Category: Practice Tips

ADVICE TO FOUNDERS PLANNING TO SELL THEIR BUSINESSES

By , June 2, 2017 2:17 pm

The recent post under the link below contains excellent advise for business founders planning for the eventual sale of their businesses.

http://www.lexology.com/library/detail.aspx?g=848afe49-2075-446b-ab60-4c5e43496045

HOW TO BILL FOR LEGAL SERVICES

By , March 28, 2017 3:30 pm

The article under the link below will be of interest not only to LLC lawyers but also to lawyers (and other professionals) in all other fields of practice.  It’s about the continuing primacy of hourly billing over all other forms of billing.

Here is the link:  http://www.insidecounsel.com/2016/12/20/the-billable-hour-just-wont-die-report-finds?eNL=58589de3160ba02828d830e0&utm_source=IC_Scoop&utm_medium=EMC-Email_editorial&utm_campaign=12202016

STARTING A BUSINESS WITH FAMILY OR FRIENDS

By , December 22, 2016 4:36 pm

The new post under the link below discusses the special and sometimes dangerous issues that can arise for new businesses started by friends or by family members.  The post is not specific to LLCs, but my guess is that most LLC lawyers run into this situation frequently.  I do.

Here’s the link:

http://www.lexology.com/library/detail.aspx?g=10f4c150-f33e-4cd1-b098-e56b8d1131d3&l=7SZNXAF

HOW TO JUDGE A LAWYER’S LLC COMPETENCE

By , December 19, 2016 4:02 pm

You are starting a new business in the form of an LLC and you want to find a competent lawyer to handle your LLC’s formation.  Your accountant, your friends or your business associates  recommend that you ask lawyer Ann Able to handle the formation, and they give you her telephone number.

How should you handle your initial telephone contact with Ann, and what questions should you ask her about her LLC expertise before you decide whether to hire her?

When you call her, you should first tell her the basics about the LLC you’re envisioning—how many members it will have, the nature of its business, when you will launch it, and what will be the value of the cash and property the members will contribute to it .

Then you should ask her the questions below.  If she can’t give you good answers to these questions, or if she even hesitates in answering them, don’t hire her; find another lawyer.

  • What do you charge for handling LLC formations?  Are you willing to negotiate a lesser charge?  How much will you charge to form my LLC?
  • How many LLC formations have you handled?  In what types of business do these LLCs engage, how many members do they have, and what is the cash value of the contributions of cash and property their members have made to them?
  • Can you give me the names of any of your LLC formation clients (obviously, with their permission) to serve as references for your work in forming LLCs?
  • Should my LLC have a written operating agreement?  If so, why?
  • What are the main legal and tax issues that my LLC’s operating agreement should address?
  • In particular, what fiduciary and dispute provisions should my LLC’s operating agreement contain?
  • What do you view as the main types of LLC management structures, and which of these structures do you think will be best for my LLC?
  • I’ve heard that there is a big difference between the LLC concepts of “allocation” and “distribution.”   What is this difference?
  • I’ve heard that charging orders are important in LLC law.  What are charging orders?

Finally, since a competent LLC lawyer should have not only a comprehensive knowledge of LLC law but also at least a solid basic knowledge of LLC tax, ask Ann if she has any LLC tax expertise.  A quick way to determine whether she does is to ask her if she knows anything about the Check-the-Box Regulations.

WHAT DOES A NEW LLC LAWYER NEED TO KNOW ABOUT LLC LAW AND TAX?

By , December 7, 2016 2:32 pm

Assume you’re a young lawyer interested in becoming not just competent but expert as an LLC formation lawyer.  You’re willing to do whatever study is necessary to achieve the necessary knowledge.  What do you need to know, and what know-how do you need, in order to be expert in LLC formation practice?  The short answer is “a lot.”  Here’s a quick overview:

  • LLC law under your home-state act.  You need to know the relevant LLC law.  This means:
    1. A thorough familiarity with all of the definitional, default, mandatory, non-self-enabling permissive and self-enabling permissive provisions of the LLC statutes under which you practice insofar as relevant to:
      1. Non-tax choice of entity—i.e., choosing the right entity for your clients among LLCs and non-LLC entities on non-tax grounds—and
      2. LLC deals.
    2. A familiarity with series LLC rules and how they differ from non-series LLC statutory rules; and
    3. A familiarity with all of the cases under the above statutes relevant to LLC formations and with cases in other jurisdictions—e.g., the Elf Atochem case—potentially relevant to these formations.
  • LLC law under other LLC acts.  You need to know how to choose the best LLC act for your clients.  This will often involve choosing between the LLC act of your home state and the Delaware Limited Liability Company Act (often described as “everybody’s second choice in LLC statutes”).  It may also require you to have at least a general idea of when to use “offshore” LLC acts such as the Cayman Islands and Bahamas Acts (both of which are based on the Delaware Act).
  • LLC business organization law issues in operating agreements for single-member and multi-member LLCs. You need to have a detailed knowledge of the dozens of specific types of LLC business organization law issues relevant in drafting single-member and multi-member LLC operating agreements and the principal and main alternative ways of drafting these issues.  By my count, there are normally about 15 such issues that must be addressed in the operating agreements of single-member LLCs and about 28 in the operating agreements of multi-member LLCs.
  • LLC federal and state tax rules and operating agreement issues under these rules.  Because of the close interdependence between LLC legal issues and LLC tax issues in planning, negotiating and drafting operating agreements, you need a solid basic knowledge of LLC tax.  Your LLC formations should be able to go to you for one-stop-shopping not just for LLC law but also for LLC tax.  This means you need a detailed knowledge of:
    1. The Check-the-Box Regulations;
    2. The basic federal income and Social Security tax rules governing sole proprietorship taxation and taxation under Internal Revenue Code subchapters C, K and S;
    3. The federal tax provisions to include in operating agreements for single-member and multi-member LLCs to address issues under the above rules; and
    4. Any state tax rules relevant to LLC formations in the state or states in which you practice and how to address these rules in operating agreements.

