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13/08/2020

Business Creation: The Basics
Business creation means taking care of a lot of details including, writing a business plan, registering your business with the state, and applying for licenses or permits. Before long, you will find yourself drafting business contracts, forming partnerships, and hiring an accountant or mastering the art of bookkeeping. And, like any other daring venture, you will need a good set of guidelines to keep you one step ahead.

Make a Business Plan

Include goals and a timeline for how you will create your business, finance it, market it, and deliver your products or services. Many new business owners also use their plans to solicit investments or financing for the company. Resources for developing business plans are provided by the Small Business Administration.

Choose a Business Structure

1. Sole Proprietorship: can work if you are the only owner of your business and if business is done under your personal name. That being said, you should only consider this form if you are self-employed, if you do not expect to hire employees, and if you are not too concerned about personal liability.

2. Partnerships: formed by two or more people and can take several forms depending on the goals of the partnership. Partners are responsible for taxes on profits and losses, and are personally liable for legal actions taken against the business.

3. Limited Liability Companies: can have one or more owners, pass tax liability for business profits and losses through the business directly to the owners, and establish some protections for the owners from liability for company activities.

4. Corporations: can have one or more owners, who are usually called shareholders. When starting a corporation, often the only shareholders are the founders of the company. There are also two main types of corporations: the S corporation and the C corporation. They each have different tax structures and sets of benefits.

It is important to understand the tax and legal ramifications of your business structure. So, do your due diligence and consult a lawyer if you have any questions.

Registration

To start your new business in the legal sense, you must register it with a state government. If you are obtaining funding, buying supplies, hiring employees, or renting an office or storefront, it is time to register. In most states, the secretary of state manages business registrations. Depending on your business structure and the state in which you file, your registration document may be called the Articles of Organization, Certificate of Registration, Articles of Incorporation, or some variation of these names. You must register in every state in which you do business (and the definition of “doing business” itself can vary). Registration in states after the first registration is called “foreign registration.”

Location

Starting a business in a new location has many ramifications and considerations: business licensing, incentives for new businesses, negotiating a contract, determining the cost of the space and needed improvements, and more. Consider your business plan, advice from the Small Business Administration, and other resources when making a decision.

Local Licensing

Once you register with the state, you may need to obtain separate business licenses at the city or state level. Businesses providing professional services like cosmetology or plumbing must comply with additional regulations and licensing requirements.

Accounting

Track any money you receive, earn, or spend in the course of business activities. Hold onto your receipts, invoices, bills, bank statements, and other financial documents. Keeping up with accounting from the beginning will make tax time a lot easier. While sole proprietors and other small businesses may want to handle accounting themselves, many people prefer to delegate the work to an accountant and focus on running the company.

Taxes

If your company has employees, is a corporation or a partnership, or meets one of a few other standards, you must obtain an Employer Identification Number (EIN) or a Federal Tax Identification Number (TIN). This number is used for numerous tax purposes, including annual tax returns, quarterly estimated tax returns, employee tax withholding, and more. Even if you understand the federal tax requirements for your business structure, it is important to know the tax requirements at the state level as well. Consult your state’s department of revenue or other tax agency for details.

Employment Law

If you hire employees when you start a new business, consult your state and local labor departments. You may need to register for tax withholding, workers’ compensation insurance, and local employment taxes or fees.

11/08/2020

Should I Establish a Family Limited Partnership?
Families with significant assets are wise to consider Family Limited Partnerships (FLPs). An FLP is a useful structure for wealth preservation by protecting assets, planning an estate, and minimizing taxes. When properly executed, an FLP can save families significant amounts of money in gift and estate taxes. FLPs both protect assets from creditors and provide flexibility, since they can be revised and altered as circumstances change.

