 When beginning a business, you may not need to employ a lawyer as quickly as you believe.
Do you need to employ a lawyer to assist you get started with your start-up business after you have a fantastic idea? Certainly not. Many of the early stages in deciding on and creating your company organization may be completed on your own. However, as your firm progresses—for example, when you begin employing workers or entering into more sophisticated agreements—you may require legal advice. Remember, if you're unsure about something at any point during the process, hiring a lawyer can help you save money by preventing you from making a mistake or getting yourself into a position with unforeseen (and potentially costly) repercussions Deciding on Your Business Structure You'll need to figure out what kind of ownership structure is best for your new company. Most states' secretary of state (SOS) websites provide information on the many forms of business entities available, including sole proprietorship, limited liability company, corporation, and partnership. There are also several online and offline tools available to assist you in making sense of your options. The sort of business you have, the number of owners, and your funding will all influence which ownership structure is ideal for you. Although many entrepreneurs make this option on their own, you may have concerns about liability, taxation, ownership, or other issues that you should explore with a lawyer or accountant before making a decision. See Choosing the Best Ownership Structure for Your Business for additional information. Checking for Name Availability Another first step is to come up with a name for your company. While there are some legal requirements for naming your company, you can typically do so without the assistance of a lawyer. The first step is to determine whether the name you choose is accessible in the state where you intend to create and manage your company. On their SOS website, most states provide a company name database containing the names of all the firms that have previously registered in their state. There should be instructions there on how to check for name availability and, if you decide to do so, how to reserve your company name. Once you've established that the name you wish to use is available in your state, check to see if it's not already a registered trademark. You can do so by going to the Trademark Electronic Business Center of the United States Patent and Trademark Office. Do you intend to create a company website? If that's the case, you should also look into domain name disputes. Forming Your Business Entity You're ready to create your company organization once you've settled on a business structure and a name for your new venture. You won't have to file any paperwork or pay any costs if you choose to operate as a sole proprietorship or partnership (although partners should enter into a partnership agreement). You'll need to file organizational paperwork with the state and pay a filing fee if you wish to create an LLC or company. The majority of SOS offices provide useful information and forms for forming an LLC or company. The name and address of the new business, the name and address of your registered agent, and a few other details are usually all that is required on these papers. On the SOS website, there are generally clear instructions on how to fill out the form, pay the filing fee, and file the paperwork with the state. You'll need to create bylaws if you're forming a corporation, or an operating agreement if you're forming an LLC, in addition to registering your business entity with the SOS's office. These are internal documents that outline your organization's rules and procedures, such as how to hold meetings, take action, or dissolve and close your business. You should create a company bank account and keep all money for your new business separate from your personal or other business funds as part of getting your firm off the ground. To do so, you'll need an employment identification number (EIN) from the Internal Revenue Service, which you may get online. You can open a business account at a local bank once you receive your EIN and a stamped copy of your formation paperwork from the SOS. If you're a sole proprietorship or a single-member LLC with no plans to hire staff, you don't need an EIN, but it's a smart business practice to have one. Operating the Business Once you've completed the necessary paperwork, you can concentrate your efforts on getting your company up and running, determining the best approach to offer your services or products, and establishing the web presence you desire. You may need to develop contracts or other forms of agreements for the services or goods your company provides, depending on what you do. You'll also need to obtain the necessary permissions and licenses, as well as enough company insurance. There are several self-help tools available that can assist you in completing these chores without the need to engage a lawyer. You may encounter more difficult problems or legal concerns with potentially significant repercussions at some point. This might happen as a result of a potential employee lawsuit, bringing in investors, or purchasing another company. The expense of engaging an experienced lawyer to assist you in more difficult cases will be more than covered by the fees you may pay if you make a mistake. Most small firms will require the assistance of an experienced small company lawyer at some time in the future Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more!
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 Understanding the differences between a limited liability company and a corporation will assist you in selecting the appropriate business entity for your organization.Corporations and limited liability companies (LLCs) are two types of company structures. Both forms protect the owners from personal liability for the debts and other obligations of the company. For example, if you own a corporation or an LLC that files for bankruptcy, creditors will not be able to seize your home, car, or other personal property. However, they differ in terms of who owns and manages them, how they are taxed, and how they are controlled by law.
