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Hi - my name is XXXXX XXXXX I'm a Business litigation attorney. What is your question?
My question is as followed...
There is a farm in California that I would like to partner with and convert it into a corporation...
I am not sure of the best corporation type to pursue....
S Corp, Closed Corp, LLC, etc...
Would you please advise?
Since it is a farm, I am not sure if it matters...
or require a specific corporation type....What do you suggest?
Kirk - are you there?
Hello - is someone on the other line?
sorry - I lost my connection for a moment
The best, XXXXX XXXXX most protective business entity is an LLC
The limited liability company is very simple to operate and doesn't require formal bookkeeping requirements and provisions that a corporation requires.
Kirk - how so?
Also, there is pass through taxation.
But, what about hiring employees?
This means that the LLC generally doesn't have to pay taxes, as all of the income from the company is passed to the owners and the owner pays taxes on the income - - only once is the income taxed.
Would a corporation provides more flexibility than a LLC?
Yes that is true...
If you have a corporation, the corporation would have to pay taxes on the money/income and then you would have to pay individual taxes on the money you earn.
I am planning to grow big...
A corporation is much LESS flexible than an LLC.
would a LLC limits the growth..
No. There are HUGE LLC's in the country. IF you look at major companies, they're all trending toward LLC's and away from corporations.
In recent months, Georgia-Pacific, who I think is the largest wood producer in the country, just converted to an LLC.
Kirk - would you kindly give me some examples of corporations turning away from corp to LLC?
You read my mind...
The farm is operating at a loss right now...
With the evaluation - I see that what is missing is the appropriate business structure...
Also, you should look at law firms to see how they're set up. 99% of them are going to be LLC's or PLLC's (professional LLC). You know the lawyers are taking advantage of the best operational company.
As part of the LLC - I need to name a President, VP, CEO, etc...
Yes, that is correct...They are PLLC - but that is also mandate by law though for them to be PLLC...
It's ok for a farm to operate at a loss, and probably will for a long time if you're paying salaries, etc. Also, if you show earnings from a farm, you are taxed to death. That's why there are so many things a farm DOESN't have to report - - like crop inventory - - because they're trying to help farmers shield some income to stay in business.
For an LLC, you must have at least a president or manager. IF you're a single member LLC, you're going to wear all of the hats, anyway.
Interesting thing that you said about a farm...
No, they don't have to be PLLC's; they could be inc. or an s-corp.
I want it to be a profitable farm...how can I hide the profit then.
My dad is a farmer, so I'm fairly familiar with the things that are out there - - - but I don't know how they work or how to take full advantage, but a CPA should. I just know that operating at a loss is really normal for farms.
It's not really "hiding" the profit.
Even if the farm sells crops, produce, meat as retail...
as income...you are saying it can still be reported as a loss...
I have some questions regarding role in the LLC...
The farmer does not know the business side...
Instead, there are so many programs, non-insured crop relief payments, overhead, FSA incentives, the ability not to have to report inventory - - which is the most valuable thing a farmer usually has (other than land), etc. makes it easier for a farmer to show so much loss and expense, that a loss is normak.
I would like a large percentage of the farm if I am going to invest and help it..
I would like the farmer to be in charge of the crop quality...
Well, if the LLC pays out all of the profits it has to the members/owners as income, you'll pay individual income taxes on that money.
I would like to take over the LLC from a business standpoint...
That is a good point.
However, the LLC would likely have NO MONEY - - or even a loss - - because it has paid all of the operating costs - including salaries.
What about re-investing back in the LLC?
I need to re-invest back - therefore, I would have money back as part of the LLC and not pay it out completely...
You are probably suggesting not to do that, correct?
Pay it out completely...Then reinvest back to personal money?
You can do it either way, and that may be a better question for your accountant.
I need some help on naming President, manager, etc... - advice in that area...
I would like to control the LLC....
I think that it would be difficult to come to an agreement if the farmer does not think that he is in control...
However, he does not know how to operate a business...
However, most LLC's that I do operating reports and minutes for generally try to leave no money in the LLC each year and then the LLC can borrow money from FSA, or other lenders to operate; and the individual owners can also loan money back to the LLC if need be.
If the farmer is going to be a member, he's going to have control.
However, you need to be designated as the manager of the LLC. The manager is the one who operates the business.
Can I name him president of the LLC but in the bylaw list out specific responsibilities...
Yes, he can be the president and not be the manager.
What are the different roles in the LLC that I must name, Kirk?
Can I give it whatever title that I want but just spell out the responsibilities for each?
I really thing the only required designation is the managing member and the registered agent.
Or, there is already defined title, role, and responsibilities dictated by federal/state law for the LLC?
Yes, you can have your own titles and responsibilities.
I am not sure I understand what is meant by the registered agent?
A registered agent is a person designated to accept process on behalf of the LLC. This is usually only relevant if the LLC were to get sued.
So - I can make him the President of the LLC - but his only responsibilities would be farming related activities and controlling the quality, yes?
Because the LLC is not a person, there must be a person designated to accept service of process for the company.
Yes, I think you can do that.
As long as you're the manager, you're going to be in control of the business.
The registered agent would be an attorney representing the company, accountant, etc...?
It could be you, the farmer, your lawyer, your accountant, or anyone you want, really.
I apologize...I am not sure that I understand the phrase "Accept process on behalf of the LLC"...
Would you please help define process?
"Accept process" means that if the LLC is sued, there has to be someone to accept the court documents (summons and complaint) - - which is called accepting process.
I understand. It is best to hire an attorney to represent the company at all time then?
Kirk - are you familiar with California? In California, do you know how much it costs - average to open an LLC...
