AREAS OF BUSINESS LAW

Our law practice encompasses most aspects of small business law including incorporation, contracts, agreements and dispute resolution. Here are some of the more common areas of our practice:

Buy-Sell Agreements Stock Sales Contracts
Leases Sales of Business Purchases of Business
Employee Disputes Partner Disputes Customer Disputes
Vendor Disputes Employment Contracts Disability Planning
Corporate Notes Confidentiality Agreements Non-Disclosure Agreements
Non-Competition Agreements Non-Solicitation Agreements  


Pre-Formation Considerations
Characteristics of Business Entities
Sole Proprietorship
General Partnership
Corporations
“ S” vs. “C” Corporation
Limited Liability Company
Limited Partnership
Limited Liability Partnership
Assumed Business Name Registration
Sale of Securities


PRE-FORMATION CONSIDERATIONS

Forming a new company is usually a time of excitement for the founders at the potential and possibilities of the new business concept. “Seed money” is usually tight. No one wants to consider the possibilities of a death or disability among the founders, and a substantive dispute among shareholders seems inconceivable. Unfortunately, for most businesses, these events occur on a regular basis. Without proper planning and written agreement on the course of action, a thriving business can be quickly pulled apart by a death or a simple disagreement among the shareholders. These contingencies are above and beyond the standard incorporation package offered by CPA’s and in software packages. It does cost money to create the documentation necessary to cover these events, but it costs much more to deal with them in the future.

Do you want to be in business with your partner/shareholder's spouse or children? There are many legal cases of businesses that find themselves overrun with the children of a deceased shareholder – each wanting something different from the company, and all feeling they are entitled to “their share”. How will you handle the many unwritten agreements you and your deceased partner had worked out between yourselves? Without documentation and proper implementation there is no agreement in the eyes of the law!

How will the business be valued on a death or sale to the remaining partner? The valuation of a small business is nefarious at best, with each party using the value methodology that suits their position. It is very common to have two partners claim that the business is either worth nothing or $15M, depending on whose ox is pulling the cart…

It’s cheaper to incorporate in Nevada, because they have no income tax. It is cheaper if you are a Nevada business doing business in Nevada. It is more expensive to operate a business in Oregon that is incorporated in Nevada. You are still legally required to report income from Oregon operations and pay tax on that income. A Nevada corporation operating in Oregon is a “foreign corporation” that is subject to much higher fees than a “domestic corporation”.


CHARACTERISTICS OF BUSINESS ENTITIES

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Characteristics

Sole Proprietorship

General Partnership

Limited Liability Company

“S” Corporation

“C”
Corporation

Formation

No state filing required

Agreement between two or more parties. No state filing required.

State filing required

State filing required

State filing required

Duration of Existence

Dissolved if sole proprietor ceases doing business or dies

Dissolves upon death or withdrawal of a partner unless safeguards are in place in a partnership agreement.

Dependent on the requirements imposed by the state of formation.

Perpetual

Perpetual

Liability

Sole proprietor has unlimited liability

Partners have unlimited liability

Members not typically personally liable for the debts of the LLC

Shareholders are typically not personally liable for the debts of the corporation

Shareholders are typically not personally liable for the debts of the corporation

Operational Requirements

Relatively few legal requirements

Relatively few legal requirements

Some formal requirements but less formal than corporations

Board of directors, officers, annual meetings, and annual reporting required

Board of directors, officers, annual meetings, and annual reporting required

Management

Sole proprietor has full control of management and operations

Typically each partner has an equal voice, unless otherwise arranged

Members have an operating agreement that outlines management

Managed by the directors, who are elected by the shareholders

Managed by the directors, who are elected by the shareholders

Taxation

Not a taxable entity. Sole proprietor pays all taxes

Not a taxable entity. Each partner pays tax on his/her share of income and can deduct losses against other sources of income

If properly structured, there is no tax at the entity level. Income/loss is passed through to members.

No tax at the entity level. Income/loss is passed through to the shareholders

Taxed at the entity level. Also, If dividends are distributed to shareholders, dividend income is taxed at the individual level.

Pass Through Income/Loss

Yes

Yes

Yes

Yes

No

Double Taxation

No

No

No

No

Yes, if income is distributed to shareholders in the form of dividends.

