Should You Incorporate?

You may operate your business as a Sole Proprietor, like 70% of US businesses. However, if business should become fabulous and you begin to rake in some serious cash, then it could be wise to incorporate, as a method to lower your taxes and protect profits.

You may be implementing a growth strategy that requires you to take on additional investors, or maybe implementing your exit strategy, with a plan to sell your business, perhaps to employees through an Employee Stock Option Plan (ESOP). Either scenario may prompt your accountant or business attorney to recommend that you establish a separate legal entity and the preferred strategy could be to incorporate.

What does that mean in practical terms? For a Solopreneur consultant or small business owner, incorporating usually means setting up an S Corporation. A Limited Liability Company (LLC) is another frequently used legal business entity and there are certain similarities between the two.

Both LLCs and S Corporations provide business owners with a degree of protection from lawsuits and creditors.Yet if negligence is involved, the “corporate veil” of protection will be pierced and owner(s) will be liable for any damages.

Second, there are certain similarities in how taxes are handled. LLCs and S Corporations, unlike the more common C Corporations, allow a “pass through” of business profits or losses to the owner’s (the S Corporation shareholders) personal tax Form 1040 in accordance with the share of ownership. There is no separate (double) taxation, as occurs with C Corporations. Both S Corporation and LLC owners

Setting Up a Limited Company

Many people wonder why should they start a private limited company, as such a venture would often involve additional expenses and administrative work. In the case of a sole proprietorship business, these expenses are very nominal.

The deciding factor for forming such a company is your financial liability as an individual. In case you were the sole proprietor and the business flops for whatever reason, you alone are liable to clearing all your debts. When you have large debts that you are unable to pay, you are exposed to the risk of personal bankruptcy. The formation of a limited company provides protection against such an eventuality.

The advantages

By itself, a limited company being an entity is accountable for the actions it takes. The funds of such a company are totally detached from those of the people owning it. There can be one or additional shareholders in private limited companies, though the owners can’t sell the shares to the public, or trade them through the stock market. Only public limited companies can do that.

As long as you do not trade in a false or reckless manner, your risk of losing money as the director of the limited company is only to the extent of the money you may have invested in that company. Nonetheless, if you availed loans from banks against personal guarantee, you will be held liable for paying those loans.

Having such a company may, to some extent, enhance your credibility to prospective clients.

How to start one?

You may hire the services

Employee Incentives and Good Leaver/Bad Leaver Considerations

One of the issues facing companies whether large or small is how to incentivise and retain good staff. There are various types of employee incentive schemes. However a very common one is either to grant share options and/ or shares to an employee.

The assumption upon which the employee is receiving the share options and/ or shares is that they add direct value through their employment endeavours. This is fine while everything is working well but what happens in the event that the employee ceases to be an employee of the company whether voluntarily or involuntarily.

In essence the employee has received his share options/shares in recognition of his endeavours whether past or present and also in anticipation of future endeavours. What options are available to the employer in the event that the employee leaves the company?

Where employee share options have been granted but have not been exercised, the scheme rules or option agreement as well as the employee’s employment contract should state that the share option shall terminate upon ceasing to be an employee. They should also state that the employee agrees that he shall not challenge and/ or pursue any claim in relation to the share option arrangement.

The position is somewhat more complicated where shares vest in the employee whether as a consequence of the exercise of the share option, or otherwise. If an employer has been shrewd it will ensure that the employee/ shareholder is also a party to a shareholders agreement upon vesting of the shares.

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Ready to Incorporate? Navigating Through the Decision to Form a Corporation or LLC

Now that you have chosen the name of your new business you are ready to introduce it to the world. As part of your business start-up check list you made the decision that you want to transition from being a sole proprietor into an incorporated entity. However, you are not sure if you want to form a Limited Liability Company or a Corporation.

This is one of the biggest decisions that you can make as a business owner and one that will position your company for success. A few things to think about when making this decision are:

· Tax benefits

· Amount of paperwork that you want to deal with on an annual basis

· Personal liability

· How you wish to raise capital

Regardless of the type of corporate entity you choose it is important to understand that the decision to form an established business entity has many benefits:

Asset Protection – The foremost advantage to either forming a corporation or LLC is asset protection. Once you create a business entity for your business your personal assets are separated from your business assets and you are no longer co-mingling them together. What this means is that if there is ever any litigation and you find yourself in court being sued in most cases your personal assets are protected this includes your home, car, and personal bank accounts.

Name Protection – Incorporating your business is a crucial step in branding. But name protection is also a benefit to incorporating a business. When your business becomes incorporated

Stiff New Penalties for Misclassification of Independent Contractors

There has been a trend in recent years for companies to treat workers as independent contractors in order to avoid the administrative responsibilities and extra costs applicable to employees (payroll taxes, workers’ compensation insurance, unemployment insurance, overtime pay, and various employee benefits). In response, both the Internal Revenue Service and state agencies have stepped up compliance audits to check whether businesses are properly classifying their workers. An employer who has made incorrect classifications faces an array of governmental fines and penalties, as well as liability to the misclassified workers.

