There are 9.1 million corporations and partnerships in the United States. Many of these corporations are heavily regulated and they have tax and reporting responsibilities.
These are many different requirements than a sole proprietor or single-member LLC face. They also have more demands from employees, vendors, regulators, stockholders, and customers.
Corporate law helps companies navigate each area to inspire trust and meet their obligations. Yet, there is a lot of confusion around what corporate law really is and how it helps businesses.
What is corporate law? Do you need a corporate lawyer? How do you know if your business should hire a corporate attorney?
These are common questions from business owners. This guide covers all of them and more. Read on to learn everything you need to know about corporate law.
Definition of a Corporation
To understand what corporate law is, it helps to have a definition of a corporation. A corporation is a business entity. There can be hundreds of people that make up the business entity, such as a board of directors and shareholders.
Corporations are set up so any legal issues deal directly with the business, rather than the people within the organization. This concept is known as limited liability.
It shields people from losing their personal assets or more than their investment in the corporation. For example, an investor has a $20,000 stake in a corporation, and that corporation goes under with a lot of debt.
The investor loses that $20,000 investment, but nothing more. Creditors can’t go after the investor and take away his house to satisfy the debt.
How does that differ from other organizational structures such as sole proprietors? Sole proprietors don’t have that corporate shield, so their personal assets could be at risk if they run into financial trouble.
A corporation has a specific structure of management, starting with the board of directors. These people are in charge of hiring the executive team, manage the direction of the company, and approve big decisions.
The executive team is responsible for the day-to-day operations of the business. They have middle managers and employees who report to them directly.
Then, there are investors. They don’t oversee the operations of the business, but they do have a say in some decisions of the company.
Different Types of Corporations
There are three types of corporations: LLC, S-Corp, and C-Corp. Most corporate attorneys work with S-Corps and C-Corps.
An LLC is a limited liability corporation. This is the first step in separating an individual and a business. An LLC is made up of members or partners. There can be a single-member LLC or a multi-member LLC.
An S-Corp is a type of structure that chooses to pass profits and losses through to the members or shareholders of the corporation. This is commonly used by single-member LLCs to lower their tax bill.
With an S-Corp, you can only offer one class of stock and you’re limited to only 100 shareholders. On the other hand, the business isn’t taxed because the profits are passed to shareholders. The shareholders claim the profits on their personal tax returns.
A C-Corp is taxed as a business and shareholders are taxed on their share of the profits. C-Corps don’t have the limits on the types of stock and number of shareholders.
What Is Corporate Law?
Corporate law deals with the complex issues that come with running a corporation. There are laws in place to ensure that companies do right by consumers, investors, and employees.
Corporate law deals with all aspects of these laws. There are laws that ensure a free and fair market, such as anti-monopoly laws.
Corporate lawyers help startups set up the legal structure of the business, prepare contracts and documents, advise on tax issues, and manage mergers and acquisitions.
Corporate Law vs. Business Law
You’re probably aware that there is also business law. That’s not quite the same as corporate law, even though there is some crossover between the two.
Business law deals a lot with issues like contracts, company formations, and taxes. A business attorney might help a company register trademarks and research intellectual property issues.
Corporate lawyers deal with governance issues. For example, they make sure that the board of directors complies with the company’s charter. They can prospect companies for mergers and negotiate those transactions. They may work with shareholders and get a company ready for an IPO.
Why Hire a Corporate Lawyer
Are you on the fence as to whether or not you should hire a corporate lawyer? Can you handle some of these things yourself? Of course, you can. It doesn’t mean that you should.
Here are just some of the things that a corporate attorney brings to your business.
For many, 2020 was a down year because of the pandemic. That wasn’t felt in the investment community. In fact, venture capitalists invested about $428 million in start-up companies every single day last year.
A corporate attorney gives investors a bit more confidence as they invest in your company. It’s essential to have corporate counsel on hand if you plan to get investment and go public.
Have the Right Legal Structure from the Start
Companies that change their legal structure can make their legal and tax liabilities more complicated than they need to be.
A corporate attorney saves you from guessing your legal structure to getting it right. They should be able to determine what the best legal structure is for your business and file the papers to incorporate your business.