Cost of Creation

None

None

State filing fee required

State filing fee required

State filing fee required

Raising Capital

Often difficult unless individual contributes funds

Contributions can be made from partners, and more partners can be added

Possible to sell interests, though subject to operating agreement restrictions

Shares of stock are sold to raise capital

Shares of stock are sold to raise capital


SOLE PROPRIETORSHIP

A sole proprietorship is the simplest form of business, where one individual conducts the business. The business owner is personally liable for all the obligations of the business.

A sole proprietor does not have to be registered with the state Business Registry unless the business uses an assumed business name. If the name of the business does not include the full legal name of the business owner, the business name must be registered as an assumed business name with Business Registry. This allows the public to identify who is transacting business under that business name.

GENERAL PARTNERSHIP

A general partnership is an association of two or more persons doing business. All partners are personally liable for the obligations of the partnership.
A general partnership does not have to be registered with Business Registry unless it uses an assumed business name. If the name of each general partner is not conspicuously disclosed to the public, the business name must be registered with Business Registry. The registration allows the public to identify who is transacting business under that business name.

CORPORATIONS

A corporation is a legal entity created under Oregon statute by submitting articles of incorporation with Business Registry. A corporation is owned by its shareholders, in whose names the shares are registered in the records of the corporation. The articles of incorporation must state how many shares the corporation has authority to issue.

A corporation acts as a single entity. It exists separately from its owners, and continues to exist even though the shareholders may change. As a separate entity, a corporation must file its tax returns. It may own property, sue, and be sued.

A corporation is managed by a board of directors. Except for the initial board, the shareholders generally select the directors. The number of directors is determined by the articles of incorporation or the bylaws. The directors must elect the president and secretary and adopt bylaws. The board may elect or appoint other officers, or the bylaws may prescribe how other officers are selected. The same person can hold two or more offices.

A corporation must have a registered agent in Oregon whose street address is the registered office. When a corporation is sued, the legal papers are served on the registered agent. Thus, it is necessary that the registered office have a street address. A registered agent can be an individual or a legal entity.

The three common types of corporations filed in Oregon are business corporations, nonprofit corporations, and professional corporations. Business and professional corporations are for-profit corporations. A nonprofit corporation is formed for any lawful purpose except for financial profit. A professional corporation is a for-profit corporation formed for the purpose of providing one or more specific types of professional service. All the shareholders of the professional corporation must be licensed to render one of the professional services.

Corporations formed under Oregon statute are "domestic" corporations. Those formed under the laws of other states, but transacting business in Oregon, are "foreign" corporations.

“ C” Corporations and “S” Corporations

Similarities

1. An S Corporation is simply a C Corporation (also known as a standard business corporation) that files IRS form 2553 to elect a special tax status with the IRS. The articles of incorporation that are filed with the state are the same whether a corporation is a C Corporation or an S Corporation.

2. They both are separate legal entities that are created by a state filing. Both offer the same limited liability protection; the owners are typically not personally responsible for the debts and liabilities of the business.

3. Both entities are required to follow the same formalities. They must hold annual meeting of shareholders and directors each year, and meeting minutes must be kept with the corporate records.

Differences

1. Taxation:

    a. The “S” Corporation is a pass-through tax entity – this means that the income or loss generated by the business is reflected on the personal income tax return of the owners.

b. The “C” Corporation is a separately taxable entity. The profits and losses are taxed directly to the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners.
2. The ownership of an “S” Corporation is restricted; however, the “C” Corporation does not possess these same limitations.

    a. The “C” Corporation can have an unlimited number of shareholders, while a subchapter “S” Corporation is restricted to no more than 75 shareholders.

b. Non-US residents can be owners of a “C” Corporation, while an “S” Corporation may not have non-US residents as shareholders.

c. Also, “S” Corporations cannot be owned by “C” Corporations, other “S” Corporations, many trusts, LLCs, or partnerships. “C” corporations are not subject to these restrictions.
3. The “S” Corporation must make a timely election of “S” Corporation status. The election, which is made by filing form IRS 2553, must be made by March 15 in order for the election to take effect that year. If the election is made after March 15 but within 75 days of the incorporation date, the election will be effective for the next calendar year. If the “S” corporation is not a calendar-year taxpayer, the election must be made within 75 days of the beginning of the corporation’s tax year.

LIMITED LIABILITY COMPANY

A limited liability company (LLC) is an unincorporated association having one or more members. The LLC can be managed by managers or members. Managers can be, but are not required to be, members. It must be stated in the articles of organization if the limited liability company is to be managed by managers. Managers could be compared to the board of directors, and members are like the shareholders of a corporation or limited partners of a limited partnership. In order to be a member of a limited liability company, a contribution, such as cash, property, or services rendered, must be made.