California has raised the stakes with a new law, effective January 1, 2012, which adds Sections 226.8 and 2753 to the Labor Code. Section 226.8 prohibits any person or employer from willfully misclassifying an individual as an independent contractor, or from making any charges or compensation deductions (e.g., for goods, materials, or space rental) to such individual if it would be unlawful to make such charges or deductions to an employee. Section 226.8 imposes penalties of $5,000 to $25,000 for each violation.

The law does not specify how often a “violation” is deemed to occur, leaving open the possibility that multiple penalties could be assessed with regard to a single worker. A willful misclassification is defined as one that is “voluntary and knowing.” It is not clear how this standard will be interpreted by the courts.

Section 226.8 also requires any employer found to have violated the law to display prominently on its website for one year a specified notice relating to the

Practical Considerations in Setting Up a Corporate Joint Venture Under English Law

The initial decision in setting up a corporate joint venture is to determine which legal entity will be most suitable for your proposed collaboration.

The four most common legal structures are: (I) a private company limited by shares; (ii) a private company limited by guarantee; (iii) a limited liability partnership: and (iv) a general partnership. Once this decision has been made, the next phase in setting up the joint venture is to determine what practical matters need to be considered and evaluated to enable the joint venture to commence trading and include the following:

1. If the joint venture company (“JVC”) will be using the intellectual property of any of the founding collaborators, then the parties will need to agree whether the intellectual property is to be assigned (transferred) or alternatively licensed from the founding collaborators. In either case it will be necessary for the parties to enter into a formal agreement which will include the following points: (I) the parties will need to determine if there is to be any consideration or a licence fee payable in relation to the transfer or licensing of the intellectual property; and (ii) it is important to ensure that if the joint venture terminates for whatever reason then in the event of an assignment, the intellectual property can be transferred back to the relevant founding collaborator or alternatively in the case of a licence, that the licence terminates.

2. Will the JVC be sourcing any products or components from any of the founding collaborators? If

The Invasion of Privacy Ramps Up

I’m spending the week on Maryland’s Eastern Shore for a family reunion in honor of my father, who decided to convene us in our old stomping grounds on the shores of the Chesapeake Bay. That means lots of steamed crabs, boating and swimming on the river, and lightning bugs at dusk.

It also means looking up old friends from my days on the Shore, where I went to elementary and high school in the 1970s and ’80s. In the old days, that would have meant detective work – nose in a phone book, a round of phone calls to third-degree contacts, maybe a visit to the deeds office, gradually narrowing down the field until I located my targets.

In today’s world, it’s a lot faster and easier… just a couple of clicks on the Internet and I know everything I want to know about my old pals… and in some cases, things I didn’t.

That got me thinking… is it possible to hide in plain sight with today’s digital invasion of privacy? Yes… if you take the right steps.

The Need for an Alter Ego

It’s entirely possible to create an alter ego for your personal identity – a “dead end” for anyone trying to find you. The recent invasion of privacy shows why it’s increasingly important to do so.

Alleged hackers stole the electronic identities of 18 million Americans recently. Nobody knows what they were looking for – compromising information for blackmail purposes? Government security clearances? Whatever they wanted, they didn’t have to work

What’s an FDD?

An FDD, or franchise disclosure document, should be carefully combed over by any potential franchisees in the United States – along with their franchise attorneys. Prior to 2007, this legal document was known as the Uniform Franchise Offering Circular, or UFOC. The Federal Trade Commission (FTC) ordered the overhaul and gave franchised companies one year to make the shift. Since 1979, the FTC has overseen franchise sales in the country, and the FDD ensures that state and federal government alone can file lawsuits should any alleged violations of the franchise rule take place.

Still, each state has different franchise laws, which means “private rights of action” can and do take place. Lawsuits may be filed if a franchise has allegedly violated disclosure laws required by the FDD. According to the franchise rule, specifications guide who drafts disclosures, who delivers them to franchisees, the delivery method and the timeframe franchisees have to review and submit revisions.

Keeping it Legal

When a franchise agreement is made between two parties, the FDD is the underlying sales contract. It’s the foundation for what’s hopefully a long, healthy relationship between franchisee and the franchised business. Unless both parties agree, this contract cannot be altered (and it’s rare for this to happen). Under current FTC law, a potential franchisee has to have the FDD in hand a minimum of two weeks prior to exchanging money or signing contracts. During this 14-day window, the franchisee can request FDD copies, as long as they’ve submitted their formal franchisee application.

These copies