57 RI Bar J., No. 2, Pg. 13. Attorney Practice Guide: Business Law.

• Author: Rhode Island Bar Association Business Organizations Committee

Rhode Island Bar Journal

Volume 57.

57 RI Bar J., No. 2, Pg. 13.

Attorney Practice Guide: Business Law

Rhode Island Bar JournalSeptember/October 2008 Volume 57, No. 2, Pg. 13 Attorney Practice Guide: Business LawRhode Island Bar Association Business Organizations CommitteeGeneral Guidelines:

1) Read and become familiar with the applicable statutes, including the applicable provisions of Title 7. (fn1)

2) Use words with their technical meaning, even if your clients do not. A shareholder of a corporation or a member of an LLC is not a partner.

3) Various considerations affect choice of entity. There may be a preferred entity for the type of business proposed to be undertaken by an entity, or there may be several appropriate alternatives. Organizing a business entity does not always assure the manner in which it will be taxed.

4) Determine the proposed scope of activities engaged in by the entity. Consider where foreign qualification may be required.

5) Whenever issuing an equity interest in an entity, including at formation, any securities issued must be registered or exempt from registration under applicable Federal and state securities laws. The state securities laws, or "Blue Sky" laws, are dependent on the residence of the person acquiring interest, not the entity issuing it. Various exemptions may be available. For small transactions, a lawyer may decide to rely on Section 4(2) of the Securities Act and R.I. Gen. Laws § 7-11-402(10). The former exempts the entity for purposes of Federal securities laws on the basis that it is not a public offering, and the latter exempts issuances to Rhode Island investors as long as the number of investors and the aggregate investments fall within the designated limits.

6) Tax ramifications are pervasive in organizing a business entity and in transactions between business entities and/or their shareholders, partners, members or other constituents. Never assume you know the tax consequences. Always research or consult appropriate tax counsel concerning the tax consequences of a particular course of action.

7) Rhode Island law permits a simplified process to convert corporations to entities taxed as partnerships, such as LLCs, LLPs and LPs, and vice-versa. Such conversions can, however, have serious unintended tax consequences.

8) Consider the importance of insurance and who is insured in...