JOSEPH K. KOURY
Joseph K. Koury, Co-Chair of OWM Law’s Business Law Practice Group, is a business and estate planning lawyer whose clients benefit from his advanced law degree in taxation and his past experience as a member of the Delaware State Bar, which included a two-year clerkship with a respected trial judge. Mr. Koury regularly drafts and reviews business and estate planning agreements and documents for the personal and corporate clients whom he serves, clients which vary from the mom and pop store down the street to the more sophisticated business enterprise. Mr. Koury regularly assists and advises clients with business formation, business planning and succession planning. His clients gain value from his insights on taxation in their business and estate planning endeavors, enabling them to make better-informed decisions. Mr. Koury is active in the communities which OWM Law serves, and he holds leadership positions on the Boards of various local nonprofit organizations. He resides in northern Chester County with his wife and two daughters.
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The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.
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Business Structures and Operations: Sole Proprietorships, Partnerships, Corporations and LLCs
Our clients going into business typically seek advice on what type of corporate form is best for their needs. Our initial response is usually to seek the input of the entire professional team---accountant, banker, insurance agent, and lawyer. Single and multi-member limited liability companies are predominant, but S Corporations continue to be formed with some frequency. Partnerships (both general and limited) and sole proprietorships, although less common, are nonetheless viable choices as well.
Readers should understand that with a sole proprietorship, there is no business entity to provide liability protection, such as with a corporation, and thus more robust asset protection planning may be necessary. The sole proprietor may conduct business using a registered fictitious name. Professional and other licensing requirements of the individual continue to apply in the sole proprietorship. Note that there is no continuity of business life; following the death of the sole proprietor, although business assets may remain, the business itself ceases to exist.
Unlike a sole proprietorship, a partnership requires two or more co-venturers coming together with a profit motive. All expect to share in the profits and losses of the business, and the tax structure reflects this. Each party includes its share of profits and losses on its own tax return, separate from the “informational” return filed by the partnership. Partnerships are inherently flexible forms of business organizations, finding applications involving active trade and passive investment (real estate). Partnership agreements, which typically specify items such as admission to, conduct of, and dissolution of the partnership, are therefore necessary and recommended. Also, unless additional steps are taken to limit liability, with a general partnership, each partner is liable not only for his or her own unlawful acts, but also the acts of other partners and employees.
Corporations have been recognized as distinct legal entities for conducting business for decades. In modern business law, corporations are typically formed by centrally filing a document of creation within the appropriate state government department. An S Corporation is then created by making the appropriate federal and state tax elections, assuming all restrictions thereto, most notably number and type of shareholders, have been met. The traditional C Corporation does not have these same restrictions, so it is the form of business organization which is typically listed on a public exchange, for maximum liquidity purposes. Unlike an S Corporation, a C Corporation is itself a tax-paying entity, with shareholders then also paying income tax on any distribution treated as a dividend which they receive.
Corporations, unlike partnerships or sole proprietorships, have three sets of constituencies: shareholders, Directors, and officers. Shareholders are the owners, and the Directors set the policy and steer the business affairs of the organization, with officers executing those affairs and policies, and generally conducting the day-to-day business of the entity. Annual meetings, or written actions in lieu thereof, are required of both the shareholders and the Directors. Provided corporate formalities are met, shareholders risk only their investment, and Directors and officers typically are shielded from liability or obligations of the corporation.
An increasingly popular form of organization is the limited liability company. The LLC essentially combines the flexibility of a partnership with the liability protection of a corporation. The tax characteristics of the LLC vary based upon number of members (owners) of the organization. Day-to-day operations are dependent upon the LLC’s status as either member-managed or Manager-managed.
Frequently LLCs have other entities, as well as individuals, as members. Their rights, as well as the management of the organization, are typically spelled out in a document akin to a partnership agreement, called an Operating Agreement, which all members must adhere to. Management of the organization can be delegated to a “Manager,” which may or may not be a member, with authority for the Manager set forth in the Operating Agreement.
Notably, an LLC can elect its federal tax treatment, with certain default IRS rules also applying, depending on the number of members. However, different tax rules may apply at the state level. Flexibility and flow-through tax attributes are inherent.
When going into business, our clients should be well-informed and seek advice on what type of corporate form is best for their needs. Seeking the input of the entire professional team---accountant, banker, insurance agent, and lawyer---is an advantage and recommended.
If you would care to discuss the above in detail, please call me at 610-323-2800 or email me at email@example.com. Also, please watch OWM's April 2013 Legal Talk program regarding Business Structures and Operations: Sole Proprietorships, Partnerships, Corporations and LLCs on our website here.
David A. Megay, Esq., speaking at SCORE Business Planning Seminars on 4/22/13, 9/9/13 and 11/4/13 (contact SCORE at 610-327-2673).
Kathleen M. Martin, Esq., speaking at Chester County Night School Seminars at Owen J. Roberts High School, Pottstown, PA, on 4/17/13 and 5/2/13 - "Elder Law Issues" and on 4/23/13 - "Beyond the Simple Will" (contact Chester County Night School at 610-692-1964).
Watch Legal Talk, brought to you by OWM, on PCTV, Tuesdays at 8:30 on Channel 28, and Thursdays at 9:30 p.m. on Channel 98, or on our website at www.owmlaw.com/legal_talk/legal_talk.php.
Read Legal Ease every first and third Sunday in the Pottstown Mercury.