What Is a Corporation?A corporation, often known as a c-corporation, is a type of corporate entity that exists independently of its shareholders. The company is responsible for debts and wrongdoing, and can hold property or enter into contracts as an entity independent from its owners. By purchasing shares of stock in the firm, shareholders become owners. They have a very limited participation in the corporation's management, and they solely pay taxes on the profit distributions they get. What Is an LLC?One or more individuals or groups, known as members, own an LLC-structured business. Members of LLCs are not separated from the corporation in the same way that shareholders are. The LLC does not pay taxes on its own. Members pay personal income taxes on the LLC's profits, a procedure known as pass-through taxation. Although some LLCs choose alternative management structures, LLC members can operate the company. What Is an S-Corporation?An s-corporation, which combines aspects of c-corporations and LLCs, is another type of corporation. An s-corporation, like a c-corporation, is a separate legal entity with limited accountability for the debts and other responsibilities of the company. However, shareholders in an s-corporation, like members of an LLC, are liable for paying taxes on the business's income. How Ownership Works in a Corporation and an LLCA set of bylaws spells forth the regulations for corporate ownership, management, and other functions. An operating agreement is used by LLCs to specify roles and operating standards. The number of shares of stock a shareholder has in a corporation defines the percentage of the company he or she owns. Assume a company issues 100 shares of stock at a price of $10 per share. A $250 investment would give a shareholder 25 shares of stock, or a quarter of the company. This shareholder would receive 25% of the distribution if the corporation distributed annual profits to shareholders Stock is not issued by LLCs. The operational agreement specifies each member's amount of ownership as well as their share of earnings (or losses). The proportion of ownership determines a member's profit share, although an LLC can distribute profits in any way it wants as long as it respects the IRS's "Special Allocations" guidelines. Ownership Is Unrestricted for Corporations But Not LLCsC-corporation shareholders have the freedom to buy, sell, and transfer their shares to anybody on the open market. LLC members can only participate in the firm or sell their investment pursuant to the operating agreement's restrictions (or the rules set by state law when no operating agreement exists). The operating agreement of an LLC may oblige members to sell their shares back to the other members, or it may grant approval powers to the other members over any sale or buyer. When a member leaves an LLC, certain states require it to be dissolved and reformed. S-Corporations Restrict Certain Types of OwnershipWhile c-corporations can issue all of its stock to a few people or thousands, and to individuals or other enterprises anywhere in the globe, s-corporations can only have 100 shareholders, and all of them must be citizens of the United States. Individuals are also the only ones who can own shares in an s-corporation; corporations, LLCs, and partnerships are not permitted to do so. How Corporations and LLCs Are ManagedIn general, firms must adhere to state-specific management regulations. LLCs are subject to less government regulations when it comes to how companies are run.. How Corporations Are ManagedA board of directors and officers, such as a president and chief financial officer, are essential for corporations. Most states require businesses to file their bylaws with the state, which specify the rights and obligations of these executives. Members of the board of directors are in charge of appointing the company's executives as well as managing and reviewing the company's direction. If, for example, a corporation's profits drop or the company loses money, the board of directors may become quite active. However, it normally will not be involved in choices such as hiring, salary, vendor selection, and so on. The company's officials are in charge of making such day-to-day choices. Shareholders may be asked to vote on matters such as appointing new board members, but unless they are also officers, they are rarely involved in the day-to-day running of the company. Annual shareholder meetings are mandated by law, and the minutes of those meetings must be kept. They must also provide annual reports. How LLCs Are ManagedAn LLC's operating agreement is the equivalent of a corporation's bylaws. However, unlike corporations, most LLCs are not required to file an operating agreement, though certain states do. LLCs have a lot of leeway in terms of how they run their businesses. They do not need a board of directors, corporate officials, annual meetings, or annual reports in most states. An LLC can be managed by all or some of its members, and some LLCs appoint an outside management who does not own any of the company's shares. Although just a few states need LLCs to file annual reports, the majority of them demand other yearly files in order to keep their LLC status. How Corporations and LLCs Pay TaxesThe corporation, not the shareholders, is responsible for paying taxes on the company's profits. Dividends paid to shareholders, on the other hand, are subject to taxation. Many people consider double taxation to be a disadvantage of the company form. Corporations are also entitled to a number of tax deductions for business expenses that can be used to reduce their tax liability. On the other hand, S-corporations do not have to pay corporate taxes. Profits made by the company are distributed to the shareholders (as is done with an LLC). In an LLC, all of the company's revenues (and losses) are distributed to the members. Single-member LLCs are taxed as sole proprietorships, which means they report and pay taxes on their business profits on their personal tax returns. LLCs with several members have the option of paying taxes as a partnership or a corporation. LLC members pay taxes on the firm's profits on their personal income tax return based on their percentage of ownership when the company is taxed as a partnership. When an LLC elects to be taxed as a corporation, the LLC pays corporate taxes and members pay taxes on any earnings distributed. Profits that are re-invested in the company are not taxed since members are not compelled to pay taxes on earnings that are retained. How LLCs and Corporations Are FormedBoth LLCs and corporations are founded by submitting a document to the appropriate state government, which is usually the Secretary of State. Articles of incorporation are filed by corporations, whereas articles of organization are filed by limited liability companies. (In various states, the documents may be referred to by a different name.) Basic information about the firm, such as the name and location of the company, the address of members (in the case of an LLC) or directors and officers (in the case of a corporation), the type of business, and its purpose are often included in the documents. Corporations must also state how many shares of stock they intend to issue. The cost of forming a corporation varies by state and, in some cases, by the amount of shares the company issues. In Arizona, filing articles of incorporation can cost as low as $60, whereas in Texas, it might cost up to $300. Depending on the state, filing articles of incorporation for an LLC might cost anywhere from $50 to $100. Other yearly expenses that corporations and LLCs must pay include annual report filing fees, franchise fees, and business license fees. Choosing Between a Corporate and an LLC StructureCorporations and limited liability companies (LLCs) both have the benefit of limiting the owners' personal liability. Your needs will determine which entity is best for you. Here are some things to think about: LLCs are more flexible and have fewer formalities. LLCs, on the whole, do not need you to have meetings or submit annual reports. They also provide a great deal of flexibility in terms of administering the business, whereas corporations are compelled by law to have a set management structure, have meetings, and follow other formalities. An LLC's tax compliance is usually easier. Unless the members want to be taxed like companies, LLCs do not pay taxes. On their personal income tax returns, the majority of members pay taxes on business profits. Because the corporation is taxed on earnings, and shareholders are taxed on profit distributions, corporations are liable to double taxation. As a corporation, it is easier to recruit investors. Corporations are preferred by investors because they can invest in the company or sell their stock on the open market without restrictions. Buying or selling ownership in an LLC normally necessitates the approval of the other members, and there may be additional requirements. In addition, S-corporations have ownership requirements that make them less appealing to investors. Employers now have more alternatives for delivering benefits to their employees. Most LLCs are unable to offer benefit plans such as stock options. Corporations can deduct many benefit plan expenses as well, although LLCs can normally only deduct a percentage of the cost of any benefits they provide. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! 27/1/2022 0 Comments LLC Basics Personal accountability for company debts is limited by corporations, but managing them requires effort.
