1. What body of law governs a contract for the sale of goods?
A contract for the sale of goods is governed mainly by state law. Most states have adopted Article 2 of the Uniform Commercial Code (UCC) which provides rules for all phases of a sales contract including formation, modification, performance and available remedies in the case of a breach.
2. What body of law governs a lease of goods?
A contract for the lease of goods is also primarily regulated by state law. Most states have adopted Article 2A of the Uniform Commercial Code which pertains to leases of goods.
3. What is a secured transaction?
Many lenders require a security interest before they will extend a loan. Therefore, a secured transaction occurs when the borrower conveys a collateral property interest to secure a loan. Should the borrower default on the loan, the lender may take possession of the specified property.
4. What is a negotiable instrument?
A negotiable instrument is an unconditioned, signed writing that represents money that is to be transferred to another. Checks, certificates of deposit and promissory notes are examples of negotiable instruments.
5. What can a creditor do to collect a debt?
A creditor may commence a lawsuit and obtain a judgment against the debtor. In addition, a creditor may repossess any collateral used as security for the debt and/or garnish the debtor's wages.
6. What actions and disclosures must a collection agency provide to a debtor when commencing a collection?
A third-party collection agency must comply with the federal Fair Debt Collection Practices Act (FDCPA). Pursuant to the FDCPA collection agencies must provide the following information to the debtor either in the initial communication or in writing within 5 days thereafter: (1) the amount of debt, (2) the name of the current creditor, (3) notice about the 30-day period in which the debtor may dispute the debt, (4) notice about the obligation of the collection agency to send the debtor verification of the debt if the debt is disputed and (5) notice that if the consumer requests it within 30 days, the debt collector will provide the name and address of the original creditor, if different from the current one.
7. What is bankruptcy?
Bankruptcy is a legal way to seek relief from creditors. A debtor often files for bankruptcy protection when he or she owes creditors more than he or she has the ability to pay. Very broadly, under federal bankruptcy law, debtors' assets are used to pay off debt or payment plans are set up.
8. What are the major business organization forms, and how do I choose one that is right for my business?
The four major business organization forms are: (1) the partnership, (2) the limited liability company, (3) the corporation and (4) the sole proprietorship. Each has advantages and disadvantages, but when choosing the correct form for your business the core focus should typically be on personal liability and tax implications.
9. What is business law?
Business law encompasses the many rules, statutes, codes, and regulations that are established which govern commercial relationships and provide a legal framework within which businesses may be conducted and managed. Business law is highly diverse and includes areas such as:
• business formation and organization
• transactional business law (contracts)
• business planning
• business negotiations
• mergers and acquisition
• divestitures
10. What factors should be considered in choosing the type of business form for my business?
Although there are many important things to think about when choosing a business form, some of the main considerations include your preference of tax treatment, how you intend to capitalize the business, whether you plan to issue stock and trade it publicly, how you intend to structure the management of your business and issues surrounding the liability of the business owners, among other things. It is very important to plan your business and to work closely with someone who can help you choose the business form that will meet your needs.
How can a properly established business entity such as a corporation shield me from personal liability for business debts and obligations?
Personal liability arising from business obligations can devastate the accumulated wealth of a lifetime of work. Personal liability may extend to business losses, but other obligations may also reach individuals, including:
• Damage awards in lawsuits
• Tax penalties
• Back wages and benefit payments
Limited liability offered by corporations and other business entities shelters business owners from personal liability. Nonetheless, if an owner or director performs certain personal acts, behaves illegally, or fails to uphold statutory requirements for corporate status, he or she may face personal liability despite the corporate shelter.
11. What is the difference between a subchapter C and S corporation?
The Internal Revenue Code allows for two different levels of corporate tax treatment. Subchapters C and S of the code define the rules for applying corporate taxes.
Subchapter C corporations include most large, publicly-held businesses. These corporations face double taxation on their profits if they pay dividends: C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, which are subsequently taxed on the shareholders' individual returns.
Subchapter S corporations meet certain requirements that allow the business to insulate shareholders from corporate debts but avoid the double taxation imposed by subchapter C. In order to qualify for subchapter S treatment, corporations must meet the following criteri
• Must be domestic
• Must not be affiliated with a larger corporate group
• Must have no more than one hundred shareholders
• Must have only one class of stock
• Must not have any corporate or partnership shareholders
• Must not have any nonresident alien shareholders.
Additionally, after a business is incorporated, all shareholders must agree to subchapter S treatment prior to electing that option with the Internal Revenue Service.
12. What does it mean to “pierce the corporate veil?”
Sometimes, courts will allow plaintiffs and creditors to receive compensation from corporate officers, directors, or shareholders for damages rather than limiting recovery to corporate assets. This procedure bypasses the usual corporate immunity for organizational wrongdoing, and may be imposed in a variety of situations. The specific criteria for piercing the corporate veil vary somewhat from state to state and may include the following:
• Courts may not allow owners to benefit from a corporation’s limited liability if the underlying business is indistinguishable from its owners.
