Retaining an experienced business and corporate lawyer is an investment that saves your business money in the long term. In today’s highly competitive and regulated business environment, it is critical to have well-versed, client-focused legal professionals to help protect and expand your business. The success of your business matters to us. Whether you are a large or small company, we pride ourselves in seeing the bigger picture and providing creative solutions to meet the diverse demands of our clients. Our professionals take an active role in counseling clients through a wide array of legal challenges. Through a proactive and personalized approach, our dedicated team ensures that our clients are up-to-date on laws affecting their business and that their transactions are negotiated and closed with the upmost diligence while at the same time minimizing risk and avoiding costly mistakes. We offer business owners comprehensive representation in the formation, operation, financing and sale of a variety of business entities. Our capabilities also include preparing and negotiating business contracts, creating business succession plans and navigating management and operational changes.
Savvy business owners understand the value of hiring a sophisticated and result-oriented team of legal professionals to ensure continued success. If you are forming or operating a business in New Mexico, consider investing in the corporate law attorneys at Rosebrough & Fowles, P.C.
Business and Entity Formation
A business owner can set up a business under a number of different types of legal entities. Business entity selection is the first and a critical step to business formation. Each entity type has its own ownership and operational structure. Entity selection should be based on the pros and cons of each entity as they relate to your anticipated business demands, as well as needs of the business as it matures and evolves. Often the driving considerations in selecting a legal structure involve liability protection, tax strategy, ownership make-up and operational efficiency. Since every business venture is unique, with its own potential risks and strengths, it important to tailor a structure for each client that fosters efficiency and protects against liabilities while at the same time affording the necessary flexibility to take advantage of new opportunities.
Selecting the business entity to create for your venture will lay the foundation for your company’s success. Because it is such an important decision to make, having a skilled corporate attorney to help guide you through the process is crucial.
There are four types of business entities most commonly used to operate a business:
A sole proprietorship is a business owned by one person that has not incorporated. If you start a business with no partners and do not incorporate, then your business is considered a sole proprietorship by default. As a sole proprietor you are required to obtain an occupational license in the city and/or county where your business is located but no further agreement or filing is necessary. A sole proprietor has no liability protection and is personally liable to the full extent of the debts of the business. Therefore, as a sole proprietorship, a business owner’s liability is unlimited.
Sole proprietorships are not taxed separately, so all business losses and profits are reported on the business owner’s personal tax return.
A general partnership is a business that has not incorporated which is owned by two or more persons. The owners of a general partnership are called general partners. As with a sole proprietorship, a partnership is required to obtain an occupational license issued from the local municipality or county and is governed by New Mexico Statutes. A partnership may file a partnership registration with the State of New Mexico to advise the public of its existence. Partners of a general partnership may also enter into a governing partnership agreement.
Partnership property is owned by the partnership not by the partners individually. However, in a general partnership, each partner is jointly and severally responsible for all liabilities of the business. As such, nothing shields the personal assets of each partner from the partnership creditors. Due to the unlimited liability of general partners, general partnerships are being entered into less frequently. For income tax purposes, the partnership is a “pass through” with losses and profits being reported on the partner’s personal tax return.
Limited Liability Company (LLC)
A limited liability company (“LLC”) is a separate legal entity from its owners. It is formed by filing with the State of New Mexico articles of organization. To stay active, an LLC must file with the State an annual report and corresponding filing fee. Businesses operating under LLCs must also obtain an occupational license and are governed by New Mexico Statutes. The operation of the LLC may also be governed by an operating agreement entered into by the owners, which agreement need not be in writing. The owners of a limited liability company are called members. LLCs are managed either by the owners (member-managed) or by a manager elected by the owners (manager-managed). Similar to a corporation, an owner member does not have personal liability for the debts and liabilities of the business. This liability protection against company debts brings business owners peace of mind and quickly making LLCs the favored entity for business owners to operate under.
A limited liability company is considered a pass-through entity under state and federal tax law but affords flexibility to pursue different tax planning strategies for each owner.
