I. TYPES OF BUSINESS ENTITIES AVAILABLE IN LOUISIANA

A. Sole Proprietorships - one person contributes capital, runs & manages the business, and is personally liable for all of the debts of the business

B. Partnerships - an association of two or more persons to carry on a business as co-owners and who agree to share the profits and losses.

• General - unless you agree otherwise in writing, all partners in a general partnership share equally in the profits and losses, even if they originally contributed different amounts of capital or labor. They also have equal responsibility for management of the operation and the debts of the partnership.

• Limited- may consist of general partners, acting with one or more special partners. These special partners don't run the business, but only contribute a specific amount of capital or other valuable consideration permitted by Louisiana law. They're not responsible for debts of the partnership beyond the amount of their investment or value of their contribution.

• Limited Liability Partnerships (LLP's)- consists of two or more owners and run like a corporation. However, LLP's have less insulation from liability: still responsible for trade debt of the partnership and your own acts of negligence, but protected from liability arising from errors, omissions, negligence, incompetence or malfeasance committed by another partner or a representative of the partnership.

• Family Limited Partnerships- used primarily for estate planning purposes.

C. Corporations - are separate and apart from their shareholders (owners) and managers (officers). The entity itself does not change even though the makeup of its ownership and management may change over time. Corporations make promote private investment in all types of business by offering the promise of limited liability to shareholder/investors: they share in the profits, but are limited in their responsibility for the debts of the corporation.

• Subchapter "C"- pays taxes at both the corporate and shareholder levels. For this reason, C corporations are usually characterized as subject to double taxation. Interest is a deductible expense to the corporation, but dividends to shareholders are not.

• Subchapter "S"- gains and losses are passed through to the shareholders in proportion to their holdings in the company - no tax is paid at the corporate level. The maximum number of shareholders is 75.

D. Three important features germane to all types of corporations:

• trade names

• limited liability

• fiduciary responsibilities of corporate officers and directors
  • Business Judgment Rule - protects officers or directors from liability for their actions except when acting with gross negligence.

E. Limited Liability Companies (LLC's) - viable alternative to the S corporation - can now be formed by only one person for nearly any purpose, including a professional practice. Although unincorporated, they're run like a corporation, but with more flexibility and fewer formalities. Multi-member LLC's can elect to be treated as a partnership for tax purposes and single member LLC's can elected to be treated as a corporation.

II. COMMON MISTAKES IN FORMING A BUSINESS

Use Your Attorney -- have the preventive tools necessary for success, including: the proper business formation, including buy-sell agreements, shareholder agreements, partnership agreements, operating agreements, by-laws and life insurance policies on key partners/officers.

• Non Competition Agreements - a contract that states that an employee or partner will not leave the business and compete with it for a certain period of time and within a certain geographical area.

• Confidentiality Agreements - a contract that states that an employee or partner will not use a company's secrets for their advantage or the advantage of a third party.

III. OTHER TYPES OF CORPORATIONS

Non Profit Corporations - an organization established for purposes other than generating a profit, although a profit may be made from the organizations activities. Organizing as a nonprofit on the state level does not automatically make the organization tax exempt at the federal level.

• State Level - file articles of incorporation with the secretary of state which provide the purpose for which the organization is formed; nonprofits may not pay dividends.

• Federal Level- must apply to the IRS for recognition as a tax exempt organization.

IV. FINAL TOPICS

A. Home Based Business - 20% of all new business are home based. Guidelines for the new tax benefits effective in 1999 for home based businesses.

B. Y2K - Do you need a disclaimer?- Y2K Act of 1999 gives businesses 90 days to fix Y2K computer problem before suit can be filed against you.

C. Financing Your Business - Where's the money?

• Preparing a Business Plan

• Alternative sources of funding

V. QUESTIONS AND ANSWERS

Your questions, whether simple or complex, are valid points of concern. If you need further advice or explanation, please feel free to call me at the office for an appointment.

VI. CONCLUSION

Remember the importance of "Preventive Law."