Category Archives: Making Decisions

Who Owns That Toilet – You or Your Plumber?

If you pay a carpenter to make a desk for you, you own it, right? Would you be surprised to find out you only have the right to use the desk? That the carpenter actually owns it? Well, you should be surprised. The carpenter would be completely wrong. Of course you own the desk! If a carpenter tells you he owns the desk, call the police to drag him out of your house. Now imagine that you paid a software developer to make an app for you.  You own the app, right?  Well, maybe.  Is the developer an employee? Then …

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Thwarting Democracy

A lot of my clients think democracy is a bad idea. I don’t represent third world dictators. I do, however, represent a lot of business owners and founders. Although I try to avoid talking politics with them, I assume they are all advocates of Western-style democracy. With their own companies, however, I know they prefer benevolent dictatorships.  In general, corporations and LLC’s work on the most basic of all democratic principles: the majority rules. Granted, one person’s vote (the holder of 60% of the shares, for example) may count more than another person’s vote, but the underlying principle remains – the …

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Why Are LLC Operating Agreements So Complicated?

Entrepreneurs organizing their new business entity often quickly discover that for all of its benefits – an LLC can be a complicated structure. Even a simple multi-owner operating agreement could easily be 50 pages long. In the early days of LLC organizations, more than a few entrepreneurs never executed an operating agreement.  As a result, several disputes erupted over verbal “promises” and whether they became an actual agreement of the parties.  Today, this problem is best prevented by restricting amendments to the operating agreement to written amendments.  Of course, today, operating agreements have grown to significant and complex documents. With …

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What is the Difference Between an S Corporation and a C Corporation?

When the organizers of a new corporation file the Articles of Incorporation, the state government grants the organizers a charter and the new entity comes into existence.  This charter grants the new entity the right to conduct business, sell capital stock, and own property, among other rights.  But, when the charter is granted, the charter does not declare that the entity is an “S” corporation or a “C” corporation. In fact, it is not possible to incorporate an “S” corporation or “C” corporation.  Why? The classification of a corporation as an “S” corporation or a “C” corporation is a tax …

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Is an LLC Right For My New Company?

There are two basic types of entities for most types of new companies – a corporation or a limited liability company (LLC). Most entrepreneurs instinctively know that both a corporation and a limited liability company provide liability protection for the owners. The personal assets of the owners should be protected from creditors of the company (assuming the owners do not engage in conduct that jeopardizes that protection). Yet, after considering the similarity of liability protection, there are many, many differences between the two entity types. Here are a few basic questions to see if an LLC structure might be right …

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