If you are starting a new telecom business, there are a number of legal issues to take into consideration. It is critical for your company to start on the right foot. Formative years for a new business often determine whether it will make it in the long run. You also want to make sure your business is able to grow down the line.
Lawyer for Telecom Startups
Ben Bronston has advised and represented telecommunications businesses for more than 20 years. He is a nationally recognized expert in telecom law with experience with telecom startups. He can assist you in getting your new business off the ground. Call Ben Bronston – Telecom/IT Lawyer today at 888.469.0579 to set up a consultation.
- Deciding What Type Of Business Entity To Form
- Business/Trade Names
- Employer Identification Numbers (EINs) / Tax Identification Numbers (TINs)
- Out-Of-State Registration
- Ongoing Corporate Formalities
A threshold issue is whether your new venture should be organized as a corporation, limited liability company or some other type of legal entity. A corporation is a legal entity separate from its owners and generally can have an unlimited number of shareholders.
A major advantage of any corporate entity is that it limits the personal liability of the owners for claims against the corporation. Likewise, a limited liability company is a legal entity separate from its owners but unlike a typical corporation, the profits and losses of a limited liability company flow through to its owners.
Some small businesses are operated as sole proprietorships. The major disadvantage of a sole proprietorship is that the owner of the business is personally liable for debts or obligations of the business. For this reason, very few telecommunications businesses are operated as sole proprietorships.
The primary advantage of a regular corporation, of course, is that it limits the personal liability of the stockholders for debts or obligations of the corporation. Notwithstanding this, a number of disadvantages are associated with corporations. First, federal income taxation of business profits is at rates higher than those applied to individual taxpayers.
Second, if profits are withdrawn from the business, those profits are effectively “double taxed.” Finally, regular corporations entail relatively more complexity and expense than most other forms of doing business.
An S corporation is an entity that has elected a special tax status with the IRS. This tax treatment allows the income of the corporation to be “passed through” to the shareholders. Thus, shareholders’ individual tax returns report the income or loss generated by the S corporation, meaning that business profits are taxed at individual tax rates, not higher corporate rates.
In general, there is no double taxation on profits withdrawn from the business. Like a regular corporation, stockholders generally have no personal liability for debts or obligations of the corporation. One of the major disadvantages of an S corporation is that, in addition to the complexity that a regular corporation entails, it requires the close oversight of a tax legal advisor.
Limited Liability Companies
Limited Liability Companies, or LLCs, are increasingly being considered as an alternative form of doing business. This corporate form is available in many but not all states. Essentially, LLCs are hybrid entities that combine the favorable flow-through tax treatment of S corporations with the limitation of liability enjoyed by corporations.
Like the stockholders of an S corporation, LLC members are generally not liable for debts and liabilities of the business. Significantly, federal income taxation of business profits is assessed at individual tax rates and there is no double taxation if profits are withdrawn from the business. While LLCs entail a moderate level of complexity and expense, LLC laws tend to vary among states in their requirements.
In selecting a legal form that the business will take, careful consideration should be paid to the business name. Generally speaking, a corporate name cannot be the same as or deceptively similar to the name of any other corporation incorporated, or registered to do business, in the same state as your company.
Before deciding upon a corporate name, it should be carefully checked to determine whether the name is available for use. At a minimum, such a check should be made with the jurisdiction in which your business will be incorporated and each jurisdiction in which the corporation will likely be registered as an out-of-state corporation.
Even if a business incorporates successfully under a given business name, this does not necessarily mean that absolute rights to that name are obtained. A separate check should be undertaken against registered federal trademarks or trade or fictitious business names to avoid business name conflicts. In addition to a trademark search, an expanded search might entail reviewing local telephone directory listings and conducting an internet search for similar business names. A telecom attorney can assist you with the search
It is not uncommon in the telecommunications industry for startup companies to face lawsuits brought by competitors with identical or similar business names, so these steps should not be overlooked. In addition, state-specific requirements need to be carefully followed as many state laws require that the corporate name contain the word “corporation,” “company,” “incorporated” or other similar words or abbreviations.
Upon formation, a new corporation should apply immediately for an employer identification number, or EIN, from the IRS using Form SS-4. The EIN that the IRS will issue is then used in all correspondence with the IRS.
Once the legal entity has been formed, consideration should be given to where services will be offered. This step will enable a new business to determine in which states it will need to register as an out-of-state corporation, possibly apply for authorizations to operate as a telecommunications provider, as well as obtain other permits or authorizations. While a new business will incorporate under the laws of a given state, it will need to register as an out-of-state corporation in all other states in which it intends to offer service and transact business. Major telecommunications providers operating nationwide, for example, typically are registered as an out-of-state corporation in all fifty states.
Filing for authority to transact business as an out-of-state corporation generally involves a fee. Fees vary from state to state but generally range from $50 to as much as several hundred dollars. Processing time also varies from state to state, from as little as two days to several weeks. For an additional fee, many states offer expedited processing services, which can reduce the processing time to 24 hours or less.
Because obtaining authority to transact business is a prerequisite to applying for authority before the state public utilities commission to provide telecommunications service, a new business should begin the process of obtaining these registrations well in advance of the date on which it intends to begin offering service.
Once incorporated, it is important that ongoing corporate formalities be observed. For example, personal funds should not be commingled with corporate funds; the full and correct name and address of the corporation should be shown on all stationery, websites, business cards, contracts, etc.; and all significant corporate actions should be reflected in appropriate minutes authorizing those actions.
Annual meetings of the stockholders and the board of directors should be held at such time and place as provided in the corporate bylaws. It is important that corporate reporting requirements and ongoing fees be paid by applicable deadlines. Further, each corporation must have a registered agent in the state in which it is incorporated, and the correct address of the registered agent must be kept current with the appropriate state regulator.
To the extent that these and other corporate legal formalities are not observed, the possibility exists that the “corporate veil” could be pierced. This essentially means that the business runs the risk of being determined not to have maintained its legal corporate status. Were such a determination to be reached by a court, the corporate form of the business is essentially viewed as being defective or void. In other words, the stockholders may have personal liability for corporate acts, debts or obligations and that the other benefits of that corporate form may not apply.