The majority of individuals are aware that creating a company gives "limited liability," which means that your personal culpability for corporate obligations is restricted. What you may not realize is that forming and operating a business entails more than just completing a few paperwork. To manage the more difficult corporation tax return, you'll need to keep solid records, and you'll need to follow corporate formalities like decision-making and record-keeping to keep your restricted liability. In a nutshell, you must be well-organized What is a Corporation? A corporation is a separate legal business entity from its owners, which means it owns property, pays taxes, and enters into contracts on its own. A corporation's ownership and management structure differs from those of other commercial organizations. A corporation's owners are shareholders (also known as stockholders), who purchase shares of stock to gain a stake in the company. Shareholders elect a board of directors, which is in charge of running the company. Limited Personal Liability One of the primary benefits of forming a company is that the owners' personal assets are safeguarded from the firm's creditors. For example, if a court decision declares that your business owes a creditor $100,000, you cannot be forced to pay the obligation with personal assets such as your home. Because only corporate assets may be used to pay off business obligations, you'll only lose the money you put into the company. Exceptions to Limited Liability Limited liability may not be enough to safeguard an owner's personal assets in particular situations. A corporation's owner may be held personally responsible if he or she:
This is the most significant exception. Courts have the power to decide that a company does not exist and that its owners should not be protected from personal accountability for their actions in certain situations. This might happen if you don't follow standard company procedures, such as:
Liability Insurance Incorporation should never be used as a substitute for adequate company insurance. Although creating a company protects your personal assets, you need to insure your business assets to safeguard them from litigation and claims. Many of the dangers that come with running a business may be mitigated with good liability insurance coverage. If you own a clothes store, for example, proper business insurance should cover the costs if someone slips and falls in your store. In addition, insurance can protect you in situations where the limited liability option is ineffective. For example, if you personally hurt someone while conducting business for the organization, such as by causing a vehicle accident, liability insurance would typically cover the accident, allowing you to pay the bill without having to utilize corporate or personal assets. However, insurance will not assist if your company fails to pay its bills: commercial insurance does not generally cover personal or corporate assets from unpaid business obligations, regardless of whether they are personally guaranteed. Paying Corporate Income Tax If a corporation's owner works for the company, he or she gets a salary and potentially bonuses, just like any other employee. The owner, like normal workers, pays taxes on this income, declaring and paying the tax on his or her personal tax return. After paying out all wages, bonuses, overhead, and other expenditures, the corporation pays taxes on whatever earnings are left in the firm. To do so, the corporation files its own tax return with the Internal Revenue Service (IRS), Form 1120, and pays taxes at a specific corporate tax rate. For companies, the Tax Cuts and Jobs Act introduced a new single flat tax rate of 21%. This replaces the previous law's business tax rates, which ranged from 15% to 35%. Alternatively, company shareholders can file Form 2553 with the IRS to elect "S corporation" status. This implies that for tax purposes, the company will be taxed as a partnership (or LLC), with business gains and losses "passing through" to the owners' individual tax returns. Forming a Corporation You must file "articles of incorporation" with your state government's corporations division (typically part of the secretary of state's office) to create a corporation. The filing fee is usually around $100. Articles of incorporation are typically brief and simple to prepare for most small businesses. Most states give you a basic form to fill out, which generally only asks for the name of your business, its address, and the contact information for one person connected with the business (often called a "registered agent"). Some states additionally require you to include the names of your corporation's directors. You must also prepare "corporate bylaws" in addition to submitting articles of incorporation. While bylaws are not required to be filed with the state, they are significant because they establish the fundamental rules that govern the ongoing formalities and decisions of corporate life, such as how and when to hold regular and special meetings of directors and shareholders, as well as the number of votes required to approve corporate decisions. Finally, you must give stock certificates to the corporation's first owners (shareholders) and keep track of who owns the company's ownership interests (shares or stock). Retaining Corporate Status To keep the corporation's position as a distinct entity, corporations and their owners must follow specific procedures. Corporations must, in particular;
Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more!  Owning and managing a home company has never been easier thanks to modern technologies. To contact consumers, all you need is a mobile phone and a laptop. But there are a few things you should know before you put up your sign and start promoting
Advantages of a Home Business A home-based business is both easy and cost-effective. The costs of starting a conventional brick and mortar firm are significantly lower. You don't have to worry about paying rent, utilities, or commute costs. Low overhead implies less risk and greater profit potential. Home companies also provide independence and flexibility to its proprietors. You may work on your business in your jammies during your leisure time. Running a home company also has tax advantages. Choosing the Right Business The possibilities for a home company are virtually limitless. A few suggestions are photography, dog walking, house painting, and home décor. A virtual assistant, graphic designer, or social media professional are all options. Consider your passions and hobbies. What do you excel at? What do you like to do in your spare time? What is the most common topic on which individuals seek your advice? The answers to these questions may be able to assist you in making the appropriate decision. Many people work as associates or consultants for a well-established firm. This "company in a box" option assists novice entrepreneurs with marketing and communications. You'll also get the opportunity to work with seasoned mentors. Picking a Business Structure After you've decided on a business name, you'll need to decide on a business structure. Sole proprietorships, limited liability companies (LLCs), and S corporations are the most common types of home enterprises. You can create a partnership if you have two or more owners. For many company owners, a single proprietorship is the most convenient choice. A sole proprietorship, on the other hand, does not provide personal liability protection against your business's debts and other responsibilities. Instead, if your company has the potential for legal liability, you should consider forming an LLC. Make sure you do your homework on the many business entity options and which one is ideal for you. Securing a Business License Location-specific licensing and permission restrictions apply. Visit the Small Business Administration for a list of state-specific regulations. Home companies, in general, require a business license from the local government. The needed license can be obtained through your city's business or tax department. You should also look at zoning laws. Operating a company from your house may be prohibited by homeowner's associations or zoning regulations. You might be able to acquire a variance if this is the case. Before you open, make sure you have the permissions you need. Health & Safety Permits Additional licenses may be required for some enterprises. A fire permit may be required if you welcome consumers into your house or keep hazardous merchandise. Food and personal care product manufacturers and sellers are frequently subjected to health inspections. It's possible that you'll need to obtain a health or environmental permit. For additional information, contact your local business office. Professional and Sales Tax Licenses Professional certification is also required in businesses such as hairdressers, legal and financial advisers, and home childcare services. For a comprehensive list of businesses that require professional license, go to your state's business website. A sales tax license may be required if you offer goods or services. This is sometimes included with the business license, and other times it is a distinct document. Insurance Considerations Your business is not covered by your homeowner's insurance. If you run a company out of your house, your insurance coverage may be voided. Notifying your homeowner's insurance carrier about your business venture is a smart idea. To safeguard against business losses, you should get business insurance. General liability insurance is required by all enterprises. Property damage, inventory and product damage, and personal injury coverage are all available. Data breach insurance is required for every company that stores sensitive information online. In the event of a calamity, business interruption insurance replaces revenue. Make careful to read the tiny print to understand what the policy does not cover. Bookkeeping and Accounting Keep track of your company's revenue and expenditures. You may use a basic Excel spreadsheet or accounting software to track all of the money coming in and out of your firm, but you must keep track of it all. To keep your personal and company funds distinct, open a separate banking account for your business. It's also a good idea to get a separate credit card for your business. To keep track of your finances, make copies of all receipts and income statements. Make sure you're on top of your documentation. Set aside one day every week to focus on invoicing, bill payment, and record keeping. Taxes You are self-employed when you run a home business. Taxes, including Social Security and Medicare, are your responsibility. The IRS usually requires you to make estimated quarterly payments. Tax Deductions All home business owners may deduct ordinary and necessary business expenses. These include:
The Home Office Deduction You could be eligible for a home office deduction. This deduction is only applicable to spaces that are only utilized for business. You cannot claim the deduction if you work from your bedroom or kitchen. The storage of merchandise and samples, as well as home daycares, are the only exceptions. You can deduct a percentage of your homeowner's insurance, homeowners' association fees, cleaning fees, mortgage and interest, and utilities under the home office deduction. Home repair expenditures can also be deducted, however the amount depends on whether the repairs are direct or indirect. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! 25/1/2022 0 Comments Every contract needs consideration What is a consideration in a contract, and what happens if there isn't any in an agreement? Consideration is the answer to the inquiry, "Why are you entering this contract?" or "What are you receiving for being a party to this contract?" under basic contract law concepts Any agreement must involve consideration on the part of every individual or entity who enters the contract in order for it to be considered legally binding. This article addresses the fundamentals of the consideration requirement, as well as real-world consideration instances. What Is Consideration? Consideration refers to the benefit that each party receives or expects as a result of the contractual agreement — for example, Victoria's Secret receives your money, while you receive the cashmere robe. Each party must change their "position" in order for consideration to offer a valid basis for a contract — and remember, every valid contract must have consideration. Consideration is usually the outcome of one of two things:
This shift in position is sometimes referred to as a "bargained-for detriment." In the real world, how does consideration work? Assume you collided with your neighbor's golf cart and caused damage. Your neighbor has the legal right to sue you for the damage, but if you pay him $2,000, he will not sue you. Because each party is giving up something in the exchange — you're giving up some of your money, while your neighbor is giving up the ability to sue you — this arrangement provides enough value for the contract. When a Contract doesn’t have Consideration In some cases, the courts will intervene and declare a contract unenforceable due to a lack of consideration. Let's take a look at a few of these possibilities. One of the parties was already required to fulfill by law. A police officer, for example, cannot claim a reward for apprehending a wanted suspect because the officer is already legally compelled to apprehend and arrest criminals. The promise is more of a gift than a contract. A promise to make a present is when your wealthy uncle pledges to give you money to buy a house with no strings attached. You can't force him to come up with the money if he changes his mind because his pledge was one-sided; you haven't done or promised anything in return. However, if you make a down payment on a house based on his promise and your uncle is aware of it, a court may uphold his initial promise. Despite the fact that it isn't a formal contract, the law acknowledges the need of holding people accountable for their commitments after others act on the premise that the promise would be kept. Promises are treated as contracts under this legal notion, known as "promissory estoppel," if they were fairly relied upon. The transaction is for "previous consideration." When someone promises to give you something in exchange