Forming a Business; Adding Partners

Forming a Business; Adding Partners

You are the Only Owner. Starting a business can be a complicated process.  If you are the only owner, then your issues are relatively straight forward.  But issues still exist.  These same issues arise if you decide to incorporate your existing business or transfer it to an LLC.  You need to consider the best business structure. For example, should you form a single member limited liability company (LLC) to be taxed as a sole proprietorship? Or perhaps it would be more advantageous to form a single member LLC and elect to be taxed as an S Corporation. Should you own your property in one limited liability company and lease the property to your operating LLC.  Then if problems erupt in one limited liability company hopefully the assets of the other LLC would be protected. Should you own your patents in your personal name, or in a limited liability company, corporation or other entity (again to avoid putting all of your eggs in one basket)?

Multiple Owner Issues. You must consider many issues when forming a start-up business with another.  Similar issues arise when you decide it is time to take a partner.  It is more complicated than just shaking hands.  Again, what is the optimal structure for the multiple owner start up or to admit a new owner? Should you use an S Corporation or limited liability company (LLC)? Perhaps it’s more advantageous to form an LLC and then elect to be taxed as an S Corporation.

How will you allocate income? What if one member contributes more cash than the others? Will he or she receive a preferred return? How will decisions be made? Should one person have a greater say than another? What happens if the members are deadlocked? What about capital calls? Loan guarantees? Should the owners have the power to sell their personal ownership interest to anyone or should there be a right of first refusal? Perhaps there should be a complete prohibition against any transfer of ownership interest. What happens if one member dies? Should his or her family continue as an owner? If so, can they vote? Should the business, or its owners, procure life insurance to buyout a deceased member? What happens if a member who is to provide significant services becomes disabled? Should the now disabled service member have the same rights to distributions? Are the members required to devote their full time to the business, or should they be allowed to pursue other business opportunities? What about non-competition provisions if an owner leaves? Perhaps one owner should not have the right to compete, but others should.  These and many other issues must be considered when starting a business with multiple owners or when taking on new partners/shareholders.

Estate Planning Opportunities. For those with larger estates, you should also carefully consider estate planning opportuinties which may arise as you structure your business, or admit new owners.   The optimal structure could save you significant estate taxes if your business is successful.ou must.

Qualifications:  Gary Maddux, a Martindale-Hubbell “Preeminent” Top 5% Lawyer, has extensive business  as both in house counsel and in his current practice, and previously as a practicing CPA, in helping clients form new businesses or taking on new partners.  Also, though admittedly a small firm, Maddux and Maddux has the resources to tackle large, complex matters.

Maddux & Maddux
2642 E. 21 Street, Suite 290
Tulsa, OK 74114
Phone: 918-582-8393
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