General Data Protection Regulation (GDPR)

Goal: To enhance the protection of EU citizens’ personal data and increasing the obligations of organizations to deal with that data in transparent and secure ways.

Reason: To provide better experiences for customers and individuals who trust businesses with their data.

Applies to: EU-based businesses and any business that controls or processes data of EU citizens (this includes US businesses). This means a company’s geographical location has nothing to do with the jurisdiction of GDPR.

Penalty: Up to €20 million or 4 percent of global revenues, whichever is higher.

Glossary:

Requirements:

When starting your own business it is important to understand the different types of business formations. Depending on the legal structure of your business, the advantages and disadvantages of each can change greatly. The following explains the advantages and disadvantages of forming a corporation.

For more information on LLC formation, please visit our post on the Advantages and Disadvantages of Forming a LLC.

ADVANTAGES

Limited Liability

A key benefit of forming a corporation is providing limited liability for its owners (with the “corporate veil”). Alternatively, with a sole proprietorship or partnership the owners are personally liable for the debts and liabilities of the business. In these cases, creditors may go pursue personal assets to collect on debts of the business. A properly formed and operated corporation protects its owners from liability. However, the “corporate veil” can be pierced creating liability for the business owners if an officer or shareholder acts negligently or the corporation does not follow the proper corporate formalities. Such formalities include having separate bank accounts, holding meetings, and keeping minutes.

Perpetual Existence
Unlike a sole proprietorship or partnership, a corporation can exist perpetually.

Transferability
A corporation and all of its assets and accounts may be transferred by the issuance of a stock certificate. This can help a business raise money as investors can be brought in. On the other hand, sole proprietorships and partnerships require that each of the individual assets must be transferred, and the accounts, licenses, and permits must be individually transferred.

Stock
With the issuance of stock, the owner(s) of a corporation can share its profits while bringing in investors without giving up control.

DISADVANTAGES

Time and Cost
Forming a corporation requires fees and time-consuming filings, including preparing the business’ articles of incorporation and bylaws.

Formalities
In order to preserve limited liability (and to follow laws), corporations are required to follow corporate formalities to ensure that the business is operating as a separate entity, independent of the business’ owners. Some of these formalities include holding regular meetings, keep accurate records of the business’ activities and maintaining financial independence from the owners.

Control
A corporation is governed by a board of directors and laws regulate who can serve on a board of directors. In fact, family members and spouses cannot serve on a small corporation’s board at the same time. Also, a corporation’s founder could be fired from the company by the board of directors.

When deciding what type of business entity to establish, a business owner should understand the advantages and disadvantages of each type. LLCs give you a great combination of flexibility and protection. They shield members from personal liability while affording them an array of tax options.

For more information on corporation formation, please visit our post on the Advantages and Disadvantages of Forming a Corporation.

ADVANTAGES

Limited Liability
LLCs are similar to corporations when it comes to limited liability for its owners, allowing its members to avoid personal liability, per se, for debts and court judgments incurred by the LLC.

Less Formalities
There are fewer formalities, such as necessary paperwork and state-imposed requirements, for owners to deal with when establishing an LLC as opposed to corporations. However, LLC formation requires the drafting of an Operating Agreement.

Tax Flexibility
LLCs provide its owners with greater tax flexibility than corporations as the IRS does not consider LLCs to be a distinct separate entity for tax purposes. As a result, the IRS will not directly tax the LLC, at least initially, giving the LLC members the flexibility of choosing how they want to be taxed.

Structural Flexibility
Unlike corporations, LLCs provide a flexible management structure that allows its owners to establish any any organizational structure agreed upon. On the other hand, corporations which must have a board of directors to oversee the major business decisions of the company and officers who manage the day-to-day affairs.

Credibility
LLCs provide a heightened credibility with potential customers, vendors, employees and partners as you have shown a commitment to your business.

DISADVANTAGES

Taxation
Depending on how the LCC members decide to be taxed, LLC profits could be subject to self-employment taxes (i.e., double tax).

Roles
While corporations have specific roles for its members, LLCs generally do not. This often makes it difficult for a company to know who is in charge. However, this can be minimized with a well-written Operating Agreement.

Investments
It is difficult to bring on investors if you form an LLC unless you will allow them to join as members of the LLC. This also requires amending the Operating Agreement.

Ownership Transfer
With corporations, shares of stock can be sold. On the other hand, LLCs require that all owners approve any ownership transfer and the Operating Agreement must be amended.

Contract management can be an arduous task, but these 10 steps can streamline the process.

1. Investigate the business and legal backgrounds for the contract, the proposed transaction, and the overall business relationship. Interview all relevant and appropriate parties to understand the business relationship and what commitments may have already been made. Make sure to consider the actual and potential impacts on the company’s existing obligations and relationships.

2. Identify the steps that need to be taken for the contract to be reviewed and approved. Also, if needed, determine what can be done to expedite contract review before it can be signed.

3. Determine what contracts and related documents are required to memorialize the transaction. Collecting and reviewing existing examples of the necessary contracts will help expedite the drafting process and isolate specific questions that the company will need to answer in order for the contract to be complete and accurate.

4. Prepare a time and responsibility schedule for drafting, reviewing, discussing, revising and completing the first draft of agreement.

5. Negotiate the essential terms of the contract and, if needed, prepare a term sheet or letter of understanding to confirm that the parties are in agreement regarding the essential terms before time and effort is spent on contract drafting.

6. Draft the initial version of the agreement or, in cases where the opposite party is responsible for drafting, review the initial draft, discuss and negotiate necessary changes in the initial draft and make sure that revised drafts are reviewed. The timing of the drafting and revision process is crucial since delays can push the relationship off track and jeopardize closing the transaction.

7. Set up meetings and/or calls to review revised drafts.

8. Get the contract executed by the parties.

9. Make sure that fully executed copies of the contract are delivered to all interested parties.

10. Establish a plan for ongoing review of the performance of each of the parties under the terms of the contract. Calendar key dates identified in the contracts that may require follow up action.