for something you've already done — "I'll pay you $500 because you quit smoking last year" — a court will not enforce the promise to pay because the performance (quit smoking) wasn't bargained for. You did that without realizing that someone would later offer to pay for it. The promised benefit is illusory. In Robert's state, for example, it is illegal to fire an employee for refusing to sign a noncompete agreement. Robert signs one anyhow, despite the fact that he is on the verge of losing his job. Because Robert's employer cannot execute what it promised (or threatened to do), the agreement is unenforceable. Instead of threatening to dismiss Robert if he didn't sign the agreement, a better strategy would have been to offer him some sort of reward or pay if he did. What if the consideration appears to be out of proportion? Many transactions appear to be unjust in retrospect ("How much did you pay for that laptop?"). Courts, on the other hand, rarely pronounce judgment on the worth of the consideration transferred unless the two pledges are so disproportionately valuable that the bargaining process was conducted in bad faith (or "unconscionability"). If a court finds the consideration to be unjust, the contract will most likely come apart not because of a lack of consideration, but because the amount is so unequal that it implies that one party acted unfairly or withheld facts that may have made the arrangement fairer. Courts, on the other hand, are often hesitant to weigh in on the relative worth of specific promises or commodities unless there is evidence of ill faith. After all, what is valuable to one person may be worthless to another; that is what negotiating is all about. Is it necessary to include the word "consideration" in your contract? Many contracts include a recital (a declaration at the start of the deal) that states that the contract is being entered into "for good and valuable compensation, the sufficiency of which is acknowledged," or something similar. These contracts' authors make the error of thinking that simply saying that consideration exists satisfies the contractual consideration criterion. However, this is not the case in the majority of states; such recitals do not establish anything. To put it another way, stating that there is consideration does not imply that there is consideration. A contract, according to legal authorities, does not need to include anything more than a statement that "the parties agree." Contracts in which only one party signs, such as assignments, option agreements, or promissory notes, are an exception. Because it is not self-evident that a bargained-for exchange has occurred, a recital that the consideration is sufficient should be included in these contracts. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! 24/1/2022 0 Comments Structures of Business Ownership Learn about the advantages and disadvantages of corporations, limited liability companies, partnerships, single proprietorships, and other business forms.
Sole Proprietorships A sole proprietorship is a one-person business that is not incorporated or registered with the state. To start a sole proprietorship, you don't need to do anything specific or file any paperwork; you simply go into business for yourself. A sole proprietorship is legally inseparable from its owner; the company and the proprietor are one and the same. This implies that the business owner is personally accountable for any business-related responsibilities, such as debts or court judgments, and declares business revenue and losses on his or her personal tax return. Sole proprietorships are appropriate for businesses where personal responsibility isn't a major concern, such as small service businesses where you're unlikely to be sued and won't need to borrow much money for inventory or other expenses.
Partnerships A partnership, on the other hand, is a company owned by two or more persons that hasn't filed papers to become a corporation or a limited liability company (LLC). To create a partnership, you don't need to file any paperwork; the agreement takes effect as soon as you start a business with another individual. The partnership's owners pay taxes on their share of the business revenue on their personal tax returns, much like a sole proprietorship, and they are personally responsible for the full amount of any business obligations and claims. Both sole proprietors and partners in a partnership may qualify for the 20% pass-through tax deduction established by the Tax Cuts and Jobs Act (TCJA). Partnerships, like sole proprietorships, are appropriate in businesses where personal responsibility isn't a major concern.
Limited Partnerships Limited partnerships are difficult to set up and manage, making them unsuitable for the ordinary small business owner. Limited partnerships are often formed by a single person or corporation (the "general partner") who will seek investment from others (the "limited partners"). The general partner is responsible for the day-to-day operations of the limited partnership and is personally accountable for any business obligations (unless the general partner is a corporation or an LLC). Limited partners having little influence over day-to-day business decisions or operations in exchange for not being personally responsible for business debts or claims. If you're interested in starting a limited partnership, speak with a professional.
Limited Liability Companies (LLC) Forming and running an LLC is a little more difficult and expensive, but it's well worth the effort for certain small enterprises. The major advantage of forming an LLC is that it reduces the owners' personal liability for corporate obligations and court judgements. Limited liability companies (LLCs) restrict personal liability for company debts and claims. However, LLCs are more like partnerships when it comes to taxes: the LLC's owners pay taxes on their portions of the business revenue on their personal tax returns. LLCs are ideal for business owners who are concerned about being sued by customers or accumulating a large amount of corporate debts, or who have significant personal assets they wish to shield from business creditors.
Corporations Creating and maintaining a corporation is more difficult and expensive than forming and operating an LLC, but the structure restricts the owners' personal liability for business obligations and court judgments against the company. The fact that a corporation is a separate legal and tax entity from the persons who own, control, and manage it distinguishes it from all other forms of companies. Because of this distinction, a company's owners do not use their personal tax returns to pay taxes on corporate earnings; instead, the business pays these taxes. The TCJA introduced a single flat tax rate of 21% for businesses, which is substantially lower than the 15% to 35% rate that firms paid previously. Owners only pay personal income tax on money they get from the business in the form of wages, bonuses, and other benefits. Corporations make sense for business owners who either (1) face consumer lawsuits or a large amount of business debts, or (2) have significant personal assets they want to safeguard from business creditors.
