taken to protect them from liability (creditors, lawsuits, etc.). This can be a particular concern for some professionals that see themselves as easy targets for lawsuits (physicians, etc.) and for all kinds of people that simply want to protect the things they have worked hard for. Whenever we discuss asset protection and liability protection, we start with four available tools: (1) an umbrella insurance policy providing insurance in the event of certain types of liability, (2) professional liability insurance and/or errors and omissions insurance policies when available (3) the use of LLCs or other business structures when appropriate and (4) the possibility of creating an asset protection trust to shield certain assets/money from potential liability. The details of how these tools are utilized varies from client to client, but each can be an important option. In particular, asset protection trusts offer some unique possibilities to reduce the likelihood of financially devastating liability.

Do I Need an LLC?

Anyone starting a business is confronted with the question of “how” exactly to set up that business. What is a corporation and what’s the benefit? What about an LLC? Why do I need any sort of special business “entity” at all? Determining what type of business entity (LLC, LLP, corporation, etc.) is a multi-faceted determination that is best made in consultation with an attorney. However, understanding the basic value and characteristics of these types of entities is important at any stage of business. Here, we will focus on the “limited liability company” or “LLC.” By creating an LLC, the owner(s) of a business creates a separate legal entity to own/operate the business. The owner(s) would then own membership interests in the LLC (similar to share of stock in a corporation). The three primary benefits of utilizing an LLC are (i) protection from personal liability from creditors (ii) avoidance of double-taxation present with some types of corporations and (iii) a significant amount of flexibility in how the company is set up, coupled with minimal ongoing administrative requirements. For many businesses, an LLC offers the most benefit and is the best fit. However, each situation, business and owner is different, so decisions relating to business creation and structure will vary for each business and owner.

5 Key Considerations for Business Owners in Missouri

Whether a business is taking its first entrepreneurial steps or is continuing on an established record of success, it is vitally important that a number of legal matters are planned for, resolved and put in order. As successful business owners know, it is much easier (and cheaper) to avoid and plan around disputes and other legal problems than it is to hire a lawyer to try to clean up a mess later. Amidst the many issues and concerns pressing on the minds of a business owner, legal preparation and legal planning is be an area where timely attention will provide peace of mind, reduced legal risk and a minimized chance of future disputes. The following five key considerations will provide fundamental guidance to business owners and businesses of all sizes:

1. Business Structure and Entity Selection.

When beginning a business venture (or at any later point, if needed) one of the most important legal decisions to make will be selection of a business form or what is often called a “business entity.” Most business owners are at least roughly familiar with what it means to be a corporation or an LLC. However, there are substantial differences in various types of business entities, each offering its unique strengths and potential drawbacks. Business owners may select to form and operate as a traditional C-corporation, as an Scorporation, a limited liability company, a limited liability partnership, a general partnership, a limited partnership or even simply as a sole proprietor. In considering the selection of the appropriate business entity, the most important factors include:
• Need for limited personal liability
• Anticipated nature of capitalization of the business (owners, investors, etc.)
• Various tax-related factors and considerations
• Manner and procedure of business administration and needed flexibility
• Preference for business name

2. Operating Agreement.

In connection with selecting a type of business entity and forming that entity, all businesses need to pay some considerable attention to the business’ operating and governing documents. While called by different names depending on the type of entity (bylaws, shareholder agreement, operating agreement, partnership agreement, etc.) these documents ultimately serve similar core functions. These matters include:
• Ownership of the business
• Management of the business
• Nature of and obligations relating to capital contributions
• Restrictions on transferability of ownership interest
• Potential for and terms of admission of new owners
• Removal of owners
• Operation and formal business procedures (voting, requirement for written resolutions,
etc.)
• Right or ability to sell ownership interests (i.e. exit strategy, etc.)

The value and importance of a thorough and well-drafted operating agreement (or bylaws,
partnership agreement, etc., as the case may be) cannot be overstated. Too many business owners end up in difficult and sometimes insurmountable situations due to poor planning or the failure to consider these important fundamental matters. Conversely, a detailed and well-drafted agreement can provide for smooth business operation, satisfied business and legal expectations, controlled ownership outcomes and increased clarity and opportunity for the business owner.