In the case of multi-member LLCs taxable as LLCs, the above federal tax provisions include TEFRA and 2015 Bipartisan Budget Act partnership audit provisions.

  • Non-LLC law.  You need to have at least a general understanding of the issues that often arise in six main areas of non-LLC law often relevant to LLC formations.  These are:
    1. General contract law;
    2. Estate planning law;
    3. Employment law;
    4. Securities law;
    5. Intellectual property law; and
    6. Real estate law (since a large number of LLCs are formed to acquire, hold and rent real estate).
  • Legal ethics.  You need to be aware of all of the main issues of legal ethics likely to arise in forming LLCs and how to resolve these issues.
  • Know-how.  You need various types of know-how, including, above all:
    1. How to negotiate complex contract deals;
    2. How to draft contracts in plain English;
    3. How to choose the right model operating agreement for each of the ten main types of LLCs; and.
    4. How to keep current with relevant legal and tax developments potentially relevant to LLC formations;
    5. How (and when)  to use two or more LLCs in an LLC formation (e.g., when the client needs a holding company/operating company structure);
    6. How to determine whether the LLC model operating agreements you use are good forms; and
    7. How to use LLCs to protect clients business and personal assets.

 

NEW BLOG POST ABOUT DATA BREACHES

By , October 13, 2016 4:57 pm

Our LLC formation clients should be prepared for data breaches, and so should we.  Below is a link to a recent blog post about that risk:

http://www.insidecounsel.com/2016/09/28/data-breach-preparation-what-should-a-gc-do-when-d?eNL=57ebbe4d140ba0ee4caaf1e6&utm_source=IC_Scoop&utm_medium=EMC-Email_editorial&utm_campaign=09282016

BUSINESS DISASTER PLANNING

By , October 2, 2015 2:46 pm

Many large businesses engage in business disaster planning.  See the link below.  Many smaller businesses, including smaller LLCs, might also benefit from this planning.

Here’s the link:  http://www.lexology.com/library/detail.aspx?g=6570b578-0fde-4450-9b88-6cf9aae3440d&l=7PHFTQK

THE SIX PARTS THAT OPERATING AGREEMENTS FOR MULTI-MEMBER LLCS SHOULD NORMALLY CONTAIN; WHEN TO USE EXHIBITS IN OPERATING AGREEMENTS

By , September 16, 2015 3:42 pm

An operating agreement for a multi-member LLC should normally have the following six parts in the following order:

  • A properly worded title page;
  • A summary table of contents;
  • A detailed table of contents;
  • A table of exhibits (if the agreement includes one or more exhibits);
  • A “body”—i.e., a part that contains the terms and conditions of the agreement;
  • A part containing any relevant exhibits.

The first three of the above six parts have been discussed in previous practice tips in this series.

An operating agreement for a single-member LLC whose member is an individual should have all of the above parts except a summary table of contents.  This is because operating agreements for single-member LLCs normally contain far fewer provisions than operating agreements for multi-member LLCs.

Three types of exhibits should normally be included in an LLC operating agreement:

  • The first type consists of any relevant documents other than the agreement itself—e.g., the LLC’s certificate of formation and any key agreements with third parties.  Obviously, these documents can’t be included in the body of the agreement.
  • The second consists of detailed contractual terms that are too lengthy and complex to include in the body of the agreement except by brief reference.  These may include, for example, terms concerning the determination of member buy-out prices and non-price terms.
  • The third consists of exhibits consisting of examples that illustrate and clarify specific terms in the body of the agreement that will enable readers to better understand these terms.  These might include exhibits consisting of illustrations that help to explain required tax boilerplate terms such as terms for qualified income offsets or for allocations of profits or losses from LLC dispositions of contributed property; or lists of LLC members coupled with information concerning their contributions and the terms governing individual contributions.

LLCS AND CYBERSECURITY

By , August 19, 2015 2:27 pm

The members of LLCs, especially those with significant financial value, must give careful attention to company cybersecurity.  The link below is to a good new post on the general topic of company cybersecurity.

http://www.lexology.com/library/detail.aspx?g=e48d5adc-96e2-4486-a227-08c3567761bf&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-08-12&utm_term=

UNEXPECTED LOSS OF BUSINESS OWNER

By , July 31, 2015 3:53 pm

The post under the link below briefly but helpfully discusses how to plan for the unexpected loss of a business owner—meaning, in the case of an LLC, a member.

Here’s the link:

http://www.lexology.com/library/detail.aspx?g=88dbcb03-551a-4756-8037-62120c0d1e6b&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-07-30&utm_term=