Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale...
Transcript of Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale...
![Page 1: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/1.jpg)
Legal Issues in
Organizing your Business
Dave Steigerwald USAC National Conference November 1, 2014
![Page 2: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/2.jpg)
Business Organization Drivers
Liability Protection
Tax Efficiency
Business Goals
![Page 3: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/3.jpg)
Liability Protection
New Legal Person – Entity
![Page 4: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/4.jpg)
Liability Protection
Segregate personal assets
and business assets
Treat as separate legal
person
![Page 5: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/5.jpg)
Liability Protection
Follow the rules…. Entity documents
Separate bank accounts
Adequate capitalization
Contract in name of entity
Insurance
![Page 6: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/6.jpg)
Liability Protection
Liability holes
Failure to follow separation “rules”
Failure to pay tax withholding
Personal guarantees
Result: personal assets at risk from
business liability
![Page 7: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/7.jpg)
Liability Protection
Insurance
Release/Hold Harmless
Contract Terms
![Page 8: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/8.jpg)
Liability Protection
Why choose one type of entity
over another for liability
purposes?
Avoid general partnership
and sole proprietorship
Select state recognized entity
![Page 9: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/9.jpg)
Entities and Tax Efficiency
Liability
Tax
![Page 10: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/10.jpg)
Entities and Tax Efficiency
Sole Proprietorship
General Partnership
C Corporation
S Corporation
Limited Liability Company (LLC)
Limited Liability Partnership (LLP)
Trust
![Page 11: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/11.jpg)
Entities and Tax Efficiency
Sole proprietorship
C Corporation
S Corp, LLC, LLP, etc…
![Page 12: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/12.jpg)
Entities and Tax Efficiency
Double Taxation and C Corporation
Income taxed at entity level, and
then again at shareholder level
Compensation is a corporate
deduction, which mitigates double
taxation
![Page 13: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/13.jpg)
Entities and Tax Efficiency
“Partnership” taxation is
taxable only at owner level
LLCs, S Corporations, LLPs
Entity return is informational
![Page 14: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/14.jpg)
Entities and Tax Efficiency
Why choose a C Corporation?
Multiple classes of stock
Employee stock ownership
Tax-free acquisitions
Investor comfort
![Page 15: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/15.jpg)
Entities and Tax Efficiency
Why choose S Corporation vs. LLC
S Corporation
• Dividends and self-employment tax
• Corporate comfort and straightforward
LLC
• No restrictions on stockholders
• Distributions do not have to follow shares
• Flexibility
![Page 16: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/16.jpg)
Business Organization Drivers
Liability
Tax
Business Goals
![Page 17: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/17.jpg)
Entities and Business Goals
End game –
Cash flow?
Sell?
Charity?
Other?
![Page 18: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/18.jpg)
Entities and Business Goals
Cash flow vs. Sale (generalizations)
Single owner, cash flow business =
single member LLC
Two or three partners, cash flow
business = S corporation
Multiple owners with investors, sale
as goal = C corporation
![Page 19: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/19.jpg)
Entities and Business Goals
Employee ownership
• Qualified stock option plan =
C corporation
Venture capital
• Preferred stock =
C corporation
![Page 20: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/20.jpg)
Entities and Business Goals
Charitable
• Access to grants
• 501c3 non-profit corporation
Salary, not sale
![Page 21: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/21.jpg)
Business Goals
Contracts Terms: Clarity!
Deliverables/Services
Term and Termination
Payment Terms
Liability Caps
Assignment
![Page 22: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/22.jpg)
Business Goals
Intellectual Property
Protection
![Page 23: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/23.jpg)
Intellectual Property
Trademark: Branding
Copyrights: Author
Patents: Inventions
![Page 24: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/24.jpg)
Intellectual Property
Software Licensing
Website
Privacy Policy
Terms of Use
![Page 25: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/25.jpg)
Selected Hot Topics
Independent Contractors
Shareholder Aspects
![Page 26: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/26.jpg)
Hot Topics – Independent Contractors
Independent Contractors vs.
Employees
Common problem
IRS and DOL hot button
(revenue)
![Page 27: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/27.jpg)
Hot Topics – Independent Contractors
continued
Employer motivation: workers comp,
unemployment and matching
Contractor motivation: cash
6 factors/9 factors/20 factors =
avoid control; enter into compliant
written agreement; avoid single
relationships
![Page 28: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/28.jpg)
Hot Topics – Independent Contractors
continued
Any individual who performs services for pay for another shall
be deemed to be an employee
unless
such individual is:
(1) free from control and direction in the performance of the service
(both under the contract for performance of service and in fact)
and
(2) customarily engaged in an independent trade, occupation,
profession, or business related to the service performed.
Authority: C.R.S. § 8-4-202(2)(a)
![Page 29: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/29.jpg)
Hot Topics – Independent Contractors
continued
IRS – back taxes, penalties and interest
DOL – back wages, overtime, penalties (1X),
attorney’s fees
Worker’s Compensation – back premiums,
interest
Unemployment – back premiums, interest
C.R.S. § 8-72-114 – Fines for willful violation: 1st offense – up to $5,000 per day per misclassified employee
2nd and subsequent offense – up to $25,000 per day per
misclassified employee
![Page 30: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/30.jpg)
Selected Hot Topics
Independent Contractors
Shareholder Aspects
![Page 31: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/31.jpg)
Hot Topics – Buy-Sell and
Shareholder Agreements
Business partner = marriage
Death, disability, separation,
deadlock
![Page 32: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/32.jpg)
Business Goals Continued
Sweat Equity Compensation
Stock for services is
taxable (non-cash event)
LLC allows for grant of
non-taxable profits interest
![Page 33: Legal Issues in Organizing your Business€¦ · Entities and Business Goals Cash flow vs. Sale (generalizations) Single owner, cash flow business = single member LLC Two or three](https://reader034.fdocuments.us/reader034/viewer/2022050414/5f8af954a8cd2f482a1c6963/html5/thumbnails/33.jpg)
Thank You
Questions?
Dave Steigerwald
Sparks Willson Borges Brandt & Johnson, P.C.
24 South Weber Street, Suite 400
Colorado Springs, CO 80903
719.634.5700
The materials presented hereby are informational only and do not constitute legal advice with respect to any particular situation.