Nonprofit Corporations A nonprofit corporation is one that was established for the purpose of pursuing philanthropic, educational, religious, literary, or scientific goals. Individual and corporate gifts, as well as public and private grant money, can help a nonprofit raise much-needed finances. Because of the advantages they provide to society, the federal and state governments do not usually tax nonprofit businesses on money they receive that is connected to their charitable mission.
Cooperatives Some individuals fantasize of creating a genuine equals business, one that is owned and run democratically by its members. These grassroots business organizers frequently refer to their companies as a "group," "collective," or "co-op," however these terms are typically used informally rather than legally. A consumer co-op might, for example, be founded to manage a grocery shop, a bookstore, or any other type of retail business. Alternatively, a workers' co-op might be formed to produce and sell arts and crafts. Most states have rules governing cooperative formation, and in certain jurisdictions, you may file papers with the secretary of state's office to get your cooperative recognized by the state.
Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! In the case of a breach, default, or wrongdoing by one of the parties, an indemnification provision allocates the risk and expense
A hold harmless provision, also known as an indemnification provision, is a phrase in a contract that transfers possible costs from one party to the other. In a mutual indemnity agreement, both parties agree to reimburse the other for losses incurred as a result of the indemnifying party's breach of the contract. Only one party gives this indemnity in favor of the other in a one-way indemnification. The major benefit of an indemnification provision is that it protects the indemnified party against losses incurred as a result of third-party claims arising out of the contract. In general, indemnification agreements are highly negotiated (and frequently disputed) terms. They are commonly employed in agreements where the risks of non-performance, breach, or wrongdoing by one party are considerable. For example, agreements involving the transfer of intellectual property rights frequently include a seller's indemnification clause to protect the buyer against the potentially enormous liabilities associated with a third-party infringement case. What Does an Indemnification Provision Look Like in a Contract? An example of a basic mutual indemnification provision is shown below. Keep in mind that any indemnity must be suited to your individual requirements. "Each party promises to indemnify, defend, and hold the other party harmless from and against any loss, cost, or damage of any kind (including reasonable outside attorneys' costs) arising out of the other party's breach of this Agreement, carelessness, or willful misconduct." Depending on your circumstances, you may want to insert additional language. An indemnification, for example, can be limited to certain third-party claims (such as those involving a breach of warranty) or to only those cases in which a lawsuit has been filed or a final judgment has been rendered. "This indemnification shall not cover any claims in which the indemnifying party fails to give the indemnifying party prompt notice, but only if and to the extent that such failure seriously impairs the defense," for example. If you're the one providing the indemnity, make sure the clause is as clear as possible in order to protect against the exact risk it's supposed to guard against. What is an Indemnification and How Does It Work? Assume you engage a writer to create a speech for you on a work-for-hire arrangement. Instead of presenting an original speech, the writer integrates sections from another person's speech, who then sues you for copyright infringement, claiming that his intellectual property was used without his authorization. A representation and warranty that the work product produced under the contract is original is included in your agreement with the writer. It also includes a normal indemnity clause, which guarantees to hold you blameless from any losses or damages, including attorney fees, suffered as a result of any breach of the contract. The writer would be bound under the indemnification to manage the legal defense of the other writer's intellectual property infringement case against you, as well as to reimburse all losses and expenses incurred as a result of the infringement claim. The Indemnification Agreement's Scope Read an indemnification agreement carefully before agreeing to it, and make sure your responsibilities are confined to your own mistakes or misbehavior. The term "to the extent arising out of" in the sample indemnity above essentially establishes this limitation. By contrast, the term "in any way arising out of or related to" is significantly broader, and it could put you in danger of being held liable for the actions or inactions of others. Also, before agreeing to a contract, consider if you are competent in handling the defense of any third-party lawsuit. You might also restrict your right to seek compensation to a certain time frame. When agreeing to cover the attorneys' fees of the indemnified parties as a reimbursable expense, be cautious because courts rarely allow them to be recovered unless the contract expressly allows it. Essentially, every word of the indemnification must be thoroughly scrutinized. For instance, defending against "all reasonable claims" is preferable to defending against "all claims." You might also ask for a limit on the total amount you'll have to pay the indemnified party (such as a maximum that can not exceed the total amount due under the contract). Is it Possible to Enforce Indemnification Provisions? In general, indemnification clauses are enforceable. However, there are certain exceptions. Indemnifications that oblige a party to indemnify another party for any claim, regardless of fault ('wide form' or 'no fault' indemnities) have been held to be in violation of public policy in most cases. Punitive damages indemnity provisions are also prohibited in several states. Before creating an indemnification, double-check all applicable legislation. Furthermore, courts have frequently found that a plaintiff cannot recover damages under an indemnity clause if the damages are an unexpected and improbable result of the other party's breach, negligence, or misconduct (unless the indemnifying party can establish that it was aware of the relevant circumstances). Indemnifications should always be written clearly, as courts frequently rule in favor of the indemnifying party where there is ambiguity. They should be comprehensive enough to adequately address the parties' concerns while being reasonable and equitable in all aspects to ensure their enforceability. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! If a legal dispute emerges, the parties to a contract can agree on the payment of attorneys' fees and charges
