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When do I need to hire a corporate attorney for my business?

Some scenarios are obvious — you should call a criminal or corporate attorney when you’re being investigated by government officials for tax or securities fraud, when an employee is injured on the job or when a customer is injured by one of your products.

But you should also consider hiring a corporate attorney in other situations, like:

• When you are starting a business.
• When you are buying or selling a business.
• When you are considering dissolving your business.
• When you are hiring senior or key employees.
• When you are hiring employees with access to company secrets or confidential information.

When You Probably Need a Business Attorney

Here are a few examples of when you should consider hiring a good business attorney for your large business or small business.

• The members of your LLC, shareholders of your company, or partners of your partnership want to allocate the profits and losses is a special way in the LLC operating agreement, shareholder agreement or partnership agreement.
• The business partners will be contributing capital other than cash to the partnership, company, or LLC — like intellectual property, know-how, or appreciated property.
• In connection with the purchase of a business that has significant potential liabilities like: environmental issues (state and federal environmental laws impose liabilities on landowners in the chain of title, regardless if they caused the contamination); product liability, employee liability (sexual harassment or employee discrimination claims); excessive debt; or special capital calls.

Please note.  If you are a member of a limited liability company, a shareholder in a closely held company, or a partner in a partnership, keep in mind that the company lawyer is representing the company, not you.  There are times when members, shareholders or partners decide to form their business or eventually go separate ways.  The corporate attorney hired for the business has the business as its client and protects the business’ interests.  In the scenario of forming the business, each business partner has its own interest in mind, which may be adverse to the proposed company (for example, if one member is contributing intellectual property to the new business, it may want to have an exit strategy to keep its intellectual property if they part ways).  Or in the event of a “business divorce,” where the remaining members, shareholders or partners are buying out other LLC members, company shareholders or partnership partners, the company lawyer has the company’s best interest in mind, which interest is adverse to the departing business partners.  Business partners, members and shareholders should be represented by their own corporate attorney to avoid conflicts of interest, or at the very least, the business lawyer needs to advise the partners of, and they have to waive in writing, the conflicts of interest.

If you need help with deciding whether you need to hire a business attorney, you should contact a licensed business lawyer for an initial consultation.  As the old saying goes, an ounce of prevention is worth a pound of cure.

(You may also want to read our related post, “How Do I Convert a Partnership, Corporation or Other Entity into an LLC?“)

The New York Limited Liability Company Laws and the Delaware General Corporation Laws have provisions to easily convert an existing limited liability company, and with respect to Delaware, general partnership, limited partnership, other unincorporated business entities, into a corporation.  Perhaps the owners want to convert the original entity into a corporation for tax reasons or perhaps the startup company/partnership is seeking venture capital financing and the venture capital investors don’t want to invest in a partnership.  Consequently, the business needs to convert to a corporation.  How is a conversion of a partnership, LLC or other business entity to a corporation accomplished?

Under Delaware General Corporation Law Section 265 et seq., “Any other entity may convert to a corporation of this State” by complying with certain procedures.  Under this Delaware General Corporation Law, the term “other entity” means “a limited liability company, statutory trust, business trust or association, real estate investment trust, common-law trust or any other unincorporated business including a partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership)), or a foreign corporation.”  This provision allows for a conversion of an LLC, partnership, trust or foreign corporation (a corporation formed under any other States’ laws) into a Delaware corporation.  If all of the procedures are followed, you will end up with a Delaware corporation where you used to have an “other entity” and the conversion will not “affect any obligations or liabilities of the other entity incurred prior to its conversion to a corporation of this State or the personal liability of any person incurred prior to such conversion.”

If you have a limited liability company formed under the laws of New York, look in Section 1001 et seq. of the New York Limited Liability Company Law.  Under these provisions, a “a domestic limited liability company may merge or consolidate with or into one or more domestic limited liability companies or other business entities formed or organized under the laws of this state or any other state or the United States or any foreign country or other foreign jurisdiction”.  Again, if all of the procedures are followed, your LLC can merge (or consolidate) with or into any other business entity.