An FLP is a partnership among family members that allows joint ownership of family-owned assets. Family members act either as general partners or limited partners. General partners are responsible for controlling administrative and investment decisions and have unlimited liability. The general partner will be compensated according to the partnership agreement, either through a share of the profits or an annual fixed salary. The general partner is responsible for daily
management of the FLP, such as hiring decisions, deposits, and withdrawals. Limited partners have no management responsibilities and are only partially liable. Limited partners vote on the partnership agreement and collect interest and profits. Generally, limited partners cannot lose more than they have invested in the partnership.

The structure of an FLP allows a partner to transfer a portion of his or her ownership of the assets held within the partnership to other family members who are also partners. Generally, parents and grandparents donate assets in exchange for general partner and limited partner interests. They can donate all or a share of the limited partner interest to their children and grandchildren, either directly or through a trust. Using FLPs to make lifetime gifts and transfers at death lays the groundwork to obtain a discount on the value of the transfers. The partnership is not taxable, but owners of a partnership report the partner’s income and deductions on their personal tax returns relative to their interest.

There are many advantages to an FLP, including reducing the taxable estate of older family members. The older family members can transfer property to their children in order to remove it from their estates and shield it from federal estate taxes, while maintaining control over decision-making and investment distributions. FLPs are also entitled to the gift tax exclusion, a significant mechanism for minimizing income, gift, and estate taxes. Legally, the worth of FLP shares can be reduced when transferred to family members. And, due to its flexibility, family members who own shares can alter the partnership as conditions change.

An FLP also can protect assets from creditor claims and former spouses. Creditors cannot force distributions, vote, or own a limited partner’s interest without the approval of the general partners. After a divorce, a limited partner is no longer a family member, and the partnership agreement can mandate transfer back to the family for fair market value, keeping the property within the family.

An FLP is useful for families with significant real estate assets. Using an FLP to make gifts of real estate in the state where the donor does not live can eliminate subsidiary probates. A partnership interest is treated as personal property and subject to probate online in the state of the decedent’s domicile, even if the partnership owns real estate.

Combining family investments together in an FLP reduces a family’s investment fees considerably. Instead of individual brokerage accounts or trusts for each child, the partnership can hold one account, and the children can own interests in the account.

09/08/2020

An Overview of Sole Proprietor Taxation
As a sole proprietor you must report all business income or losses on your personal income tax return; the business itself is not taxed separately. (The IRS calls this “pass-through” taxation because business profits pass through the business to be taxed on your personal tax return.)

Here’s a brief overview of how to file and pay taxes as a sole proprietor — and an explanation of when incorporating your business can save you tax dollars.

Filing a Tax Return:

The main difference between reporting income from your sole proprietorship and reporting wages from a job is that you must list your business’s profit or loss information on Schedule C (Profit or Loss from a Business), which you will submit to the IRS along with Form 1040.

You’ll be taxed on all profits of the business — that’s total income minus expenses — regardless of how much money you actually withdraw from the business. In other words, even if you leave money in the company’s bank account at the end of the year (for instance, to cover future expenses or expand the business), you must pay taxes on that money.

You can deduct your business expenses just like any other business. You are allowed to expense (deduct) much of the money you spend in pursuit of profit, including operating expenses, product and advertising costs, travel expenses, and some of the cost of business-related meals and entertainment. You can also write off certain start-up costs and the cost of business equipment and other assets you purchase for your business.

But you’ll need to keep accurate records for your business that are clearly separate from your personal expenses. One good approach is to keep separate checkbooks for your business and personal expenses — and pay for all of your business expenses out of the business checking account. For information about allowable expenses and deductions, see Small Business Tax Deductions and Top Tax Deductions for Your Small Business.

Estimated Taxes:

Because you don’t have an employer to withhold income taxes from your paycheck, it’s your job to set aside enough money to pay taxes on any business income you bring in during the year. To do this, you must estimate how much tax you’ll owe at the end of each year and make quarterly estimated income tax payments to the IRS and, if required, your state tax agency.