3. Employee Relationships.

Any business that hires employees will be faced with a number of important issues. While identifying and hiring the right people for the right salary/wage is a formidable challenge to begin with, of equal importance is the manner in which their employment is handled from a legal standpoint. Beyond simply hoping to avoid the less common issues of employee discrimination, wrongful termination or employee wage disputes, all employers need to give serious consideration to proactively addressing a number of other employment-related matters. A business has substantial interests that it must protect in order to thrive—and the actions of an employee may play a significant role in those interests. Three preeminent employment issues that must be considered are:
(1) Employment Contract: each employee should have some form of written employment
agreement. In some cases, something very simple will suffice. In other more
complicated employment relationships, a detailed and comprehensive agreement is an
absolute necessity. Employment contracts make clear details including (i) wage or
salary amounts, (ii) employee responsibilities, (iii) restrictive covenants regarding
employee relationships with customers and/or competitors and (iv) to the extent
possible, waiver of employer liability in various scenarios.
(2) “Independent Contractor” vs. “Employee”: The tax and liability ramifications of a worker
being classified as an “independent contractor” vs. an “employee” are significant.
However, state and federal agencies look to much more than a worker’s title or internal
named classification when making this determination. Adequate consideration must be
given to numerous details of a worker’s relationship with the employer.
(3) Non-Competition Covenants: Where needed, non-competition and non-solicitation
covenants are vitally important to protect important business interests. A former
employee stands in a unique position (and may have built unique relationships) enabling
them to take actions, such as competing with the former employer, soliciting business
from customers/clients of the business, or otherwise undermining the interests of the
company. Without precise and appropriate restrictions in place, agreed to in writing, a
business may be left with no remedy in these events. However, properly drafted noncompetition
and non-solicitation covenants can protect important business interests
and avoid what could otherwise be devastating businesses crises.

4. Tax Considerations.

As all business owners realize sooner or later, taxes play a significant role in business operations and business planning. Numerous types of tax issues must be addressed, including:
(1) Varying Taxes Based on Entity Selection. The selection of a particular type of business entity
(as discussed above) will have substantial tax ramifications. Corporations are taxed in a different fashion
than LLCs and even different types of corporations are treated differently from a tax perspective.
(2) S-Corp Tax Election. Depending the type of business and role of the owner, significant
payroll tax liability may be reduced by making appropriate tax elections. This is particularly relevant for
single-member LLCs or LLCs with only a few owners.
(3) Various Taxing Authorities. Most Missouri companies will owe some form of tax to
numerous government authorities including the IRS, the Missouri Department of Revenue and the
Missouri Division of Employment Security. Additional taxes may be due for retail sales tax and other
industry specific taxes.

5. Business Agreements / Contracts.

Most companies enter into a number of written agreements or contracts in connection with operating their business. Such contracts may include commercial real estate leases, supplier agreements, partnership agreements, service agreements, customer contracts and numerous other types of written agreements. While every business owners is anxious to save money and cut costs where possible, the importance of thorough and well-drafted business agreements cannot be overstated. Poorly written or misunderstood contracts are often the source of costly business disputes and lost revenue. On the other hand, clear, concise and well-drafted contracts provide the assurance and legal positioning to help a company move forward confidently—while minimizing the likelihood of future disputes, lawsuits and other problems.

Starting Out on the Right Foot: An Overview of Business Entity Selection in Missouri

 

 

 

Method of

Formation

 

 

Protection from Personal Liability?

 

 

Taxation

 

 

Administration

 

Flexibility  to make Changes

 

 

Naming

 

Personal Name

 

 

 

None

 

No protection

 

 

Owner taxed personally

 

 

None

Very Flexible

ABC Company

 

 

LLC

 

(1) Register with SoS

(2) $50 registration fee

(3) Operating Agreement

 

Protection

 

(1) Income passed through to member(s)

(2) Taxes based on percentage of ownership

 

(1) No annual meeting

(2) Follow Operating Agreement

(3) No annual fees

Flexible

ABC Company, LLC

 

S-Corp

 

(1) File Articles of Incorporation

(2) Filing fee based on number and value of shares ($50 minimum)

 

Protection

 

(1) Income passed through to member(s)

(2) Taxes based on ownership of shares

 

(1) Annual meetings

(2) Annual report

(3) Board of Directors meeting

(4) Stockholders meeting

(5) $45 annual fee

Less Flexible

ABC Company, Inc.

 

 

C-Corp

 

(1) File Articles of Incorporation

(2) Filing fee based on number and value of shares ($50 minimum)

 

Protection

 

“Double Taxation”: Corporate Level Tax + Personal Income Tax

 

 

 

(1) Annual Meetings Required

(2) $45 annual fee

Less Flexible

ABC Company, Inc.