If you are considering a conversion of a general partnership or limited partnership (or “other entity” in Delaware) into a limited liability company, make sure to check with your accountant and/or tax adviser and a New York Business Lawyer (or corporate attorney).  There may be important tax and other legal consequences to consider before making the conversion of a partnership, LLC or other business entity to a corporation.

The New York Limited Liability Company Law can be found here.

The New York Business Corporation Law can be found here.

The New York Partnership Act can be found here.

The New York General Obligations Law can be found here.

**This post is for informational purposes only, For legal advice contact a business lawyer**

(You may also want to read our related post, “How Do I Convert a Partnership, LLC or Other Business Entity into a Corporation?“)

The New York Limited Liability Company Laws and the Delaware Limited Liability Act have provisions to easily convert an existing general partnership or limited partnership (and with respect to Delaware, “other entities” as well, like trusts or other unincorporated business entities) into a Limited Liability Company.  Perhaps the owners want to convert the original entity into an LLC for tax reasons (like passing through the LLC’s losses to the owners’ tax returns) or perhaps the startup company/partnership is seeking venture capital financing and the venture capital investors don’t want to invest in a partnership.  Consequently, the business needs to convert to a limited liability company.  How is a conversion of a partnership,  corporation or other entity into an LLC accomplished?

Under Delaware Limited Liability Act Section 18-214 et seq., “Any other entity may convert to a domestic limited liability company” by complying with certain procedures.  Under the Delaware Limited Liability Act, the term “other entity” means “a corporation, a statutory trust, a business trust, an association, a real estate investment trust, a common-law trust or any other unincorporated business or entity, including a partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership)) or a foreign limited liability company.”  This provision allows for a conversion of a Delaware partnership, trust or foreign limited liability company (an LLC formed under any other States’ laws) into a Delaware limited liability company.  If all of the procedures are followed, you will end up with an LLC where you used to have an “other entity” and the conversion will not “affect any obligations or liabilities of the other entity incurred prior to its conversion to a domestic limited liability company or the personal liability of any person incurred prior to such conversion.”

If you have a general partnership or limited partnership formed under the laws of New York, look in Section 1006 et seq. of the New York Limited Liability Company Law.  Under these provisions, a New York general partnership or limited partnership can be converted to an LLC.  Again, if all of the procedures are followed, you will end up with a LLC where you used to have a general partnership or limited partnership, and under Section 1007 et seq. of the New York Limited Liability Company Law, “a partnership or limited partnership that has been converted pursuant to this chapter is for all purposes the same entity that existed before the conversion” (e.g., all property, debts, and actions or proceedings of the partnership will be same of the resulting LLC).

If you are considering a conversion of a general partnership or limited partnership (or “other entity” in Delaware) into a limited liability company, make sure to check with your accountant and/or tax adviser and a New York Business Lawyer (or corporate attorney).  There may be important tax and other legal consequences to consider before the conversion of a corporation, partnership or other entity to an LLC.

A New York Limited Liability Company  has the following benefits:

• Liability Protection Like a Corporation. New York LLC members are generally protected from personal liability for debts and claims of the business. This means that if the business can’t pay a creditor or gets sued, the creditor cannot legally come after the member’s personal assets such as a house or car (unless the owner is hiding behind the corporate entity for his or her own unlawful or unscrupulous personal dealings, in that case the business owner might not be able to prevent personal liability if a creditor can prove facts and circumstance to “pierce the corporate veil”).

• Maintenance.  LLCs are less formal than corporations and do not have the same corporate formality requirements such as annual meetings, maintaining minute books, and having corporate bylaws (of course, these items can be addressed in the LLC’s Operating Agreement).

• Management.  An LLC provides a lot of flexibility in business organization and management. The owners can be individuals, trusts, partnerships, corporations, LLC and foreign individuals.  There are no requirements to have officers — one or more managers can run the LLC (as set forth in the LLC’s Operating Agreement).

Of course, if you have any questions about the benefits of having a New York LLC, you should speak with a New York Small Business Lawyer.