Frequently Asked Questions


What factors should be considered in choosing the type of business form for my business?

You should consider: how big your want to grow, the nature of the business, and whether you are going to have “partners.” These factors will help dictate the form of business entity you choose.

What is the difference between a subchapter C and S corporation?

At the outset, the purpose of a corporation is to insulate a person from personal liability for the conduct of their business. The only difference between a C corporation and a S corporation is how the corporations are taxed.

A C corporation is taxed separately as a corporation.

An S corporation allows the income (or loss) to “pass through” to the individual shareholders. Beware, there are many restrictions for an S corporation. For example, S corporations are limited to only 100 shareholders, their fiscal year must end December 31, shareholders must be “natural persons,” and US citizens.

What is a limited liability company (LLC)?

An LLC protects an individual from personal liability. It is extremely flexible and can be taxed as a partnership, corporation, or a sole proprietorship. The sharing of profits and losses can be extraordinarily flexible in order to address the needs of the owners (typically called members) and allows for limited liability (of a corporation).

What is the difference between a joint venture and a partnership?

A joint venture is a type of a partnership. It is usually when two companies determine to work together on a specified project. It is not unusual for the two companies to form a new company for the joint venture.

What is a non-profit corporation?

A not-for-profit company usually is designed not to make any profit. Usually it is set up in conjunction with a charitable or educational purpose and qualifies for special tax-exempt status under section 501 C 3 of the Internal Revenue Code.

Is it a good idea to have a Buy-Sell Agreement?

Perhaps the most important thing parties can do when setting up a corporation (or a limited liability company), is defines what happens if someone wants to leave the company, or others want to force that person out of the company. This is perhaps one of the most time consuming aspects of an attorney’s representation of a new company: getting the members to honestly assess their contributions to a company and define their expectations.

What is involved in a corporate merger?

A merger is when two companies combine to create one company. There are technical legal requirements.

Do I need a lawyer to start a business?

To start a small business, for example knitting in your house … no.

Even a larger business with several employees can be started without a lawyer.

The benefit of a lawyer is adding business insight and identifying issues that could become an insurmountable problem later.

Do I need a business plan?

“No one plans to fail – they failed to plan.”

Business plans are helpful even in a one-person business because it allows you to identify the goals, the path, the strengths, the problems, etc. Sometimes business plans are required if you are seeking a loan or investor.

It does not have to be the most complex business plan–it can be very simple and straightforward–but yes, you should have business plan.

What permits, licenses, or registrations do I need for my business?

It depends on your business. Many industries — financial, food, or pharmaceuticals — have many licenses and registrations to comply with.

And many have no particular registration requirements.

What kind of insurance does my business need?

If you are selling to the public you absolutely need insurance. Forge a relationship with an honest insurance broker who can advise you. The biggest risk is that someone will get hurt from something you sell or from being in your place of business.

How do I know what kind of business to form?

Corporations, sole proprietorships, and Limited Liability Corporations all have their pros and cons. If you plan on raising real money from outside investors, investors are usually comfortable with a C corporation. If you have a real estate business, a LLC provides maximum flexibility and tax advantages.

The industry of your venture will help determine what type of business to form.

What should I do if my business has been sued?

Here’s what NOT to do: Ignore it.

What you SHOULD do is call your insurance broker and see if there is coverage. If not, consult with a lawyer.

What should I do if the insurance company refuses to pay my property damage claim?

Call your insurance broker and have him or her raise hell. If that does not work, call a lawyer.

What is Involved When Litigating a Commercial Litigation / Business Issue?

Most lawsuits are for personal injury, such as someone being run over by a car. In a business litigation — breach of contract, theft of ideas, partnership disputes — the litigation has the earmarks of a business deal. With luck it can be resolved in a business setting and out of the courtroom.

What is the Difference Between Mediation and Arbitration?

These arise in a litigation context. They are both forms of alternative dispute resolution — proceeding outside of court. A mediation involves having a mediator, who is neutral, listen to each party, identify issues, ask questions, and move the parties towards a consensual settlement.

A mediator does not decide anything — he or she just helps the parties resolve the dispute.

By contrast, an arbitration is fast track private litigation. It is not public. Depending on the rules applied, each side will present their position and the arbitrator acts as a judge and decides the dispute.

What Constitutes a Contract?

At the risk of sounding like a dictionary, a contract is a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law.  Lawyers don’t like oral contracts.

What is a Breach of Contract?

When a party fails to honor his or her duties under a contract.


What should I consider when starting up a company?

As your lawyers, we want you to focus on who your customers are, embracing your goals, and planning how to move from soup to nuts.

What are other applicable federal laws and regulations?

Apart from tax issues, Federal Laws are implicated in certain industries.  There is no real federal regulation of, say a photo/video business.  If you were entering the pharmaceutical business, there are myriad federal regulations.

Also, there are very specific laws relating to raising money from outside investors.

What types of licenses would a small business need and where do I get them?

As mentioned above it depends very much on the industry.  New York City has an excellent website  to assist you in starting and running your business. New Jersey state does as well.

Check them out as part of your due diligence.

What kind of tax procedures do I need to follow?

One of your first moves should be to get an accountant who is sensitive to the nuances of a small business.  We are happy to recommend several.

You must get a taxpayer identification number called an EIN. Think of it as a social security number for a business. You can typically file a W-9 online to obtain that. If you want to be a S Corporation you need to file an IRS form 2553.

If you are being compensated with stock or ownership in the company that vests in the future, you will need to timely make an 83(b) election file to tell the IRS you’d like to be taxed on your equity, such as shares of restricted stock, on the date the equity was granted to you rather than on the date the equity vests.  You really should consult with an accountant about this issue.

How can a lawyer help a startup business?

The thrust of this website is how a law firm can assist you in starting the business and keeping it out of trouble.

When do I need to incorporate a company?

You will know.  There will be a time when the business crosses over from being a hobby or a dream to being a reality.  You should incorporate in the space between those two poles.

How much should I capitalize my business with at the beginning?

As much as possible but not more than you are prepared to lose.

We work with innovative businesses and startups who want to take things to the next level, contact Chidatma Lex Group today!

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Disclaimer: The use of this form for communication with the firm or any of its lawyers does not establish an attorney-client relationship.