When a legal problem emerges and people go to court to resolve it, the basic rule is that each party to a lawsuit is responsible for their own legal bills. When two people or businesses sign a contract, they can stipulate that the losing party in a legal dispute must pay the winning (or "prevailing") party's attorneys' fees and costs. Continue reading to find out how to include an attorney's fee provision in your contract. What Does a Provision for Attorney Fees Look Like? An example of the wording of a standard attorney's fee provision is as follows: Attorney's Fees. These are a type of legal fee that is paid to an attorney. The successful party has the right to recover reasonable expenses and necessary disbursements, as well as attorneys' fees, incurred in executing this Agreement from the losing party. A provision for attorney's fees can be found in a variety of contracts, from leasing agreements to consulting agreements. What Costs Are Included? Filing fees, expenses for serving the summons, complaint, and other court papers, fees to pay a court reporter to record depositions (pre-trial interviews of witnesses) and in-court testimony, and fees to pay the daily stipend of jurors are all examples of "costs." Photocopies of court papers and exhibits are frequently included in the price. Keep an eye out for one-way attorney fees clauses. Attorneys' fees are granted to the side who wins the action under a mutual provision, such as the one described above. This is reasonable and promotes cases to be resolved quickly. A "one-way provision," on the other hand, allows only one of the parties, usually the one with the better bargaining position, to earn attorneys' fees. One-way provisions, regardless of which side they favor, create an unequal playing field when it comes to settling conflicts. California, for example, has recognized this inequity and immediately converts a one-way attorneys' fees contract clause into a reciprocal provision. Attorneys' Fees Provisions: Judicial Enforcement You shouldn't assume that just because your contract has an attorneys' fees provision that the clause will be enforced if a lawsuit emerges and one party seeks reimbursement for their legal bills from the other. Courts have the authority to review contracts for fairness and to modify their terms if they determine that this is the most equitable approach. If a judge determines that enforcing a requirement that one party pay the other's attorneys' fees would be unjust or that one of the parties was coerced into signing the agreement, the demand may be canceled or the amount of fees to be paid changed. However, if a judge finds that an attorney's fee clause is reasonable and was negotiated by two parties with equal negotiating power, the judge is likely to uphold it. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! 6/1/2022 0 Comments Corporation BasicsPersonal accountability for company debts is limited by corporations, but managing them requires effort.
The majority of individuals are aware that creating a company gives "limited liability," which means that your personal culpability for corporate obligations is restricted. What you may not realize is that forming and operating a business entails more than just completing a few paperwork. To manage the more difficult corporation tax return, you'll need to keep solid records, and you'll need to follow corporate formalities like decision-making and record-keeping to keep your restricted liability. In a nutshell, you must be well-organized What is a Corporation? A corporation is a separate legal business entity from its owners, which means it owns property, pays taxes, and enters into contracts on its own. A corporation's ownership and management structure differs from those of other commercial organizations. A corporation's owners are shareholders (also known as stockholders), who purchase shares of stock to gain a stake in the company. Shareholders elect a board of directors, which is in charge of running the company. Limited Personal Liability One of the primary benefits of forming a company is that the owners' personal assets are safeguarded from the firm's creditors. For example, if a court decision declares that your business owes a creditor $100,000, you cannot be forced to pay the obligation with personal assets such as your home. Because only corporate assets may be used to pay off business obligations, you'll only lose the money you put into the company. Exceptions to Limited Liability Limited liability may not be enough to safeguard an owner's personal assets in particular situations. A corporation's owner may be held personally responsible if he or she:
This is the most significant exception. Courts have the power to decide that a company does not exist and that its owners should not be protected from personal accountability for their actions in certain situations. This might happen if you don't follow standard company procedures, such as:
Liability Insurance Incorporation should never be used as a substitute for adequate company insurance. Although creating a company protects your personal assets, you need to insure your business assets to safeguard them from litigation and claims. Many of the dangers that come with running a business may be mitigated with good liability insurance coverage. If you own a clothes store, for example, proper business insurance should cover the costs if someone slips and falls in your store. In addition, insurance can protect you in situations where the limited liability option is ineffective. For example, if you personally hurt someone while conducting business for the organization, such as by causing a vehicle accident, liability insurance would typically cover the accident, allowing you to pay the bill without having to utilize corporate or personal assets. However, insurance will not assist if your company fails to pay its bills: commercial insurance does not generally cover personal or corporate assets from unpaid business obligations, regardless of whether they are personally guaranteed. Paying Corporate Income Tax If a corporation's owner works for the company, he or she gets a salary and potentially bonuses, just like any other employee. The owner, like normal workers, pays taxes on this income, declaring and paying the tax on his or her personal tax return. After paying out all wages, bonuses, overhead, and other expenditures, the corporation pays taxes on whatever earnings are left in the firm. To do so, the corporation files its own tax return with the Internal Revenue Service (IRS), Form 1120, and pays taxes at a specific corporate tax rate. For companies, the Tax Cuts and Jobs Act introduced a new single flat tax rate of 21%. This replaces the previous law's business tax rates, which ranged from 15% to 35%. Alternatively, company shareholders can file Form 2553 with the IRS to elect "S corporation" status. This implies that for tax purposes, the company will be taxed as a partnership (or LLC), with business gains and losses "passing through" to the owners' individual tax returns. Forming a Corporation You must file "articles of incorporation" with your state government's corporations division (typically part of the secretary of state's office) to create a corporation. The filing fee is usually around $100. Articles of incorporation are typically brief and simple to prepare for most small businesses. Most states give you a basic form to fill out, which generally only asks for the name of your business, its address, and the contact information for one person connected with the business (often called a "registered agent"). Some states additionally require you to include the names of your corporation's directors. You must also prepare "corporate bylaws" in addition to submitting articles of incorporation. While bylaws are not required to be filed with the state, they are significant because they establish the fundamental rules that govern the ongoing formalities and decisions of corporate life, such as how and when to hold regular and special meetings of directors and shareholders, as well as the number of votes required to approve corporate decisions. Finally, you must give stock certificates to the corporation's first owners (shareholders) and keep track of who owns the company's ownership interests (shares or stock). Retaining Corporate Status To keep the corporation's position as a distinct entity, corporations and their owners must follow specific procedures. Corporations must, in particular;
Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! Fiduciary duties, or trust obligations, are owed by officers, directors, and occasionally even investors
Fiduciary responsibilities, or trust obligations, arise when you structure your firm or organization as a corporation. Corporate directors and executives have always had fiduciary responsibilities to the corporation and its investors. Boards of directors set business policy and select and allocate specific responsibilities to corporate executives. Your for-profit or nonprofit corporation's everyday activities are carried out by corporate officials such as a chief executive officer or president, chief financial officer or treasurer, and a corporate secretary. Fiduciary obligations may apply to controlling stockholders with a majority stake in or control over corporate business operations in certain situations, but not to other ordinary shareholders. A director, officer, or controlling shareholder who breaches a fiduciary responsibility may face personal legal culpability. Corporate articles of incorporation and bylaws, as well as state statute legislation and court rulings, may have an influence on a person's fiduciary responsibilities to a corporation. The following are the most important fiduciary responsibilities due to a business and its investors. Fiduciary Duty of Obedience Officers and directors of a corporation have various obligations, which the fiduciary duty of obedience recognizes. Officers and directors must carry out their responsibilities within the limits of their given power under the law and the appropriate corporate governing instruments in order to fulfill this responsibility. This obligation may be of particular significance for nonprofit companies, as officers and directors are expected to carry out their responsibilities in accordance with the philanthropic goals of the organization. An office or director may, for example, breach their duty of obedience by failing to follow donor pledge limitations or allowing nonprofit resources to be utilized for non-charitable reasons. Fiduciary Duty of Loyalty A corporation's officers and directors owe a duty of loyalty to its shareholders. They are required to prioritize the corporation's well-being and best interests over their own personal or professional goals. Disloyalty can take many forms, including conflicts of interest, attempts to compete with the firm, and covert gains from corporate business activities. Officers and directors are prohibited from surreptitiously diverting or profiting from company opportunities under the corporate opportunity theory. Officers and directors, for example, may hear of a lucrative development opportunity being presented to their real estate business in a private manner. Officers and directors must not profit covertly from this circumstance or use it to undermine the company's interests. In certain states, officers and directors are allowed to take advantage of certain possibilities provided the company has waived its interest in such deals in its governing papers or if the board of directors has received adequate previous disclosures. Officers and directors who violate this obligation may be sued and ordered to pay up their hidden earnings to the business. Fiduciary Duty of Care Officers and directors in a business setting are required to operate with care and attention while working on behalf of their company. They should act with reasonable caution in carrying out their responsibilities in order to serve the corporation's best interests. If an officer or director fails to take reasonable or ordinary care under the circumstances, he or she may be held personally responsible. A lack of due care may be demonstrated, for example, when an officer or director fails to conduct a reasonable examination of a corporate subject, attend board meetings on a regular basis, or appropriately oversee personnel, resulting in the corporation's detriment. The business judgment rule states that an officer or director cannot be held responsible for business choices made in good faith and with reasonable care that hurt the company's interests. Erroneous business judgements will be deferred by the courts if the officers or directors did not exhibit extreme carelessness in their review and decision-making process. Many people would be hesitant to serve as officers and directors if this regulation did not exist, and business professionals may be hesitant to take commercial risks that might benefit a company in the long term if this rule did not exist. Fiduciary Duty of Good Faith and Fair Dealing This fiduciary responsibility is intertwined with the responsibilities of care, loyalty, and obedience. Officers and directors are required to handle corporate duties with honesty, good faith, and fairness under this responsibility. This ongoing responsibility pervades their everyday work and the company's operations. Fiduciary Duty of Disclosure Officers, directors, and shareholders must be honest in their business discussions in order to identify substantial risks and make informed choices. Before obtaining board or investor approval of large corporate business transactions, such as mergers with or acquisitions of other firms, full and fair disclosure of important information is required. Officers and directors should report any possible conflict of interest that may develop between their personal interests and those of the corporation as part of their obligations of loyalty and care. Yoel Molina, Esq. (AKA “Mo”) Feel free to join our WhatsApp group if you want to know more about his and more! |
AuthorYoel “Mo” Molina, I am a lifelong resident of Miami, Fl. I am a graduate of Miami Senior High, Class of 1992, Georgia Institute of Technology, B.S. 1997 and University of Maine School of Law, J.D. 2001. I have been practicing law in Miami Since 2001. I am a former training prosecutor in the Miami-Dade State Attorney’s Office. I have experience in jury trials, appeals, and administrative hearings. I have appeared before judges across the State. My experience ranges from civil litigation matters, collection matters, foreclosure, business and corporate, contracts, real estate, leases and employment matters.. Archives
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