How To Avoid A Business Divorce

Many people compare business partnerships to domestic ones, and it’s easy to see why. Just like marriage, a business takes a lot of dedication and hard work; and, breaking up can be hugely expensive. Business divorces can destroy a business and any assets you have spent years building. While business divorces are sometimes necessary and the best course of action, every effort should be made to avoid these costly breakups.

Start With A Solid Foundation

Businesses are built on relationships and more than just the relationship between partners. Businesses will have relationships with other individuals, companies, and vendors in order to operate. Every relationship (including partnerships) needs to be clearly and specifically defined in a well written and thorough contract. Contracts between business partners need to clearly define each person’s duties, roles, investments in the business, compensation, and expectations. When these are not clearly defined, partners can easily find themselves in complex disputes.

Contracts with other internal and external individuals and companies are also a common source of conflicts that lead to business disputes. Your relationships with employees, vendors, contractors, etc. will function best with specific contracts outlining the roles and duties. This ensures partners are on the same page about the relationships necessary for the business.

Don’t Hesitate To Talk To An Attorney

Most business owners make every effort to avoid an attorney’s office, but this is a mistake. Talking with an experienced business law attorney does not mean you are filing a lawsuit. Attorneys can also act as counselors to business partners, helping them understand the contractual obligations currently in place and advising them on the best path forward for the business, which does not have to include litigation. An experienced business lawyer will put the business’ interests first and provide legal strategies that preserve the business you’ve worked hard to build.

Houston Business Lawyers

At Feldman & Feldman, our Houston business lawyers understand litigation is not always the answer. If you’re looking for honest legal advice that will help your business grow and avoid business divorce, schedule an appointment with one of dedicated attorneys. We’ve helped scores of business partners resolve disputes that could have destroyed their businesses. You can rest assured we will help you protect your business.

What Type Of Business Should I Form?

Starting a business is incredibly exciting, but few people understand how the type of entity they form can affect them later on. Deciding what entity to form can have beneficial or catastrophic consequences for not only your business, but for your own personal finances. While there are many types of business entities, the business lawyers at Feldman & Feldman see the following most often:

Limited Liability Company (LLC)

Limited Liability Companies or LLCs do just that – limit liability. When you form an LLC, your business assets and debts are separate from your personal finances and assets. This means the assets of the business are exempt from the owners’ creditors. LLCs allow creative allocation of the profits and losses incurred by the business among the owners. LLCs also have flow-through income taxation, meaning the income generated by the business is filed as part of the owner’s personal income, preventing the profits from being taxed separately.

Sole Proprietorship

Sole Proprietorships are relatively easy to form and operate and do not require state filings; however, the owner remains personally liable for any lawsuits or debts against the company. Many people opt for sole proprietorships when they are starting their businesses because they are less expensive to form, but this could leave business owners vulnerable to more costly situations in the long run. People considering a sole proprietorship need to really consider whether the risks make this entity choice worthwhile.

C Corporations

Similar to LLCs, C Corporations can limit the individual liability of directors, officers, shareholders, and employees. Owners also have the ability to sell stock, which can help attract investors. One big downside of a C Corp is the possibility of double taxation, where business profits are subject to taxes and the dividends paid to the shareholders are subject to taxes. C Corporations are subject to lots of regulations and complicated tax filings, so many will require the help of a skilled business accountant to file taxes.

S Corporations

S Corporations provide the same limits to liability and investment opportunities as C Corporations, but without the double taxation. Owners of S Corporations report their share of profits and losses on their personal tax returns and the income is only taxed once. Not every business qualifies to be an S Corporation, as only legal U.S. citizens or permanent residents can own them. Additionally, S Corporations also limit the number of shareholders to 100, which can limit growth potential.

Partnerships

Partnerships are a popular entity choice for small businesses because they are easy to form and operate; however, partners remain personally liable for company liabilities and business debts, even those incurred by another partner. Partners can help protect themselves by adopting a partnership agreement, but many business owners rush into formation before creating one.

Speak With A Business Lawyer

Before forming a business, it is crucial that you speak to an experienced business lawyer at Feldman & Feldman. The implications for each entity are incredibly complex, and only a lawyer will be able to evaluate your situation and advise you on the best type of entity to meet your needs. We can also assist with filing the necessary paperwork for formation, drafting partnership agreements, and advising on any business law matters. Schedule an appointment today to speak with one of our attorneys.