• If a corporation is formed for fraudulent purposes.
• Courts may impose liability on the individuals controlling the business if a business fails to follow certain corporate formalities in areas such as record-keeping.
13. What is the difference between a joint venture and a partnership?
Joint ventures and partnerships share certain characteristics. A joint venture is a sort of partnership where two or more entities join together for a particular "short term" purpose. In both partnerships and joint ventures, each partner has equal ability to legally bind the entire entity. A partner can represent the entire organization in the normal course of business and his or her legal actions on behalf of the joint venture or partnership create legal obligations.
14. What is a non-profit corporation?
A non-profit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit corporation doesn't pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives. This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations' activities entitle them to a special tax-exempt status.
15. How often should a corporation hold meetings and update its minutes?
Any time a corporation undertakes a major change or transaction, it should be reflected in its minutes. In addition, meetings of shareholders and directors should take place at least annually if for no other reason than to elect new officers and directors. Failure to adhere to the formality of regular meetings can jeopardize the corporation's ability to shield its officers, directors and shareholders from personal liability for the corporation's actions.
16. Is it a good idea to have a Buy-Sell Agreement?
Corporations with more than one shareholder should seriously consider a buy-sell agreement. A shareholder's death, divorce, disability or termination of employment can create serious problems for a corporation and its other shareholders. A buy-sell agreement can help minimize these problems by providing for an orderly succession in such plans. Similar provisions are recommended for partnership.
17. What does involved in a corporate merger?
Like most corporate law, mergers are regulated at the state level. While these laws vary by jurisdiction, many aspects of the merger process are the same across the nation. Generally, the board of directors for each entity must initially approve a resolution adopting a plan of merger that specifies the names of the entities involved, the name of the proposed merged company, the manner of converting shares of both entities, and any other legal provisions to which the corporations agree.
20. What business licenses does a small business need?
The following are just some of the business licenses/permits that a small business might need: Doing Business As (DBA) Registration (usually filed at the county level), City and/or County Business License, Fire Department Permit, Sign Permit, Health Department License, and Liquor, Wine, and Beer Licenses.
21. What is a "Fictitious Business Name"?
Businesses that use a name other than the owner's must register the fictitious name with the county as required by the Trade Name Registration Act. This does not apply to corporations doing business under their corporate name or to those practicing any profession under a partnership name. For more information, contact your state or local government.
23. What is a "Fictitious Business Name"?
Businesses that use a name other than the owner's must register the fictitious name with the county as required by the Trade Name Registration Act. This does not apply to corporations doing business under their corporate name or to those practicing any profession under a partnership name. For more information, contact your state or local government.
24. If I operate my business under my personal name, is it necessary to register it someplace?
In most states you do not need to register your own name if you are using it as your business name. To determine what the requirements are in your particular state, go to BusinessLaw.gov and find the specific laws related to registering your business under the State and Local Information section.
25. What are the advantages of forming a limited liability company?
The LLC is generally considered advantageous for small businesses because it combines the limited personal liability feature of a corporation with the tax advantage of a partnership or sole proprietorship. Profits and losses can be passed through the company to its members, or the LLC can elect to be taxed like a corporation. LLCs do not have stock and are not required to observe corporate formalities. Owners are called members, and the LLC is managed by these members or by appointed managers.
26. What is the advantage of forming an S-Corporation?
The structure of an S-Corporation is identical to the C Corporation in many ways, but offers avoidance of double taxation. If a corporation qualifies for S status with the IRS, it is taxed like a partnership: the corporation is not taxed, but the income flows through to shareholders that report the income on their individual returns.
27. Are partners considered employees of a partnership or are they self-employed?
Partners are considered to be self-employed. If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from that trade or business is net earnings from self-employment. Limited partners are subject to self-employment tax only on guaranteed payments, such as salary and professional fees for services rendered.
28. What is business law?
Business law, also referred to as commercial law, covers everything from contracts, bankruptcy, incorporation, transactions, and taxation, to banking, finance, and intellectual property. Business law encompasses a wide range of rules, statutes, and codes, as well as numerous regulations that govern commercial and business dealings. Other areas business law pertains to include business formation, organization, negotiations, planning, transactions, acquisitions, mergers, and divestitures.
29. What are some benefits of incorporating?
Corporations can issue stock, and having corporate stock allows for easier transfer of interest in the business. If a business needs to raise money, it can sell shares of stock. Also, central management such as that of a corporation has advantages such as articles of incorporation and bylaws that may protect officers and directors from liability for losses caused by them in their corporate capacity.
30. Will incorporation avoid or lessen personal liability?
A business that is properly incorporated under law, becomes a legal entity separate from its owners. This insulates the owners so that creditors can reach only the assets of the corporation. The personal assets of the owners usually cannot be reached. In cases where there is fraud, parties may seek to pierce the corporate veil.
