What Every Business Owner Needs to Know

While owning and running your own business is an exciting and fulfilling endeavor, it can be difficult to juggle the day-to-day responsibilities of business management with business law compliance and the legal considerations which must be made to maximize your business and protect the fruits of your labor.

The Lexington KY lawyers at EMWN Law have the knowledge, experience, and appreciation of the local business landscape of Lexington to help business owners navigate the complexities of business law and make smart legal decisions that allow them to focus on what they do best.  In keeping with EMWN’s commitment to see local businesses thrive, here are some things every business owner should know.

Entity Type

When starting your own business, consideration of entity type is a must. There are multiple entity types recognized under Kentucky law, including corporations, limited liability companies, general partnerships, limited partnerships, and limited liability partnerships.

Each entity type has benefits and drawbacks, and deciding which one is right for your business depends on your particular circumstances. Will there be multiple owners? How many of them will be involved with the operation of the business? What sorts of assets will the business own?

Answers to questions like these have important implications for entity selection. The Lexington KY lawyers at EMWN Law have the expertise and experience to help you choose the type of entity which makes the most sense for your business.

Internal Governance

Kentucky law has different internal governance requirements depending on which type of entity you choose.

Kentucky corporations are governed in accordance with Kentucky law, their Articles of Incorporation, and Bylaws. Governance is shared among the corporation’s board of directors and its shareholders, and their decisions are carried out by officers such as a president, treasurer, or secretary.

Kentucky limited liability companies (LLCs) are governed in accordance with Kentucky law, the company’s Articles of Organization, and an operating agreement (should the LLC choose to have one). Kentucky LLCs are managed either by the owners (known as “members”) or managers chosen by the members.

Kentucky partnerships are governed in accordance with Kentucky law and a partnership agreement. Depending on the type of partnership, governance is shared among some or all of the partners.

Kentucky law allows a good deal of flexibility to businesses in drafting their governing documents, provided the documents respect certain parameters. EMWN’s Lexington KY lawyers can draft your businesses governing documents to reflect exactly how you want your business to be run, while also complying with the requirements of Kentucky law.

Filing Requirements

Most entity types are required to file documentation with the Kentucky Secretary of State’s Office for their formation and ongoing existence.

To be recognized by the Secretary of State’s Office, corporations must file Articles of Incorporation, LLCs must file Articles of Organization, limited partnerships must file a Certificate of Limited Partnership, and limited liability partnerships must file a Statement of Qualification or a statement of registration, depending on the limited liability partnership (the statement of registration must be renewed annually). Each of these forms, except for the statement of registration, can be filed via the Secretary of State’s business registration portal.

Each entity type which is required to file with the Secretary of State for formation must also file an Annual Report each year, along with a registration fee. This report includes basic information such as the business’s principal office address and the name and address of the business’s registered agent for service of process. The annual report can be filed online.

It is crucial for business owners to stay on top of their Annual Report filings, as failure to do so may result in dissolution of the business entity by the Secretary of State. Reinstatement requires the filing of extra forms and payment of additional fees. Additionally, for actions taken on behalf of the business during a period of dissolution, business owners lose any benefit of limited liability that the pre-dissolution entity may have provided. This benefit can only be restored by reinstating the entity.

Limited Liability Protection

One important reason many business owners decide to form an entity for their business is limited liability protection. Under Kentucky law, owners of entities like corporations and LLCs are generally only liable for the business’s activities up to the extent of their investment in the business. This means that a business owner’s personal assets are protected in any lawsuit against the business.

However, Kentucky law recognizes a legal doctrine known as “piercing the veil”, which allows business owners to be held liable for a business’s activities when they have disregarded entity formalities to such an extent that the entity functions merely as the owners’ personal instrument or alter ego and a failure to hold the owners liable would promote fraud or injustice. Factors considered by courts when considering veil-piercing include whether business owners have co-mingled personal and business funds, failed to operate in accordance with the entity’s governing documents, and failed to keep adequate internal records.

The Lexington KY lawyers at EMWN law possess a deep understanding of entity governance and operation which can help you maintain the liability protection provided by law and rest assured that your business is free from the threat of veil-piercing.

Winding Down a Business

For various reasons, sometimes business owners need to close their business and move on to other ventures. While the exact requirements vary between entity types, dissolving entities generally must file Articles of Dissolution with the Secretary of State’s Office and then take steps to wind down the business. This involves paying entity debts and liabilities, making required distributions, and returning capital to the entity owners. The entity may also need to notify creditors of the dissolution.

The Lexington KY lawyers at EMWN can help you properly tie up any loose ends your dissolving business may have, so you can move on to your next venture with confidence and peace of mind.

Purchasing or Selling a Business

While many businesses are started from the ground up, some entrepreneurs prefer to purchase an existing business and continue or expand its operations. While some long-time business owners plan to leave their businesses to their heirs, others prefer to sell to dedicated and talented employees or outside investors.

There are many ways to structure the purchase and sale of a business, and the structure you choose will have different tax consequences for both the buyer and the seller, as well as important implications for how the transaction documents are drafted.

Should you become interested in purchasing a business or determine that it’s time to sell your current business, the Lexington KY lawyers at EMWN have the business transaction experience to guide you every step of the way, from term negotiations to the closing table, and ensure that you receive the best financial and tax outcomes possible.

Lexington KY Lawyers Can Help

Here at EMWN, we are proud to partner with the local business owners who make Central Kentucky such a wonderful place to live, work, and play. We are passionate about seeing our region thrive and firmly believe that strong local businesses are vital to the health of our communities.

The Lexington KY lawyers at EMWN have the expertise, practical knowledge, and personal local investment to help both aspiring and seasoned business owners navigate the complexities of Kentucky business law and ensure that local business continues to thrive here in the Bluegrass.

Contact us today to see how we can help with your business needs.

Disclaimer

This article is provided for general informational purposes only and does not constitute legal, tax, or financial advice. Reading this post or contacting Embry Merritt Womack & Nance, PLLC through this website does not create an attorney–client relationship. You should consult directly with an attorney regarding your specific situation before taking or refraining from any action based on this information.