Category: Choice of entity – general

UBE LAW: LOFTIUM UNWITTINGLY FORMS PARTNERSHIPS WITH HOMEBUYERS

By , December 7, 2017 11:22 am

Non-tax choice of entity (i.e., choosing on non-tax grounds between LLCs and non-LLC entities as the best business entities for one’s entity formation clients) is often a key step in the LLC formation process.  In order to be competent in non-tax choice of entity, you need a fairly detailed knowledge of all of the key business organization law features of each relevant type of entity and how these features compare with the corresponding features of the other relevant types.  The post below provides perhaps the best—and most sophisticated—discussion I’ve ever seen about how a business arrangement—here, something vaguely like a loan—can actually be a general partnership.

Loftium Unwittingly Forms Partnerships with Homebuyers

BENEFIT LLCS

By , August 28, 2017 11:36 am

An important new movement in corporation law has involved “benefit corporations,” which, by statute, may balance shareholder needs with the public good without breaching management fiduciary duties to shareholders.  The movement is also taking hold in the LLC world.   Below are the citation and first paragraph of a new law journal article about benefit LLCs:

University of Cincinnati Law Review
June, 2017
Twenty-Ninth Annual Corporate Law Center Symposium: Corporate Social Responsibility and the Modern Enterprise
Article
Haskell Murray
Copyright © 2017 by the University of Cincinnati; J. Haskell Murray
BENEFICIAL BENEFIT LLCS?
INTRODUCTION

Over the past decade, states have passed a plethora of social enterprise statutes, allowing for the creation of for-profit businesses with express and mandatory social purposes. These social enterprise forms include low-profit limited liability companies (L3Cs), benefit corporations, public benefit corporations, social purpose corporations, and benefit LLCs. Among these forms, the benefit LLC may have received the least attention in the legal academic literature, with research uncovering no full academic articles focused on the entity form. While benefit LLC laws have only been passed in two states– Maryland and Oregon–the form has experienced the highest per state formations of any of the social enterprise forms.1 The benefit LLC form has been relatively popular compared to other social enterprise forms, but that relative popularity does not mean that the legal entity form is wise.

DELAWARE LIMITED PARTNERSHIP DECISIONS

By , January 23, 2017 1:27 pm

On rare occasions, LLC lawyers should form limited partnerships rather than multi-member LLCs for their clients.  This means that these lawyers should keep abreast of important limited partnership cases.  Two such cases, both decided by the Delaware Supreme Court, are addressed in the new post by Peter Mahler under the link below.  Both cases demonstrate that limited partnership agreements can validly give extremely broad discretion to general partners.

Here’s the link:

http://www.nybusinessdivorce.com/2017/01/articles/delaware/limited-partners-take-licking-two-delaware-supreme-court-decisions/

NEW BLOG POST ABOUT WHETHER REAL PROPERTY OWNERS ARE HOLDING THEIR PROPERTY AS TENANTS IN COMMON OR AS PARTNERS IN A PARTNERSHIP

By , June 28, 2016 9:54 am

Perhaps as many as a third of all LLCs are real estate holding companies.  Hence the importance for LLC formation lawyers of the new blog post under the link below.  The post addresses the question whether real property owners should hold their real property as tenants in common or as partners in a partnership (e.g., in an LLC taxable as a partnership).

Here’s the link:

http://www.taxlawforchb.com/2016/05/owning-real-property-tic-or-partnership-why-care/?utm_source=Tax+Law+for+the+Closely-Held+Business&utm_medium=email&utm_campaign=2796f25ecb-RSS_EMAIL_CAMPAIGN&utm_term=0_4d5d267118-2796f25ecb-73367009

PETER MAHLER BLOG POST ABOUT NEW CASES ABOUT STATE-LAW PARTNERSHIPS

By , June 10, 2016 12:12 pm

Peter Mahler’s blog post under the link below concerns three recent New York cases concerning state-law partnerships, not LLCs.  But a key lesson implicit in these cases is that business people should avoid the use of state-law partnerships—and should convert existing state-law partnerships into LLCs—not only because of liability issues but also because state-law partnership statutory rules can often yield unpleasant surprises about non-liability business organization law issues.

Here’s the link:

http://www.nybusinessdivorce.com/2016/05/articles/grounds-for-dissolution/potpourri-partnership-breakups/

THE VALUE OF FAMILY BUSINESS ENTITIES

By , April 8, 2016 9:50 am

The following link is to a recent blog concerning the value of business entities in holding and conducting family-owned businesses:

http://www.lexology.com/library/detail.aspx?g=32903a39-fd0e-41eb-9d2f-b0378d23b043

ARTICLE ON GENERAL PARTNERSHIPS VS. LLCS

By , July 17, 2015 10:57 am

I’ve just published the article under the link below in a number of New Hampshire journals, and the law governing the general partnerships and LLCs discussed in the article is New Hampshire law.  However, I think the main points under the article apply in most or all other U.S. jurisdictions.

The basic point in the article is this:  If you’re operating your business as a general partnership, convert it to an LLP or an LLC.

Here’s the link:

http://www.nhbr.com/July-10-2015/War-of-the-worlds-partnerships-vs-LLCs/

BENEFIT CORPORATIONS

By , July 9, 2015 8:57 am

Roughly, benefit corporations are state-law business corporations whose directors and officers are protected from shareholder fiduciary claims by state corporate law if they seek social benefits to the detriment of corporate profits.  Below is a link to a post about recent changes in Delaware benefit corporation law.

It’s also readily possible to structure LLCs in their operating agreements to achieve the same results as you can get from state benefit corporation law.  However, multi-member LLCs have a big advantage over state-law business corporations because they, unlike corporations, can be taxable as partnerships under IRC Subchapter K.  Subchapter K can enhance many common benefit corporation features.

In short, given the freedom of contract of LLCs and their ability to be taxable under Subchapter K, I’m not at all sure that it ever makes sense for an entity to be a benefit corporation instead of a benefit LLC.

Here’s the link about developments in Delaware benefit corporation law:

http://www.lexology.com/library/detail.aspx?g=605c1005-87b0-43bd-ad18-89e27e5af422&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2015-07-02&utm_term=

CHOICE OF ENTITY IN REAL ESTATE TRANSACTIONS

By , February 27, 2015 11:57 am

Here is a link to a useful blog post by the Fox Rothschild law firm on the above subject:  http://realestatecounsel.net/2015/02/23/real-estate-private-equity-choice-of-entity-considerations/.

S CORP STATISTICS AND LLCS

By , April 4, 2014 9:11 am

I happened to be reviewing the latest publication of the IRS’s Statistics of Income lately, and I decided to check their statistics about how many S corporations have only one shareholder, how many have two, etc.  This is significant for LLC practice for the simple reason that LLCs, like state-law business corporations, are generally small, closely held business entities.  So if IRS statistics indicate that 60% of all S corporations have only one shareholder and that 30% have only two, this tells you a lot about LLC formation practice—namely, that over time, 60 percent of the clients who will call you for LLC formations will probably be individuals wanting to form single-member LLCs, 30 percent will probably be forming two-member LLCs, etc.

This, in turn, tells you that you better have very good forms for all of the main types of single-member LLCs owned by individuals, for two-member LLCs (with great deadlock provisions, etc.), and so forth.  As I discuss in detail in my Wolters Kluwer LLC book, you need six main forms for single-member LLCs whose members are individuals, four for those with two members, etc.

For a table that summarizes the above IRS S corporation shareholder statistics, click here.  Unfortunately, the latest year for which the IRS has published these statistics is 2007, but I doubt they’ve changed much since then.