Business Law

30

Mar'18

Do I need a License to Start a Consulting Practice?

The answer is that as long as you are not giving advice which is regulated, you are good to go. What’s regulated? Law, medical, actuary, insurance, investments, real-estate (in some locales), engineering (in certain fields), architecture, and certain trades. If they license the practitioners, they probably regulate the advice. For example, just try to practice accounting in Texas. They will be all over you if you are not a CPA … Also, you have to be very careful that you aren’t issuing an opinion on certain things. Accounting is a clear example. If you start doing financial statements and attaching some sort of opinion that they are correct, the CPA board will be on your case. Be very cautious about anything involving other people’s money. Giving advice about loans or real estate transactions can get you in big trouble if you are alleged to be an unlicensed real estate broker or loan broker. Even if there is no regulation, you should be careful where some sort of dealer license is involved. For example, I had a client who helped people find the right car for a price. The state alleged he was an auto broker. Big cat fight ensued. He …

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28

Mar'18

How do you form a Private Company?

A private company is any company that is not publicly held, meaning that it could be a corporation, a partnership, a LLC or a sole proprietorship. Forming a sole proprietorship is easy. Repeat after me: “ I now have a company and it is named ____ (insert name)” You now are a sole proprietor. You may have to register your “fictitious” business name, you may have to obtain a business license from your City/County/State, and you may have to apply for various registrations, such as sales tax, property tax, payroll tax, etc. But you are in business. Forming a partnership is almost as easy. You and others agree to be in partnership. You are there. Of course, only a fool would do that without some sort of written partnership agreement, since people tend to have short memories about what they agreed to, and partnerships tend to end up on the rocks as the result of unfulfilled expectations and misinterpretations. Partnerships are dangerous because they expose you to the liability created by your partners, amongst other things, and if you are determined to have one, consult with an attorney, please. We don’t recommend them. After you have formed a partnership, you’ll …

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20

Oct'17

LLC, Limited Liability Company as a form of business

This is a great question. The answer is more complex than it first appears. The advice I’m about to give you is not legal advice, and you should seek the counsel of a qualified attorney before relying upon it. First off, let’s address the issue of “limited liability” – after all, it’s called a limited liability company. Other respondents have indicated that this means you are off the hook… the company and not you are liable. Not so fast. Emphasis here should be on “limited” — yes it may limit your liability, but it doesn’t erase it. In fact, in the practical world, it probably does little to nothing to limit your liability. Oh drat! How can that be? Well, let’s talk about the general liabilities that a company incurs: payroll taxes, bank loans, trade payables. There’s no protection from payroll taxes… they’re coming for you on that one. Bank loans: bankers aren’t fools, they’ll make you guarantee the loan personally. Trade payables: ah, there we might have some protection if the company went belly up.  Now, how about when a customer slips and falls, or a competitor alleges that we stole their copyrighted stuff? These liabilities are generally classed …

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28

May'17

The Difference between a Corporation and a LLC

Both a LLC and a Corporation are entities established by registering with the particular state you are located in. The differences are profound. A Corporation is governed by corporate law, most states conform to the Uniform Commercial Code ( a prototype) of corporate law. Corporations are characterized by having a charter, bylaws, a governing board of directors, shareholders, and officers. In most states, a corporation must have at least three named officers ( one person can hold more than one office.) Corporations are governed by their board of directors, who are expected to meet on a regular basis and pass resolutions, which validate various actions of the officers, establish policies, enable borrowing and opening of bank accounts, etc. Corporations evidence their ownership by the issuance of capital stock, or shares of stock. Most states require annual reporting of one form or another. LLC’s are a hybrid entity, and were not prevalent until the 1980’s. They are much less formal in organization than corporations. They are governed by an operating agreement, managed by the owners, who are called “members.” No shares of stock are issued: ownership is evidenced by a percentage, similar to how it’s done in a partnership. In many …

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06

Mar'17

Should I get a Business Partner?

