What is Business Law?

Business law deals with the creation of new businesses or any issues that arise from having an existing business. There are a myriad of issues that could arise that either deal with the public, your employees, or how your business is set up.  The operating agreement defines for the most part every aspect of the day-to-day operations, the percentage of members’ ownership, distribution of profits and loses, and the roles of everyone working for the business. 

If you are setting up a business, you should always consult with at least two people, a lawyer and an accountant.  Often when people start a business, they think it’s just about creating either an LLC, partnership or corporation, coming up with a name for your business, and obtaining a tax ID.

There is a lot more to it than that, especially if you intend to partner with somebody else.

Regardless of your business structure, you should have an operating agreement.  An operating agreement is especially important for those who will have a business partner(s).  The purpose of the agreement is to govern the internal operations of the business owners. Once the document is signed by the owners or members, it acts as an official contract binding them to its terms. 

When a misunderstanding or miscommunication arises between owners or members (which will inevitable occur) the operating agreement can be referred to in events of conflict.   If you do not have an operating agreement to look to, disputes will often lead to lawsuits.  Litigation in cases without operating agreements can become quite costly as attorneys and courts do not have a written agreement for guidance on interpretation on agreements made.  In such cases, the courts will rely upon statute, but statutes can be so general that the outcome of your case can be unpredictable. In addition, the operating agreement defines the roles of everyone in the business. For example, in a corporation you may want to give equity in the business to employees without giving them voting rights or any control over the operation of the business.

What are the different types of business structures for my business?

When beginning a business, you must decide what form of business entity to establish.  Legal and tax considerations need to be considered when selecting a business structure.  The most common forms of business are a limited liability company (LLC), corporation, a limited liability partnership, or a general partnership. 

A sole proprietorship is another option often used by small business owners, but it is generally not recommended because it does not protect your personal assets from your business debts.

What are the advantages of an LLC over a corporation?

There are a variety of reasons why an LLC is more favorable than a corporation, and very few reasons to choose a corporation as your business structure instead. 

There are fewer formalities in an LLC than a corporation. For example, in a corporation, you must have board meetings, shareholder meetings, maintain minutes, officers, and a board of directors. There are a variety of requirements and formalities to operating a corporation that do not apply to an LLC.

Furthermore, an LLC is taxed differently than a corporation which could be more beneficial for its owners.

If you have questions about business law or anything discussed above, you should speak with an experienced business law attorney before you form any type of business structure. We are available to speak with you any time. Our offices are conveniently located in Las Cruces.

Ramona Martinez-Salopek