Albo & Oblon, L.L.P - Arlington/Main Office.
2200 Clarendon Blvd.
Ste. 1201
Arlington, VA 22201
(703) 312-0410
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 Albo & Oblon, L.L.P -- Fairfax County Office 6367 Rolling Mill Place
Ste. 102 Springfield, VA 22201 (703) 455-0046
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Albo & Oblon, L.L.P. -- Norfolk/Hampton Roads Office World Trade Center
101 West Main Street
Ste. 435
Norfolk, VA 23510 (757) 200-7900
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Albo & Oblon, L.L.P. -- Roanoke/Salem Office
113 East Main Street
Salem, VA 24153
(540) 389-4498
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Albo & Oblon, L.L.P. -- Washington, D.C./Maryland Office 641 Indiana Avenue N.W.
Second Floor Washington, DC 20004 (202) 386-7470
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Business Formation
Q. I am starting a new business with a couple of other investors. We want a partnership or some other kind of agreement that gives us an ownership interest in the new company but limits our liability exposure. In addition, we will need office space and will need to hire an administrative assistant. What should we do?
A. The choice of entity (c-corp, s-corp, LLC, LLP, partnership, etc) depends on various issues and tax considerations. In general, you and the other investors can enjoy limited liability by forming a corporation, limited liability company or limited liability partnership. However, there are advantages and disadvantages to all three which need to be considered. Both a lawyer and an accountant should be consulted. A lawyer could also assist in negotiating a commercial lease and walk you through the legal issues surrounding the hiring of employees, such as compliance with immigration and discrimination laws as well as protecting the company's trade secrets and proprietary information.
Q. We are trying to determine which entity works best for our new business. The total number of initial investors for our business is less than ten. Is there a particular entity that could be a cost effective and advantageous way for us to get started?
A. Although one should consider various alternatives, formation of a limited liability company is a potentially attractive option. The two basic kinds of formation documents a firm such as ours would assist to help form your business are called Articles of Formation and an Operating Agreement. The Articles set forth certain kinds of information describing the type of business and its initial business address and registered agent, and is filed with the appropriate local state agency. The Operating Agreement is a type of document that is somewhat of a hybrid mix of a contract and Bylaws, which sets forth the internal operative mechanisms and relative equity interests of the company among various other factors. It is important that both documents are carefully completed.
Q. I've heard about S-Corporations. Is there a significant difference between that type of entity and a limited liability company?
A. There are similarities, such as pass-through tax treatment of revenue, but there are important differences as well. For example, the law contains certain restrictions for the operation of an S-Corporation while other operative aspects of a limited liability company may be more flexible. For example, setting up a limited liability company is typically less expensive. Also, many states' Limited Liability Company Act contains no residency restriction on equity holder, while there may be restrictions on accepting foreign nationals as shareholders of an S-Corporation. Thus, if one of your co-owners is a Canadian citizen, you may wish to consider forming a limited liability company.
Q. Our emerging business plans on hiring a few sales people to help market our software product, which involves unique source code. When forming our new business, how do we protect our sales leads and intellectual property, or should we wait on spending money for that issue?
A. Some companies set up their business with the approach that contractual protections for employment or intellectual property issues can wait. Such an approach is not prudent. There are immediate and cost effective ways of protecting the important assets of the company. For a limited liability company, the Operating Agreement may contain a non-competition clause. Ideally, the company should consider implementing an employment contract that restricts distribution of data and solicitation of customers.
Q. I like the idea of starting as a limited liability company, but have long term plans to raise venture capital down the road. I've heard venture capital firms feel more comfortable doing business with C-Corporations. If I start as one kind of entity, are we stuck with that, or can it be changed later?
A. Ordinarily, the company can file Articles of Amendment to shift the type of business entity being used. In doing so, however, it would have to consult with counsel to ensure compliance with the legal requirements of the new type of entity and confirm the resultant tax treatment involved.

Consultation
Contact us today for an initial consultation at (703) 312-0410.  We are located at 2200 Clarendon Boulevard, Suite 1201, Arlington, Virginia  22201.  We also have branch offices in Fairfax County and Richmond.

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Disclaimer: Albo & Oblon, LLP provides the information in this web site for informational purposes only. The information does not constitute legal advice. The use of this site does not create an attorney-client relationship. Further communication with our attorneys through the web site and e-mail may not be considered as confidential or privileged. Please contact our attorneys if you wish to discuss in more detail the contents of this web site. David A. Oblon, Albo & Oblon, L.L.P., 2200 Clarendon Boulevard, Suite 1201, Arlington, Virginia 22201 is responsible for this web site. Web site designed and maintained by PowerAdvocates