Transactional

By Denise C. Werkley

Are you thinking about starting a business? Want to buy real estate? If you are moving forward with any business or real estate plans, you might consider starting a limited liability company (LLC). The New York Times posted a quirky story reminding us all not to take business names too seriously. What name will you chose?

NY Times Story:
http://www.nytimes.com/2010/09/05/realestate/05deal1.html?ref=realestate

Denise Werkley

Denise Werkley is a partner at Unruh, Turner, Burke and Frees, Denise practices in the areas of Pennsylvania Commercial Transactions and Business Organizations, Pennsylvania Real Estate, and Pennsylvania Trademarks and Copyright Law. The firm maintains law offices in Malvern, Phoenixville, and West Chester Pennsylvania which serve the Main Line, and many surrounding communities such as Devon, Exton, West Chester, Ardmore and others.

By: William J. Burke, III

Business owners form corporations, limited partnerships and limited liability companies to protect their personal assets from debts, claims and liabilities that can arise out of any business. Although the liability protection afforded by corporations, LPs and LLCs is real and worthwhile, it is far from absolute, and there are numerous exceptions.

Sometimes creditors attempt to “pierce the corporate veil” which is the subject of other blogs on this site which can be found here and here. In addition, representatives of an organization are potentially liable for acts or omissions in which they personally participate as representatives of the organization, under the so-called “participation theory” of liability.

Owners who receive distributions when the organization is insolvent or that render the organization insolvent, or who receive distributions in liquidation of the organization rendering it unable to pay valid claims, may be required to account for and disgorge funds distributed.

There are various state and federal laws that specifically impose liability for certain categories of claims. These include liability for unpaid wages under the Pennsylvania Wage Payment and Collection Law, and liability for “trust fund” taxes, which are taxes that the organization withholds from others and is required to pay over to federal, state or local taxing authorities, such as sales taxes and income, social security and Medicare taxes.

Observing corporate formalities, ensuring that the organization is adequately capitalized, and engaging in sound business entity housekeeping practices can and will bolster the liability protection the law affords. In addition, however, to avoid unexpected personal liability that can arise when a troubled business cannot pay all of its obligations, the owners and the officers are well advised to ensure that the types of claims for which personal liability can be asserted by law are paid in preference to other obligations for which personal liability is not present.

For more information, contact William J. Burke, III.

By: William J. Burke, III

Entrepreneurs starting a new business often want to protect their personal assets and avail themselves of liability protection afforded by various types of business organizations.

But what kind of business organization? There is an “alphabet soup” of entity types from which to choose: corporations (“S” Corps or “C” Corps), limited partnerships (LPs), limited liability partnerships (LLPs), limited liability limited partnerships (LLPs), limited liability companies (LLCs) and, within those categories, some variations depending on the nature of the business (such as professional corporations and restricted professional companies).

To add to the confusion and complexity, different tax elections are available for different organizations. LLCs may be “disregarded entities” (virtually ignored for income tax purposes) if they have one owner, treated as partnerships (if they have more than one owner), or taxed as corporations (either S corporations or C corporations) if they so elect.

There are “pros” and “cons” to each business organization and each tax option. Key considerations include the type of business activity, the number of owners, expected financial performance in the near and long term (will there be near-term losses that the owners may want to deduct?), the type of investment that the owners or partners intend to make, how the owners will be repaid their investment in the enterprise, whether there will be different classes of ownership, how the owners expect the organization to be managed and, tax considerations. Some entities (LLPs) only provide liability protection for certain categories of claims (such as tort claims), but not others (such as trade debts and contract claims).

Choosing the appropriate form of entity is one of the most important decisions a business owner can make, and should be given careful consideration in consultation with competent legal counsel and an accountant. Changing from one form of entity to another can be expensive or even cost-prohibitive for tax and other reasons. Please see a more depth look at: “How to Choose between an LLC and S-Corporation.”

For more information, contact William J. Burke, III.

By: Theodore F. Claypoole

While acting in the capacity of an officer of a corporation or manager or member of a limited liability company, it is important for one to hold himself or herself out as the officer or manager or member of the corporation or limited liability company, as applicable. There have been many recent court cases involving creditors attempting to have the Court hold the officers or shareholders of a corporation personally responsible for the corporation’s debts to that creditor. In addition to attempting to pierce the corporate veil of a corporation, a creditor may argue that the officer personally contracted for the services with the creditor. Officers of a corporation and managers and members of a limited liability company may unduly subject themselves to personal liability in a contract intended to be between their corporation or limited liability company and a third party if the officer, manager, or member fails to sign the contract in his or her capacity as an officer, manager, or member of the corporation or limited liability company, as applicable.

For example, a creditor may argue that John Doe, President of ABC Corp. is personally obligated under a contract where John Doe signs the contract as simply John Doe. He should sign the contract in his capacity as an officer as follows:

ABC Corp.

By: John Doe
John Doe, President

OR

John Doe
John Doe, President of ABC Corp.

For more information on corporations or limited liability companies, please contact Theodore F. Claypoole at 610-692-1371 or tclaypoole@utbf.com.

By: Donald C. Turner

To view a recent blog on how to protect your personal interest in a closely-held business entity, click here.

for more information, please contact our office.

February 23, 2009
By: Theodore F. Claypoole

If you are a shareholder of a corporation or a member of a limited liability company, then you may subject yourself to personal liability if you fail to hold yourself out as an officer or member of the entity. Recently, the Centre County Court of Common Pleas of Pennsylvania in Schwenke, Inc. v. J.P. Construction, Inc., and Jeffery Carozza, allowed a plaintiff to proceed with its case against both a corporation and its sole shareholder where: (1) the sole shareholder accepted the bid for services with the plaintiff by signing his name and writing a reference to his corporation; (2) there was no addition of the word “incorporated” or any reference that the sole shareholder signed as an officer and not in his individual capacity; (3) there was no evidence that the sole shareholder corrected or rejected the idea that the plaintiff should deal with him separately from the corporation; and (4) there were no documents in the transaction that listed the sole shareholder as an officer of the corporation, making it unclear under which capacity he entered into the contract.

It is important for a shareholder of a corporation or a member of a limited liability company to refer to himself or herself as an officer, member or manager of the corporation or limited liability company when conducting business in such capacity (e.g., when introducing himself or herself and in business cards) and to sign any contracts or other documentation in his or her capacity as an officer, member or manager of the entity (i.e., XYZ, Inc., by John Smith, President); otherwise, a Court may find that the shareholder or member, and not the corporation or limited liability company, is the liable party. For more information on this case or how you may protect yourself from personal liability when conducting business in your capacity as an officer, member or manager of your corporation or limited liability company, please contact Theodore F. Claypoole.