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Kenneth Allyn Sprang

Kenneth Sprang’s Answers

759 total


  • Do I need to incorporate, create an LLC for a consulting business?

    Like a lot of folks, I'm "in between" jobs. I have some offers for consulting work and believe that might be my niche for the near term. Do I need to create a corporation or LLC? My work would mostly be web content, marketing and business strategy...

    Kenneth’s Answer

    I would strongly recommend that you create an S corporation or an LLC for three reasons. (I favor S corps for some tax savings, but at this point it may not matter much). First, it does provide liability for personal assets should any client become unhappy. Second, it helps to clearly establish you as an independent contractor with your clients. Finally, by setting up your business you may be able to take advantage of some desirable plans for saving money, plans superior to the garden variety 401(k). The cost of setting up the LLC is modest particularly when measured against the benefits.

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  • Import/Export Attorney for consultation in Chicago/ IL

    Hello, first of all my apologies as this is not a question. I'm requesting for help as I couldn't find any results while searching for business attorneys for import/export . Looking for an attorney in Chicago area who could provide overall consu...

    Kenneth’s Answer

    • Selected as best answer

    Our firm does a great deal of work both with start-ups and with clients engaged in importing and exporting in the U.S. Our clients are coast to coast here and an increasing number abroad. My experience has been that a good freight forwarder can usually meet your needs at lower cost. You need a good accountant experienced in international transactions to advise regarding tax and related issues, and you need corporate counsel for your set up. Depending on the goods and services you are dealing with you may well find all your needs in import and export can be met by the CPA and freight forwarder.

    I would be happy to pass on the names of the CPA and freight forwarder to which I refer my clients.

    Best regards,

    Ken Sprang
    Washington International Business Counsel
    Washington, DC
    ksprang@wibclaw.com

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  • When an LLC gives away a portion of the company (either through sweat equity or investment), is everyone's percentage diluted?

    Does this new owner also get his shares diluted? For example, let's say we agreed to give him 40% for sweat equity (vested of course). He doesn't actually get 40% right because his shares would also be diluted? Also, does it matter whethe...

    Kenneth’s Answer

    The answer for the most part depends on how the company is structured. . If you promise someone 40% that would normally mean that only 60% is available to others. If one person or group of persons holds 60% of the authorized shares (or membership units for an LLC) then the new person will hold 40% and no more.

    Having said that, if you had 100,000 authorized shares and the new person received 20,000 shares while other owners held 50,000 shares, with 50,000 unissued, the new owner would have 40% of the company so long as no more shares were issued. Ownership is determined by issued and outstanding shares or membership units.

    When dilution occurs because of someone investing capital, the value of the remaining shares or units typically stays the same or increases. Here, of course, with no capital investment, dilution of value is a very real, indeed probable, result.

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  • In what situations is a contract draft review not necessary?

    It refers to Software quality assurance..I mean in the Software Quality Assurance context..

    Kenneth’s Answer

    Your question lacks context, so I raise that caveat first. Having said that, I could certainly tell you stories of clients who signed agreements without either understanding all of the terms and/or without having an attorney review them. If you are talking about an agreement in which you are buying or selling services or goods, or in which you have any possible exposure at all, money spent having counsel review the agreement is money very well spent. A few hundred dollars invested now could save you lots of aggravation and possible money later.

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  • What type of business entity is best fits the wholesale used car dealership in Delaware

    LLC, Incorporation, Corporation etc. wholesale of cars on different auctions.

    Kenneth’s Answer

    • Selected as best answer

    I generally prefer S corporations because they have tax advantages. At the end of the day if you are the only owner, the decision should be driven primarily by tax considerations. Many folks are intimidated by corporations, but in DE you can create a close corporation for your S corporation allowing you to run it almost like an LLC. Unless your accountant advises something else for tax reasons, you might want to seriously consider a Delaware close corporation and elect to be taxed as an S corporation. That could save you 15.3% tax on some of your income.

    Fortunately you are in the state I like best when setting up new companies. Delaware does this better than anyone else in my view.

    I do think you are best served by consulting with your accountant before deciding and using business counsel to set up the company, rather than one of the one size fits all companies that create new companies.

    I am happy to discuss with you of course without obligation.

    Best regards,

    Ken Sprang
    ksprang@wibclaw.com

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  • How does a corp. issue stock?

    If a corp. in the process of IPO gifts be 50k shares of common stock by writing a handwritten letter or making their own stock certificate, is this considered owning actual stock when it comes time to sell it?