Perhaps, but be very careful. Most business partnerships do not survive, and the breakups can be painful and extremely expensive. Things usually look rosy when you begin, but can degenerate into some pretty ugly stuff. My suggestion is that you not form a partnership. I would suggest a LLC or a corporation. You should talk to a business attorney about this. Secondly, you need to be very careful in the selection of any co-owner. What are they bringing to the table? What will they contribute? Are you really willing to give up ownership and some control to somebody else? You better have a really good reason to want a co-owner. You better research the candidates extensively and exhaustively. Thirdly, you need to think about everything that can go wrong. How will you deal with major disagreements? How will you deal with getting out of the arrangement? What happens if your co-owner doesn’t do their part, or worse yet, takes from the business? Think about every possible bad thing, and address it in writing. Finally, think about how this is going to work on an on-going basis. Right now you are the man in charge. What happens when you have to …

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04

Mar'17

What are the implications of an office in a state?

Question: The articles of incorporation say that the office of the corporation will be located in a certain state, and talk about “process of service.”  What does this have to do with taxes? Response:  All states require that if you incorporate in their state, you have an agent for receiving “process of service” in that state. It doesn’t mean that you actually have to have an office there. For example, most Delaware corporations don’t actually have offices in that state. They do have an agent which maintains an office that can receive legal documents ( like a court summons or pleading, lawsuit or the like) in the state. These  “corporate agents” operate a mail stop manned by one person who can receive “process of service” for hundreds, even thousands of corporations. The bottom line is that if you incorporate in a state, you have to hire someone to be in that state that can sign for legal documents “served” on them. This is an entirely different concept that having an office for tax purposes. That concept is known as nexus. It’s all about whether a state can tax the company’s income earned in that state. If a company has an …

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25

Feb'17

Will a LLC give me Liability Protection?

Response:  business advisors often suggest that a business form a LLC to protect the owner from liability… after all, it is called a “limited liability company.”  They may infer that the liability protection is absolute, and many a business owner with a LLC thinks this.   Nothing could be further from the truth.  What follows is business advice:  you should always consult with a qualified business attorney when dealing with legal issues. The title should give you a clue:  “Limited Liability.”  It didn’t say “absolute liability protection,” and for good reason.  There are many loopholes and “gotchas” in the law, and limiting liability for a business owner is fraught with problems. The first problem with liability protection is the most problematic:  separating the business from the individual owner.  Many LLC owners act as though the business and their personal affairs are one in the same.  They pay personal expenses from their LLC bank accounts, co-mingle assets, and operate the business in a manner that is indistinguishable from a sole proprietorship; in other words, the LLC is just an owner’s  “alter ego.” That leaves a wide open door to a lawsuit alleging that there is no difference between the company and …

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27

Jan'17

Will a LLC Protect Me From Liability?

Here’s the long and the short of it: a LLC will protect you from some liabilities, but not all liabilities. Here is a non-lawyer’s  business person’s response ( always consult a lawyer for specifics.) If you are doing business as a LLC, you are still participating in the LLC and you are personally liable for any tort liability that you cause or are responsible for allowing to be caused. If I am to simplify this further, let’s just say that there is an “illusion” of protection, which may help you in limited circumstances. If you get into a battle, the attorney on the other side will sue your company, you, and your dog. Will they be able to pierce the LLC protection? It all depends, and it could be a function of how good your attorney is, the attitude of the judge on that particular day, and what the phase of the moon is. Do not, repeat, do not ever assume that an LLC will completely shield you from responsibility. We live in a litigious society. You have to protect yourself, and here are the best ways: Vet your customers. Don’t do business with jerks. Know your customers. Never, ever …

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26

Jan'17

What Company Should I Use to Form a LLC?

Question:  I see lots of companies offering to form a LLC or corporation on line. Which is best? Answer: So, we’ve decided we need a LLC, and we want to know who to have it done. My suggestion is that you stop and consider that you could do it all yourself, painlessly on the  Secretary of State website. That would be easy. Would it be best? Maybe not. There’s a lot more to a LLC than just getting a charter from the state. Most of the services you will see on line do little more than what you could do at the Sec of State website. Before you set up a legal entity, doesn’t it make sense to get some legal advice? Of course it does! LLC’s can be formed for many different purposes, and it if you don’t have the right legal paperwork such as an operating agreement, you could be wasting your time. Getting a charter from the state is the last step, not the first step in forming a LLC.  Even though you want to do it yourself, it makes a lot of sense to consult with a lawyer, and at least have them help you with …

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17

Aug'16

Can the IRS Collect from Startup Investors?

Question:  If my startup owes taxes to the IRS,  can the agency go after an investor to pay those taxes?

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