Hughes Watters Askanase Attorney Paul Kellogg Notes Increased Business Formations and Break-Ups during Recession, Offers Guidance and Counsel for Entrepreneurs from First-Hand Experience
HOUSTON, Texas (Aug. 19, 2009) - Statistics released by the U.S. Small Business Administration indicate that, historically, more small businesses are "born" than "die" during economic recessions in the United States. A U.S. News & World Report article posted July 22, 2009, on the Internet cited business "birth and death" statistics from the Small Business Administration, which recorded a net gain of 17,613 businesses during the 1990-1992 recession and a net gain of 54,498 businesses during the 2002-2003 recession.
Although concrete "birth and death" data for 2008 and 2009 is not yet available, Hughes Watters Askanase attorney Paul Kellogg has been experiencing a noticeable increase this year in clients seeking legal guidance and counsel to form a business or break up one that is dysfunctional.
"Business formation work at our firm is up about 20 percent over last year. Most of these businesses are service providers, oil brokerage firms, consulting companies and specialty shops," Kellogg explained. "Many mid-level executives have been downsized, or see that the prospects for additional compensation or advancement are limited at their current employer. They have decided that now is a good time to take the plunge and pursue a business concept or opportunity that has been on the back burner for a while. Entrepreneurial individuals are aware of the risks that come with launching a new venture, especially during an economic recession, but they are also focused on the potential rewards and have a deep belief in their own skills and work ethic and their ability to thrive in these times."
"Tough financial times also expose bad management, poor asset performance, and tensions within established businesses that may have been festering for some time. Since last Fall, we have seen a large increase in the number of business owners who are buying out their partners, renegotiating contracts, or selling off assets," Kellogg noted.
If the parties cannot agree on how to part ways, a perfectly good business may collapse, and the owners' personal finances could be ruined. But, if the business has a proper agreement governing its internal affairs, then there is a set of rules to go by which facilitates a "just business" parting instead of a messy and emotional "business divorce."
"Many entrepreneurs don't focus on the formalities required to set up a business properly, but the form of entity, the role that each investor will play, the sharing of profits and expenses, and how to exit the business are all critical decisions that need expert guidance and advice before the business does anything else," Kellogg explained.
Kellogg has been an attorney with Hughes Watters Askanase, L.L.P. in Houston since 2001. He counsels new business owners on the types of business entities they can choose, usually an "S-corporation," a limited liability company (LLC) or a limited partnership.
"There are differences between them that have a significant long-term impact, but you won't know about those choices if you try to do it yourself or use one of those online incorporation sets. For example, one fundamental question is whether all of the investors will participate in the management of the company. An S-corporation has a hierarchical management structure, but an LLC allows all the investors to participate as equals. If you have several passive investors, and you want to call the shots, a limited partnership may be more suitable. The do-it-yourself kit also won't tell you that the Number One mistake is going into business ‘50/50' with a friend. Major decisions require a majority vote (51 percent at least). If owners can't agree and the business ownership arrangement is 50/50, decisions don't get made and the business can grind to a halt."
Kellogg has devised various mechanisms to keep the decision-making process functional even if both owners are strong-willed and certain that they are right.
"It works better than pistols at 20 paces," Kellogg, commented. He cited a number of other differences between corporations, LLCs and partnerships, including tax treatment of the owners' salaries and benefits, control over the transfer of ownership shares, and various ways to share profits based on cash investment, "sweat equity" or preferred shares.
Kellogg's guidance is firmly rooted in practical experience. Before attending law school, Kelloggmanaged some small businesses, and since becoming an attorney, he has started a successful retail business from scratch with another partner. Kellogg has hands-on experience with management and finances, allocation of responsibilities, employee matters, contracts, vendors, licensing, community relations and cash controls.
Kellogg's clients pay $1,000 plus filing fees of about $335 to form an S- corporation, LLC or partnership. The service includes counseling on the type of entity to use, the official filing with the Secretary of State, the preparation of the governance document (bylaws, company agreement or partnership agreement), and the preparation of a minute book, which is a record of the company's official documents and proceedings. Additional agreements, contract reviews and other services are billed hourly.
Kellogg and other members of HWA's Business Planning and Strategy team also support established businesses with a variety of legal services including:
- Licensing and Regulation
- Mergers and Acquisitions
- Structured and Project Finance
- Reorganization and Recapitalization
- Intellectual Property
- Buyouts, Conflicts and Dissolutions
For more information on legal structures for businesses in Texas, please see the Texas Secretary of State Website, www.sos.state.tx.us/corp/businessstructure.shtml.
About Paul Kellogg
Kellogg was admitted to the State Bar of Texas in 1999. Before joining HWA, he worked at Bond & Taylor, L.L.P., where he specialized in start-up companies, venture capital and private securities transactions.
Before becoming a lawyer, Kellogg was a business manager and worked for several years as a community liaison and issue analyst for former Houston mayors Kathy Whitmire and Bob Lanier. He earned a Bachelor of Arts degree in political science from Rice University in 1987, a Master of Arts degree in public administration from the University of Houston in 1996 and a Juris Doctorate, cum laude, from University of Houston Law Center in 1999.
For a complete biographical profile on Kellogg, please visit http://www.hwa.com/.
About Hughes Watters Askanase
For more than 31 years, Hughes Watters Askanase, LLP has helped business organizations, financial institutions and individuals succeed with their business endeavors. The firm's attorneys play a strategic role and support clients through every stage of existence and operation, from formation to liquidation. The practice focuses on the various interrelated areas which provide the greatest opportunities and most challenging obstacles: banking and credit union representation, business bankruptcy, business planning and strategy, default servicing, real estate and finance, consumer financial services, commercial litigation, and wills and probate. For more information on Hughes Watters Askanase L.L.P., please visit http://www.hwa.com/.