The internal affairs of the LLC are governed by operating agreements that may be oral or written. These operating agreements are comparable to the bylaws of a corporation. The internal affairs are managed by the members, unless the articles of organization specifically state that they shall be managed by one or more managers.

A limited liability company must have a registered agent in Oregon whose street address is the registered office. When a limited liability company is sued, the legal papers are served on the registered agent. Thus, it is necessary that the registered office have a street address. A registered agent can be an individual or a legal entity.

Limited liability companies organized under Oregon statute are "domestic" limited liability companies. Those formed under the laws of other states, but transacting business in Oregon, are "foreign" limited liability companies.

LIMITED PARTNERSHIP

A limited partnership consists of at least one general partner and one limited partner. The general partners control the business and are liable for debts and obligations of the partnership. A limited partner is similar to a shareholder in a corporation, because that person's liability is generally limited to the amount of these contributions to the partnership.

A limited partnership must have a registered agent in Oregon whose street address is the registered office. When a limited partnership is sued, the legal papers are served on the registered agent. Thus, it is necessary that the registered office have a street address. A registered agent can be an individual or legal entity.

Limited partnerships organized under Oregon statute are "domestic" limited partnerships. Those formed under the laws of other states, but transacting business in Oregon, are "foreign" limited partnerships.

LIMITED LIABILITY PARTNERSHIP

A limited liability partnership is an association of two or more persons doing business. It is restricted to partnerships that render a professional service as defined by ORS Chapter 58, or partnerships that are affiliated with a limited liability partnership and render a complementary service or provide services or facilities to the limited liability partnership. You may want to check with your professional licensing agency or board to be sure they recognize this form of business organization.

Limited liability partnerships formed under Oregon statute are "domestic" limited liability partnerships. Limited liability partnerships formed under the laws of other states, but transacting business in Oregon, are "foreign" limited liability partnerships.


ASSUMED BUSINESS NAME REGISTRATION

A business name must be registered with Business Registry as an assumed business name if the legal name of each person who is carrying on the business is not conspicuously disclosed to the public in the business name. Each person's legal name must include both the first and last names. Nicknames are not legal names and must be registered as assumed business names. If there are words that suggest additional owners, such as "company" or "associates", the name must be registered.

A business name that includes all owners' full legal names may be registered, but the registration is optional. A corporation, limited liability company, limited liability partnership or limited partnership does not register its name as an assumed business name unless the entity wants to use the name without the entity type designation.

If you fail to register your assumed business name, you may be prevented from carrying on a lawsuit for the benefit of your business.

To register an assumed business name, an assumed business name application and a non-refundable $50 processing fee must be submitted to Business Registry. The name must be registered in at least one county. Before an assumed business name is filed, the name is checked for availability. The name must be distinguishable from other active names on Business Registry records. If the name is distinguishable and the application conforms to Oregon statute, Business Registry processes the document and returns an acknowledgment to the customer.

The assumed business name must be renewed every two years by its anniversary date. Business Registry mails a renewal coupon at least 30 days before the renewal is due. If names or addresses need to be updated at any time, an amendment to the assumed business name must be submitted for processing. There is no processing fee for an amendment.

Assumed business name registrations are regulated by the Assumed Business Name Statute, ORS Chapter 648. Forms are available at: http://www.filinginoregon.com/forms.


SALE OF SECURITIES

The Corporate Securities Section of the Department of Consumer & Business Services regulates the sale of securities in Oregon. The most common types of securities are stocks, bonds, and limited partnership interests. However, any type of agreement that obligates you or your business to pay another person part of your profits or make interest payments probably involves a security. If you plan to finance your business with funds other than your own, you may be involved in the offer and sale of securities.

Oregon Securities Law, ORS Chapter 59, may require that you file an application to register your securities before you offer or sell them. Contact the Corporate Securities Section before you talk to anyone about helping to finance your business. The staff can explain the law, let you know what exemptions may be available, and provide copies of the securities law and forms required for registration. You can also find the securities law and registration forms on the Division of Finance & Corporate Securities' website. If you would like to stop by and talk to someone, call first to be certain a qualified staff member will be available to assist you.

Department of Consumer & Business Services
Corporate Securities Section
350 Winter Street NE, Room 410
Salem, OR 97301-3881
503-378-4140(voice/TTY)
503-947-7862 (fax)
http://www.oregondfcs.org