Like LLCs, a corporation is separate entity from its owners. It is perhaps the most understood of all entities because of its long history of governing case law. A corporation is formed by filing with the State articles of incorporation. To avoid being administratively dissolved, corporations are also required to file annual reports with the State and remit a filing fee. Occupational licenses are also required by businesses operating as a corporation. Corporations are governed by bylaws. The owners of a corporation are stockholders. The stockholders elect the board of directors and the directors appoint officers.
As a shareholder in a corporation, there is no personal liability for liabilities of the business. Corporations are taxed as either as a C corporation or an S corporation. Among other restrictions, to qualify as an S-corp., there may generally be no more than 100 shareholders with only one class of stock. If an “S” election is made, the business’ profits and losses are reported on each shareholder’s personal tax return. Unless the corporation elects to be taxed as an S-corp., it will be taxed as a C corporation, which means the company will be subject to double taxation – taxes on corporate profits and on dividends paid to owners.
Shareholder and Operating Agreements
While shareholder and operating agreements are not legally required, business owners are wise to enter into to them to avoid costly and sometimes ugly disputes. Often times, businesses are formed by friends and family members who are not accustomed to dealing with each other as business partners. Such individuals assume that their friendship and blood ties will overcome disagreements between them. Unfortunately, when things do not go as planned and there is no written shareholder or operating agreement, governing legal case law may lead to a devastating outcome and bitter end to personal relationships. To avoid such situations and maintain harmony, our attorneys recommend preparing a clear written document that outlines rights and obligations of each owner. Among other things, the agreement should cover ownership percentages, the manner in which profits will be divided and distributed, how much capital each owner is expected to contribute initially and over time as well as owners’ compensation, if any. Additionally, the agreement should clarify which decisions require unanimous or majority consent and whether owners are prohibited from competing with the business and if not, under what circumstances. It is also critical to determine what happens to an owner’s interest if he or she dies, becomes disabled, divorced, becomes insolvent, or simply withdraws.
While we understand that discussing the above and other issues can be uncomfortable, our legal team has the necessary experience to foresee problems that will arise in the future, and how to contractually address those issues before they ever appear. Our goal is to make what may be a daunting task a positive and productive experience.
Most business owners who operate their business through a corporation or LLC believe that there is only one requirement to maintaining its legal status which is filing the State of New Mexico mandated annual report. While it is true that each corporation and LLC must file its annual report to keep its active status, there are other important formalities which should be observed to ensure the many protections and advantages which the entity form offers, not the least of which, of course, is the protection of owners against personal liability for obligations incurred by the business.
Courts allow creditors of companies to “pierce the corporate veil” and bring personal suits against owners if the corporation or LLC is a “sham”. A sham company is one that does not follow corporate formalities. Our team has years of applicable experience maintaining corporations and LLCs, and we want to help you keep your business entity in order and in good standing to ensure the continued benefit of personal liability protection. We are dedicated to make it easy and convenient for our corporate clients to meet their annual corporate meeting obligations by providing reminder notices, drafting minutes, and providing follow-up attention.
Business and Corporate Law at Rosebrough & Fowles
Whether you are just starting a business or have been running it for years, your company requires an experienced hand to help you grow and succeed. Making the investment in skilled business and corporate law attorneys like those at Rosebrough & Fowles is one of the most important decisions you can make to ensure that your business avails itself of every possible benefit it is eligible for, while protecting it from liability.
Hiring a business and corporate lawyer is an investment that pays off in the long term by protecting against liabilities and positioning your business’ interests for success. Contact Rosebrough & Fowles online, or at (505) 722-9121.
Formation of Corporations includes:
- Obtaining Federal & State Tax Numbers
- Articles of Incorporation
- Affidavit of Registered Agent
- Affidavit of Directors
- Initial Organizational Minutes
- Stock Certificates
Formation of Limited Liability Company includes:
- Obtaining Federal & State Tax Numbers
- Articles of Organization
- Operating Agreement
- Affidavit of Registered Agent
- Membership Unit Certificates
Other business law work is performed on an hourly basis or on the basis of an individualized fixed fee quote.