Oh - one thing...LLC stands for limited liability - if I get sued will some of my personal income or personal assets be linked?
I am not entirely protected am I?
It's best to have an attoreny file your formation papers and to draft your operating agreement (which outlines the operations of the company, the officers, duties, etc.
Yes - of course...
With LLC's, you're only generally required to have one business meeting a year, and I would have an attorney attend that meeting and prepare your minutes. Otherwise, you'll spend a lot more time with your accountant that you will with an attorney.
As for costs, it varies depending on what the going rate in your particular area is. However, you should be able to get this done for less than $1000.
that is what I thought too...good to know that it is not too costly...
You are not personally liable for any actions performed in the name of the LLC.
What about the limited liability part, Kirk?
Is my personal asset still linked to the LLC?
The LLC provides the most insulation from liability that you can get.
Your personal assets are not exposed for the actions, debts, liability assessed, etc. to the LLC.
I hear you, but it is so difficult to understand...As it all states that corporation has the most protection....
Just about the only time that an LLC can't protect you from personal liability is if you commit a crime by using the LLC as a conduit.
Ah, I see...
All of the business entities provide protection from individual liability - - that's why people form them (for the most part).
Kirk - could I please ask you some questions about patenting, and I think that I am good...
However, LLC's provide all of the protection that a corporation does, without having to deal with the all of the bookkeeping and paperwork.
Sure, I'll be glad to talk to you about your patent issue.
Thank you so much...
Patenting - currently, I don't believe anything is patented with the farm...
There are farming protocols are one of a kind...
Can I patent farming protocol?
Or best to say - farming methodologies or specialized methods...
Can I patent a breed of hog designed by the farm?
Can I patent the feed for the animals that are designed by the farm?
What can I patent?
A patent is generally allowed for anyone who invents any new, useful, and non-obvious process, machine, design, article of manufacture, or composition of matter.
That's a very broad definition, but a patent must be something new and novel that no one else has come up with and something that is not obvious.
so a feed would qualify but farming methods probably wouldn't?
You can patent a farming process if there's nothing else out there like it; you can patent a feed type if it is something new.
Okay...that is great...
Also with the logo/trademark...
That's a lot simpler.
If I patent just the logo - would I automatically be protecting the trademark as well?
You can't patent the logo - - you have to trademark the logo.
However, there's no legal requirement that you register the trademark with the USPTO (patent and trademark office) to be protected.
Meaning that I have to send in the logo as a trademark and patent the trademark...
And, do you the average cost to patent the trademark and the processing time before I get it approved?
Trademarks have what is known as "common law" trademark protection. This basically means that if you use the logo/mark in your business, you are protected and can sue anyone if they try to copy your trademark and use it in your business area.
You CAN register your trademark with the USPTO, but it's really not necessary. The only difference with a registered and an unregistered mark is that you have the right to sue in federal court if it is registered and you don't if it is not registered.
You mention that it is not necessary....
If you want to file for a registered trademark, you're probably looking at $1000-$1500 for an attorney to handle it. I think the registration fee itself is about $250.
You don't think that it happens very often when people steal trademark?
That is not too bad...
Is the patenting cost the same for patenting feed or farming process?
No, it is not necessary to have a registered trademark. Here's a link to the USPTO that says you don't have to register a trademark to have trademark rights and protection: http://www.uspto.gov/faq/trademarks.jsp#_Toc275426712
A patent can be VERY costly because of hte details, specifics, etc, that you have to produce to be awarded a patent. I've seen patent applications run into the tens of thousands!
There are certainly exceptions, and some cost much less, some cost much more.
Is the tens of thousands because of the time it takes to produce the details or the processing cost?
It's the same with these other fees - - I'm ballparking the fees based on what I would charge. But, if there's a stumbling block or some problem that is unexpected, etc., you could be facing higher fees. There's really no cookie cutter fee for anything, unfortunately.
That's right. Patents are very techincal and require drawings, submittals that the attorney has to provide, then the Patent office may send something back and demand more details, etc. It can get very expensive.
Kirk - I am starting a business and I am new..what would you advise for newbies...What questions should I have asked and not asked?
Well, that's a very broad spectrum, but the best thing to do is to surround yourself with people that do know what to do and how to run a business - - like a local business attorney and an accountant.
It will be a little expensive in the beginning because you're going to be leaning on them for their knowledge, BUT if you want to run a successful company, that's really a necessary evil - - in my opinion.
Kirk - I have signed up for montly service at Just Answer.
I think we've covered the basics of getting started in terms of setting up the LLC.
Could I specifically ask for you again next time?
How does it work at Just Answer?
Great! Yes you can ask for me by just putting "For Kirk" in the question line, and it will be routed to me. Also, even though you are on a monthly service plan, you have to rate or accept our conversation so I am paid for my time.
As for how it works,
Absolutely! Excellent Service...of course. I will rate below.
all legal experts on the site are licensed attorneys and all of our credentials are checked by a third party provider to make sure we're all who we say we are.
the questions are posted on the site and we are paid a percentage of the question amount.
Well - it is well worth the money...
JustAnswer gets the other part of the money for operating expenses, etc.
Thank you, Kirk...
No problem. Please look me up if you have other questions. Thanks.
Do you close the conversation on your end first before I could rate?
I sure will...You are good!
Wait - are you on eastern time zone?
What is your online time and date so I know?
I'm hear pretty much all the time.
Okay - thanks, Kirk...
I am good for now...but I will have more questions in the near future and will consult with you...
Bye Kirk - talk with you soon.
I don't know what it says this:
Thanks for rating! Since you're not satisfied, please reply to your Expert.Kirk Adams will be able to provide you with more information and a great answer.
I rated "Excellent Service"...
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