20 Corporate Law FAQs for Business Owners

Opening a Business

What is corporate law?

Answer: Corporate law governs the formation, operation, and dissolution of corporations and other business entities, concentrating on their rights, duties, and governance.

What is a difference between LLC and a corporation?

Answer: An LLC is more flexible and informal than a corporation, provides liability protection, and pass-through taxation. A corporation is more structured with shareholders, directors, and officers and could offer stock.

How do I choose the right business structure?

Answer: Consider liability protection, tax implications, and operational complexity. Most common structures are sole proprietorships, LLCs, partnerships, and corporations.

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Do I need a corporate attorney to form a business?

Answer: An attorney for a company can help ensure that state laws are met, prepare governing documents, and avoid potential legal pitfalls.

What is a corporate charter?

Answer: A corporate charter, or Articles of Incorporation, is a legal document filed with the state to officially create a corporation.

Corporate Governance

What are bylaws, and why are they important?

Answer: Bylaws are internal rules governing how a corporation operates, including decision-making processes, meetings, and roles of directors and officers.

What is the role of a board of directors?

Answer: The board oversees the corporation’s management, sets policies, and makes significant decisions, such as appointing officers and approving budgets.

What is fiduciary duty?

Answer: Directors and officers have a fiduciary duty to act in the corporation’s best interest, ensuring loyalty, care, and good faith in their decisions.

Do LLCs require a board of directors?

Answer: No, LLCs typically don’t require a board of directors; they are managed by members or designated managers, depending on the operating agreement.

What is an operating agreement?

Answer: An operating agreement establishes the rules and processes for running an LLC, from member roles and profit distribution to dispute resolution.

Compliance and Regulation

What are annual reports, and must they be submitted?

Answer: Most states have a requirement for corporations and LLCs to submit annual reports as a way to maintain good standing, reporting updates on ownership and management.

How do state business regulations differ from federal business regulations?

Answer: State laws govern entity formation, operations, and local compliance, whereas federal laws govern areas such as taxes, labor laws, and interstate commerce.

What is corporate veil protection?

Answer: The corporate veil protects the owners of the business from personal liability for the debts or lawsuits of the corporation, if the business is maintained appropriately.

What is piercing the corporate veil?

Answer: Business owners can be held personally liable if the corporate veil is pierced by fraud, commingling funds, or failure to follow corporate formalities.

Do I need to comply with securities laws?

Answer: If you issue stock or seek investors for your business, you are subject to federal and state securities laws and could be subject to fines and other legal consequences if you fail to comply.

Contracts and Transactions

What is a shareholder agreement?

Answer: A shareholder agreement defines the rights and responsibilities of shareholders regarding voting, distribution of profits, and procedures to sell shares.

Do I need a contract for every business relationship?

Answer: A written contract is helpful to explain terms and conditions, prevent miscommunication, and provide protection under the law in case of any dispute.

What is a non-compete agreement?

Answer: A non-compete prevents employees or partners from engaging with competitors or setting up a competing business for a specified period and location.

What is intellectual property, and how do I protect it?

Answer: Intellectual property consists of trademarks, copyrights, patents, and trade secrets. Protect it through registration, contracts, and legal enforcement.

Can I use online templates for legal agreements?

Answer: While convenient, online templates may not address specific legal needs. Consult an attorney to ensure agreements comply with applicable laws.

Key Takeaways

Corporate law ensures businesses are structured and operated legally, providing protection and guidance for owners.

Proper documentation and compliance help avoid personal liability and legal disputes.

A corporate attorney ensures that state and federal regulations are followed according to your business needs.

Business owners can make informed decisions and minimize legal risks while operating successfully by understanding these FAQs.

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