Mergers and Acquisitions
A company buyout, no matter how big or small is a complicated process. You have to make sure the company is valued correctly, the final price is negotiated, and what the purchase includes. For instance, if a company purchases a company that has debt, does the buyer take on that debt?
They’ll also help you manage the acquisition of companies. Acquisitions are strategic moves to gain market share or expand into new markets. The corporate lawyer will ensure that acquisitions meet your company’s strategic goals.
Oversee Your HR Department
Employment law isn’t easy to understand, especially if you grow at a fast pace. You can learn labor laws by trial and error, or you can have an attorney guide your management decisions.
Corporate lawyers draft employee policies to make sure that there is a fair set of standards and they’re applied equally.
Write Policies You Don’t Think About
Speaking of websites, another hot legal topic is ADA website accessibility. Companies large and small are being targeted for lawsuits because their websites don’t comply with the Americans with Disabilities Act.
The WWE and Cuisinart are the most recent examples of companies that settled lawsuits. This is a growing trend and a corporate lawyer can help you comply with the law.
Do you plan to work in international markets? It’s easier than ever, thanks to ecommerce, but there are a lot of obstacles to do it right.
There are tax issues, and you may have privacy laws and customer service issues that you didn’t have before. You need to have an attorney review all of your policies to make sure you’re set up to win.
Provide Counsel Before You Act
The most important function that a corporate attorney has is to give you legal insights before you make a big business decision.
You’ll get advice as to how a strategic decision impacts your investors, the tax implications of a decision, and legal implications. You’ll have enough information at your disposal to guide your company in the right direction.
How to Hire a Corporate Lawyer
You have a few decisions to make upfront before you go through the process to hire a corporate lawyer. The first decision is whether or not you want to hire an in-house employee or an outside firm.
The second decision is what you want the corporate lawyer to do for you. Make a list of everything you need a corporate lawyer to manage and any other legal questions you have.
Employee vs. Law Firm
There are advantages to hiring both an in-house counsel and an outside corporate law firm to handle your legal issues. An employee of the company does cost a lot to hire, averaging about $150,000 a year. That doesn’t include benefits and bonuses.
An outside firm can be hired on a retainer or contract basis. You can get the legal expertise that you need without the high salary.
You should consider these questions before you make your decision:
- Do you work in a heavily regulated industry, such as healthcare or finance?
- Do you have over 100 employees?
- Do you have a firm plan to grow your business?
- Will you go public in the future?
- Do you have trade secrets or intellectual property that is essential to the business?
If you answered yes to these questions, you need to think about an in-house counsel.
The Description of Services
What do you want the corporate lawyer to do for your company? The description of services will be the same whether you’re working with an attorney inside or outside of the organization.
Do you need help preparing your company to go public? Do you need to register patents? Do you need an attorney to negotiate government supplier contracts? Do you need an expert on investor and employee relations?
Write down the areas of your business where you need the most help. Then, write down the specific things you want the attorney to do for your business.
Use Your Networks
If you’re in touch with other business leaders in your community, you should ask them for referrals. They may know of a law firm or attorney that would be a good fit for your company.
Tell people within your networks that you’re actively seeking a corporate lawyer or firm. You’re likely to get a list of names to contact for more information.
Interview Corporate Attorneys
You can check out the websites of the law firms that were referred to you. If you have individual attorneys, take a look at their LinkedIn profiles. You’ll be able to see their area of expertise.
For example, a law firm like Freedom Law specializes in business litigation, investment, and business strategy. Others might specialize in patent law.
You will need to reach out to each one that fits your needs and interview them. It’s imperative to make sure that they’re the right fit for your business.
Get a sense of how they handle challenges, their communication style, and how they approach their work. You can give them specific areas where you need assistance and see if there’s a match.
Corporate Law Makes a Difference in Your Business
You learned that there are big differences between corporate law and business law. You need to have a corporate lawyer if you plan to have investors, need to incorporate, and want to defend your intellectual property.
They’ll also help you manage investor relations, reporting regulations, and mergers and acquisitions.
When you hire a corporate lawyer, you need to make sure they have the experience that you need, whether you’re hiring in-house or working with an outside firm.
For more tips and business insights, see what else is happening in the Business section of this site.