Business Law

Covenants not to compete are used in various situations in attempts to ensure fairness and protect parties to a contract by limiting competition. Such covenants are sometimes held by courts to be unenforceable because they are overbroad in terms of geographical and time restrictions.

Built-in gain, or BIG, is a term used by the IRS to describe gain that must be recognized by a corporation in addition to its shareholders. IRC § 1374. Built-in gain applies to 1) corporations previously taxed under Subchapter C (C-Corporations) of the Internal Revenue Code (IRC) that elect taxation under Subchapter S (S-Corporations) and whose assets appreciated before the election was made or 2) corporations that acquire assets with carry-over basis from a predecessor C-Corporation.

Business succession planning aims to address what will occur when a business' ownership* changes. Such planning can address, for example, what transpires when business owners die, sell ownership interests, transfer ownership to new generations, etc. Life insurance often plays a substantial role in business succession plans, e.g. allowing the decedent's family to retain the business by using life insurance proceeds to pay any estate taxes associated with an owner's death.

Although S-corporations and LLCs that elect partnership tax treatment are often thought to be very similar in terms of taxation, i.e. they allow pass-through taxation in which the entity itself is not taxed, there are a number of important taxation-related differences between them because they are not taxed under the same provisions of the Internal Revenue Code (LLCs may be taxed as partnerships under Subchapter K of the Internal Revenue Code while S-corporations are taxed under Subchapter S, hence the name "S-corporation").

In good economic times it sometimes seems hard to make a mistake. We no longer live in those times! Good planning and proper implementation of plans is always important, but a challenging economic environment can both disclose unique opportunities and expose critical flaws.

Opportunities abound for those with foresight and patience, as do traps for the unwary. An understanding of applicable law is critical to making the right choices.

Click on the infographic below to learn more about the various types of business entities, e.g. LLC &S-Corporation, in the United States.

Over the past thirty years, there has been a bit of a revolution in the laws associated with legal entities that people choose to conduct business, principally because of the advent of the limited liability company. Limited liability companies, or LLCs as they are commonly called, provide the same limited liability protections as corporations, but require far fewer formalities of both formation and operations.

Although business succession planning involves analysis of many different aspects of a business, from human resources to marketing, one fundamental legal and financial issue is critical to efficient business succession planning: estate and gift taxes.

An LLC operating agreement is the limited liability company’s counterpart of a corporation’s bylaws or a partnership’s partnership agreement. Without an operating agreement, the default provisions in the Arizona Limited Liability Company Act will govern the relationships and interests within the LLC on many issues, but four are of particular note: profits/losses & distributions, management, voting, and membership changes.