    Kenneth’s Answer

    If you are in the process of an IPO, I strongly urge that you consult with your counsel. The articles of incorporation and/or bylaws (and/or the statute) may address the requirements as to a certificate. Typically a certificate is not required. It is the entry on the books of the corporation and the authorization by the Board of Directors that controls. What concerns me is that if you are gearing up for an IPO, you need to have all the t's crossed and i's dotted in your corporate records.

    I am happy to spend a few minutes explaining without cost if you don't have counsel. Of course, if you are at this point I am hoping that you in fact do have counsel in whom you have confidence.

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  • My company is not making any money at the moment and I wanted to add my parents as partners and give them a percentage?

    Because my company is not making any money will this pose a problem? My company has been in existence for less than 3 years.

    Kenneth’s Answer

    • Selected as best answer

    I agree with Ms. Jurado. If the company really has no value then you could issue the shares or membership interests with little or no tax consequence. The process is easy. The only question is the value of the company. If the company has value and you give them an interest there could be tax consequences, depending on how the numbers add up.

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  • We originally formed our LLC in Delaware and we had California registered as a foreign entity because we did business in Ca.

    The company who set us up as an LLC charged a lot of money and was not there for us when we originally spoke with them. We were lead to believe it was better to be a Delaware LLC and only after we paid the initial fee did they hit us with having t...

    Kenneth’s Answer

    First, let me underscore why I think companies that form LLC's for clients rather than business lawyers often end up costing the client more in the long run. I know that clients want to save money, but scrimping on accountants and attorneys is often a disaster. Of course it is too late for you on that issue, but hopefully others will listen to the advice.

    There are a lot of advantages of being organized in Delaware, depending on long term goals. Their organization is efficient, fast, reasonable in cost, and competent. In California it may take me a few days to get an answer to something while in DE it may only be a few minutes or a few hours. Converting LLC's to corporations is a snap in DE, but not so everywhere.

    If your business is concentrated in California and you have no plans to go public or seek investment from outside investors, organizing in CA alone might make sense. On the other hand, you are now organized in DE and the annual fee there is $250 for an LLC. You are on the hook for the $800 annually in CA no matter what you do. Unless money is really tight, I would suggest you remain organized in DE and register as a foreign LLC in CA and pay the annual fee. If you had not already organized in DE, I might say go with CA, depending on your plans. However, since you are in DE already, why not enjoy the benefits of organization there since your extra cost is only $250 annually and down the road you could well appreciate operating your company under DE rather than CA law. To clarify, corporate/LLC matters are governed by DE law, while tort, contract, etc. will be governed by CA law if the events are in CA.

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  • What is a good legal entity for a business that will have a subdivision in a different industry?

    I would like to form a company that will basically be in the trucking business, just regular dry freight. I would also like a subdivision or a part of that company to be in a different business, like brokerage for getting shipments or even offer ...

    Kenneth’s Answer

    You have three basic options. Either you create a single company which has two divisions, a trucking division and a brokerage division, or you create a trucking company which has a subsidiary in the brokerage business (or vice -versa). You could also have a single holding company which owns a trucking company and a brokerage company.

    Any of those structures will likely give you the insulation from liability you want. The threshhold question is a tax question. Which structure serves you best for tax purposes.

    Personally I favor S corporations as they provide tax advantages (I am assuming you are a citizen of the U.S., a prerequisite). You could have an S corp that owns an LLC or two LLC's but not the other way around.

    Our firm does a lot of this kind of work and I am happy to discuss with you. I would also urge you to speak to your accountant about tax ramifications. Sometimes attorneys and accountants disagree as we look at governance, liability and things other than tax, while their focus is tax. However, if you are the sole owner whatever structure your accountant favors will probably work.

    Best regards,

    Ken
    Kenneth A. Sprang
    Washington International Business Counsel
    ksprang@wibclaw.com

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  • I own a few FL rental condos, am I better off with an umbrella liability policy or moving the into an LLC?

    Does the cost of the LLC outweigh the liability protection of a $2m - $3m umbrella

    Kenneth’s Answer

    I generally recommend that a client hold each property in a separate LLC so that liability is limited to that property. Setting up and operating LLC's is relatively simple. However, you should definitely have insurance as well. If someone was injured in one of your condos, with just the LLC the condo as the asset is at risk. Having insurance, which is relatively inexpensive, is an inexpensive way to protect yourself. An umbrella for all of the condos would probably be the most economical option.

    In short, you are really mixing two issues. The first is whether to use one or more LLC's. There are various business reasons for the LLC, as well as liability insulation. Those business reasons are perhaps less important with real property LLC's but worth considering. The second issue goes to liability protection. You get some with the LLC but you should unequivocally have substantial insurance as well.

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