Business organization law is the body of law that relates to creating, managing and dissolving businesses. There are several ways to organize a business. Each type of business structure has its own set of rules to follow. Each type of business structure also comes with its own advantages and drawbacks. A business lawyer helps their client choose the right business structure, complete paperwork filing, manage ongoing organizational issues and even helps dissolve the business when it’s appropriate.
Helping clients go into business
When a new business begins, they need to determine their business structure and file the appropriate paperwork. The leaders at the business rely on business organization lawyers to help them evaluate the pros and cons of each possible business entity. They also rely on their lawyers to draft the necessary paperwork and file it correctly with the state.
Types of business structures
The type of business structure a new organization can choose from depends on the state where the business plans to file. Each state might have slightly different types of business organizations to choose from, but there are some types of business organizations that are common in most states:
A sole proprietorship is a business owned by one person. Many small businesses are sole proprietorships. A business can usually start operating this way without any formal filings with the government. Even though a sole proprietorship gives the owner complete control, the nature of a sole proprietorship exposes the owner to financial and personal liability if something goes wrong with the business.
A corporation is a business entity that exists completely independently from its owners. A corporation can do most of the things that a person can do like enter into contracts, buy and sell goods and hire employees. There are public companies and closely held companies. In a closely held corporation, there are only a small number of owners. There’s no public market for trading ownership of the company.
On the other hand, a public corporation has a larger number of owners, and owners may buy and sell their interest in the company. To begin a corporation, leaders need to draft articles of incorporation. They might specifically list the functions of their company, or they might simply state that the corporation has all of the powers that are necessary to carry out their affairs.
Limited Liability Corporation or Limited Liability Company
A Limited Liability Corporation or Limited Liability Company has some of the benefits of small business ownership like pass-through taxation and legal protection for debts and liabilities. However, there are limitations like a prohibition on issuing shares of stock to raise operating funds. State laws vary significantly for rules regarding Limited Liability Corporations.
An S Corporation is a type of corporation with unique features. Owners of an S Corporation can report profits and losses on their individual tax returns. Owners enjoy limited liability, and they generally avoid the double taxation that can occur with traditional corporations. There are limits on the number of shareholders, and the Internal Revenue Service tends to scrutinize S Corporations quite carefully.
Partnerships look a lot like sole proprietorships, but there’s more than one person involved. A partner might share in management duties, or they might provide financial investments without sharing in daily operation of the business. A partnership typically begins by filing papers with the state and carefully defining the terms of the partnership.
A group might also need help organizing to operate a charity. A person or group may want to organize a charity to limit legal liability for the work of the organization and avoid the tax liabilitiesthat apply to corporations. There may be requirements at both the state and federal level to properly begin a charity.
Business organization law includes managing the business structure at all stages
Forming, managing and dissolving businesses are all part of the work of business organization law. Even after a business formally begins, the work of a business lawyer may continue. Leadership may decide to change the business structure. They may decide to change from a sole proprietorship or a family business to becoming a public corporation. In most cases, there are annual filing requirements.
Business leadership may choose to change the structure or the makeup of their leadership. There might be litigation that questions the structure of the business. Leadership may even decide to dissolve the business. Business organization law embodies all of these aspects of business. The organization’s structure matters at all stages of business operations.
Most business organization law is state law
State laws primarily govern how businesses can organize. It’s up to each state to determine the types of business entities they allow and what those entities must do to comply with state law. Once a business is in place, there may be federal and local laws to understand and follow. However, at the stage of inception, business organization law falls primarily within the state where the business is located.
Who practices business organization law?
Both private practice lawyers and lawyers in the public sector may practice business organization law. Most lawyers in the field are in private practice. Because lawyers help businesses large and small with their organizational needs, lawyers who practice in the field also work in environments that are both large and small.
A lawyer may work in solo practice. In that case, they might help clients on their own. Lawyers in mid or large-firm practices might work with a team of lawyers to represent their clients. Lawyers in large firms may divide client services among the attorneys in their office. For example, one lawyer might draft organization documents while another handles ongoing issues like tax compliance and employment law issues. Yet another lawyer might represent the business if litigation arises.
Government lawyers also work in the area of business organization law. State governments need lawyers to oversee business filings and respond if there are irregularities. State lawyers also help develop filing forms and other requirements for businesses that wish to begin or continue to operate in the state. The same lawyers might help lawmakers consider changes to the law and draft legislation that regulates business organization in the state.
Why Become a Business Organization Lawyer?
Business organization lawyers enjoy a stable working environment with infrequent court appearances compared to other areas of law. In addition, business organization lawyers often help their clients with ongoing legal needs. After a lawyer helps their client begin a business, the business likely has ongoing needs.
When changes occur in ownership or when leaders want to pursue changes to the business structure, they’re likely to pick up the phone and call their lawyer. Because businesses begin and operate throughout the country, business organization lawyers live and work in all 50 states. A lawyer might choose to focus exclusively on business organization law, or they might combine the field with other areas of practice depending on their interests and the size of the legal market.
It’s common for a business to rely on one lawyer or a law firm to handle all of their legal needs. After a lawyer helps a business organize, there’s a good chance that the lawyer is also going to be the business’ first call when there’s a problem or question in the future. Helping a business organize is a great way to get in on the ground floor with the client in order to establish an ongoing attorney-client relationship.
The area of business organization law may be a good choice for lawyers who like to have time to work carefully. Clients often know about deadlines far in advance. They have time to plan. Business organization law often doesn’t have the same sense of urgency that may exist in other fields of law. Business law is also an area of practice for lawyers who like to fuss over the details. For a lawyer who would rather write a carefully-drafted document than make a closing argument, business organization law is a viable option.
Making a business out of starting businesses
Business organization lawyers help their clients do business. They get to know the business leaders and their goals. They help the leaders determine which type of business structure is most likely to help them meet their goals.
Business organization lawyers must be great listeners and great writers. They practice in firms of all types and sizes throughout the country. Business organization lawyers make their business out of starting, managing and dissolving businesses.