Business Law Update

Elizabeth Lewis, Esq.Law Office of E.C. Lewis, P.C.

720-530-3405www.eclewis.com

Elizabeth.Lewis@eclewis.com

Outline of Today’s Topics

Business Entities Tax Entities Legislative and Judicial Updates

Contracts Employment Taxes Bankruptcy

Secretary of State changes Trends

Business Entities

State level Sole Proprietorship Partnership (P, LP, LLP, LLLP) Corporation (for-profit, professional corporation, non-

profit) LLC

State level How company is treated under the law (lawsuits,

contracts, employment, etc)

Business Entities

IRS/CDOR level Sole proprietorship/Disregarded Entity Partnership C-corporation S-corporation

IRS/CDOR level How the company is taxed and, in some cases,

unemployment insurance

State entity selection

State selection depends on many factors including: Who owns company? What does the company sell? How much will it make? What type of liability does it have? Who will operate company and make day-to-day

decisions? What is the exit strategy?

Sole Proprietorship

Ownership: one person Liability: no limited liability Control: owner Documents: no company documents needed Taxation: passed-through Default entity if only one person

Partnership

Ownership: at least two individuals Liability: typically no limited liability Management: typically the partners Documents: partnership agreement Taxation: typically pass-through entity Default if more than one person and nothing

else chosen Can be decided that partnership exists if in

best interest of public even if no agreement!

Corporation

Ownership: one or more individuals Liability: limited liability Management: Board of Directors Documents: by-laws Taxation: double taxation or s-corporation Must follow corporate formalities

LLC

Ownership: one or more individuals Liability: limited liability Management: managers or members Documents: operating agreement Taxation: default is pass-through Fewer formalities than corporation

IRS/CDOR entity types

Default rules for entity types Can sometimes be changed by “check the

box” rules Choice depends on many factors

Who owns company? How much does company make? What is the exit strategy?

IRS Basics

Two types of structures Pass-through entity

Sole Proprietorship/Disregarded Entity Partnership S-corporation

Double taxation entity C-corporation

Sole Proprietors/Disregarded Entity

Sole Proprietors: Files Schedule C with 1040 All income reported by individual Files estimated tax payments Default for sole proprietors on state level

Single Member LLC Same as Sole Proprietorship except called

Disregarded Entity New rules regarding employment taxes

Partnerships

Two or more individuals Files 1065 All income reported by individuals Files estimated tax payments Default for partnerships and multi-member

LLCs

S-Corporations

Limitations One to one hundred owners Must be US residents/citizens One class of stock

Files 1120S Owners take income and dividends Files 941/940s for individual owner’s income Files unemployment taxes Must do a Form 2553 to elect status

C-corporations

One or more individuals Double taxation Files 1120 Owners take income and dividends Files 941/940s for individual owner’s income Files unemployment taxes Default for corporations

Recent issues with Business Entities

Beneficial Ownership Push to make companies identify each person

with control of a company Would require person setting up company to

confirm identity of each owner Questionable outcome since criminals and

terrorists probably aren’t going to adhere to this law anymore than any others

Cost would increase for formation

Operating Agreements

LLC operating agreements must be carefully drafted

Handling of deadlock votes Unanimity of votes Oral agreements may be void

Legislative and Judicial Updates

Contractual Issues Employment Issues Taxes Bankruptcy

Contractual Issues

Notice issue: If you receive notice, even if not given in the contractually stated way, you have to honor that notice.

Defaults: More defaults on agreements so need to make sure everything is in writing.

Employment Issues

Independent contractor misclassification CDLE pursuing misclassified individuals HB 1310 has fines of 5000/25000 for misclassification

Misuse of company info Cannot use company secrets to setup new company

(Harris Group, Inc. v. Robinson)

Non-competes Non-competes not enforceable if signed after

employment begins with no additional compensation (Lucht’s Concrete Pumping v. Horner)

Taxes - Federal

American Recovery and Reinvestment Act of 2009 Work Opportunity Tax Credit – credit for hiring unemployed

veterans and disconnected youths Cancellation of Debt – may defer COD income from reacquisition

of business debt for 2009 and 2010 S-corps that converted from C-corp status have new rules for

disposition of appreciated assets Exclusion on Gain of Sale of Some small business stock

Single Member LLCs that have employment tax requirement must file under EIN of company (can no longer file under SSN of owner)

Taxes - State

Direct Mailings Candy and soft drinks Standardized computer software Online sales tax

Bankruptcy

Prior to filing, important to talk to bankruptcy attorney to figure out what type of bankruptcy is best.

New debt limits go into affect April 1st

May affect whether someone file chapter 13 or chapter 11 Chapter 7 – discharge of all debt (may not be preferred for

businesses) Chapter 13 – repayment plan (typically works for smaller

businesses) Chapter 11 – business reorganization (typically for larger

businesses or high net worth individuals)

Secretary of State

Mandatory Filings starting May 1st Annual Reports Statement Curing Delinquency Articles of Reinstatement Restated Constituent Filed Document Statement of Reservation of Name Statement of Renewal of Reservation of Name Transfer of Reserved Name Most Articles of Amendment Most Dissolution documents

Trends

Sale of businesses Home based businesses Online marketing Funding of companies

Sale of Businesses

Prior to finalizing contract, need to go over following details Seller – Are there going to be capital gains

issues? Both – What property is being conveyed? Both – What percentage of sell is for good will

verses property? Buyer – Can contracts be transferred?

Home based businesses

Insurance issues Need to notify insurance business operating in

home Need to determine where to meet clients (higher

insurance if meeting them at home) Security issues if storing personal information

Tax issues Keep good tax records to differentiate between

business and personal expenses Maintain separate area just for business

Online marketing

More companies leveraging web to advertise Truth in advertising FTC rules

Must disclose if paid for advertisement/endorsement Privacy

Can-spam

Funding of Companies

Underfunding of companies Possibly piercing of corporate veil issues

SEC issues Are owners selling securities? Are any filings required?

More Information

Elizabeth Lewis, Esq.Law Office of E.C. Lewis, P.C.

www.eclewis.com

Phone: 720-530-3405Blog: www.eclewis.com/wordpressFacebook: www.facebook.com/legalsolutionsEmail: Elizabeth.Lewis@eclewis.com