Schaumburg Startup Attorneys & Lawyers

What Is an Arm's Length Transaction?

"Arm's length" refers to a legal transaction in which buyers and sellers of products or services have no relationship to one another either by blood, marriage, or business dealings. Without a relationship, buyers and sellers can act independently. Without previous ties, an arm's length transaction makes sure neither person feels pressured by the other or acts in connection with one another.

The idea of an arm's length transaction, also known as an arm-in-arm transaction, came about in the real estate market as a way of handling tax authorities. Generally, family members and businesses with related shareholders are not acting at arm's length, which can cause ethical problems. Such ethical issues include a company's supervisor who forces an employee, under the threat of termination, to buy real estate using the boss's name.

In the 1997 case McNichol et al v. The Queen, the tax judge

...

“How should I structure my new business – as an LLC or as an S Corp?”

I get that question from time to time from clients who want to start a new business.

But there are really two separate questions embedded there:

Question 1 (State Law Form): Should I form my company under state laws as a “Limited Liability Company” or as a “Corporation”?

Question 2 (Federal Income Taxation): Should my company elect to be taxed under federal income tax laws as a “Partnership” or as an “S Corporation”? (The concept of “S”-vs.-“C”-Corporation is purely a tax distinction.)

...

Updated July 8, 2020:

Form 8832 can be filed with the IRS for Partnerships and Limited Liability Companies (LLCs) if they want to be taxed as different kinds of companies, like a corporation.

Form 8832: What Is It?

Partnerships and Limited Liability Companies can file IRS Form 8832. Businesses file this form if they want to be taxed as different kinds of companies, like a corporation.

Why Is Form 8832 Important?

No business wants to pay too much in taxes. Business entities are given a default tax classification (i.e. a multi-member LLC is taxed as a partnership unless it changes its tax status). Sometimes businesses can pay thousands of dollars less in taxes, just by changing how the business is taxed!

Entities Eligible to Use Form 8832

The IRS restricts which entities are eligible to file Form

...

What Is Cumulative Voting?

Cumulative voting is a type of voting system used by a company's shareholders that allows them to distribute their votes between candidates when voting for a company's directors. It is also known as proportional voting.

Shareholders get one vote per share that they hold, multiplied by the number of directors that need electing.

Where multiple candidates are running for a position, each shareholder can choose between voting for a single candidate or splitting their votes between multiple candidates.

How Does Cumulative Voting Work?

If a shareholder with 10 shares is participating in a vote for two open board seats, with Candidates 1 and 2 running for one seat, and Candidates 3 and 4 running for the second seat, they would receive 20 votes (10 x 2). The

...

How to Form a Single Member LLC in California

Learning how to form a Single Member Limited Liability Company is not that difficult, but there are some choices you need to make. A limited liability company (LLC) that has one owner is designed to protect that owner against personal liability. Accordingly, it should be treated as a separate "person" for legal purposes, and thus the sole member and equity holder should be shielded from any liabilities of the LLC, including debts and lawsuits.

A Guide to Forming a Single Member LLC in California

Learning how to form a Single Member Limited Liability Company (LLC) is not that difficult, but there are some choices you need to make.

A limited liability company that has one owner is designed to protect

...