Self-Employment Taxes:

Sole proprietors must make contributions to the Social Security and Medicare systems; taken together, these contributions are called “self-employment taxes.” Self-employment taxes are equivalent to the payroll tax for employees of a business. While regular employees make contributions to these two programs through deductions from their paychecks, sole proprietors must make their contributions when paying their other income taxes.

Another important difference between employees and sole proprietors is that employees only have to pay half as much into these programs because their contributions are matched by their employers. Sole proprietors must pay the entire amount themselves (although they can deduct half of the cost).

The self-employment tax rate is 15.3%, which consists of 12.4% for Social Security up to an annual income ceiling (above which no tax applies) and 2.9% for Medicare with no income limit or ceiling. See the IRS website for current Social Security annual income thresholds. Self-employment taxes are reported on Schedule SE, which a sole proprietor submits each year along with a 1040 income tax return and Schedule C.

Incorporating Your Business May Cut Your Tax Bill:

Unlike a sole proprietorship, a corporation is considered a separate entity from its owners for income tax purposes. Owners of corporations don’t pay tax on the corporation’s earnings unless they actually receive the money as compensation for services (salaries and bonuses) or as dividends. The corporation itself pays taxes on all profits left in the business.

Corporate owners who need or want to leave some profits in the business can benefit from lower corporate tax rates, at least for the first $75,000 of profits. The corporate tax rate is only 15% on the first $50,000 of profit and 25% on the next $25,000 of profit. These rates are usually lower than shareholders’ personal income tax brackets.

For example, if your Web design company wants to build up a reserve to buy new equipment, or your small label manufacturing company needs to accumulate inventory as it expands, you may choose to leave money in the business — let’s say $50,000. If you operate as a sole proprietor, those “retained” profits would be taxed at your marginal individual tax rate, which is probably more than 25%. But if you incorporate, that $50,000 would be taxed at the lower 15% corporate rate.

However, corporate taxation is definitely more complicated than the pass-through taxation of a sole proprietorship, and the savings — probably a few thousand dollars — may not be worth the hassle of forming a corporation and filing a corporate tax return.

08/08/2020

Reverse Mortgages May Pose Problems for Heirs
For older Americans on a fixed income, a reverse mortgage may initially seem to be an ideal way to convert home equity into immediate cash without having to pay monthly mortgage payments.

While this can be beneficial for some individuals, it is not ideal for many. Scams targeting seniors, combined with confusion about the reverse mortgage process, can make it difficult to navigate the process. For these reasons, it makes sense to consult an experienced elder law attorney before making any major financial decisions involving your home.

What is a Reverse Mortgage?

Reverse mortgages are loans that enable adults over the age of 62 to transform any equity tied up in their home into cash income. The lender makes payments to the homeowner, rolling the interest of the loan into the balance so the borrower does not have to pay anything up front. Over time, the homeowner’s equity decreases while their debt increases. The home becomes collateral for the loan. If the homeowner dies or moves, proceeds from the sale of their home goes to the lender to pay off mortgage principal, interest, fees, and insurance. If anything is left over, it goes to the homeowner if they are still alive or to their heirs.

HomeSafe Campaign

One company is trying to change the negative perception of reverse mortgages and reach a new group of seniors who may not have otherwise considered this option. Finance of America Reverse (FAR) recently launched its HomeSafe advertising campaign, using interviews from real customers to attract affluent baby boomers to their line of reverse mortgage products.

These are men and women who have most of their wealth tied up in their homes, a fact FAR is hoping to capitalize on with HomeSafe. Yet, while reverse mortgage consumers may find benefits to living mortgage-free, their heirs often face considerable obstacles keeping these family homes or selling them once their loved one has passed away.

Challenges for Heirs Dealing with Reverse Mortgages

Heirs who want to keep the home in the family after their loved one has passed may find the process especially challenging for several reasons including:

- Predatory lending practices may take advantage of consumers who were not ideal candidates for a reverse mortgage

- Faulty loan administration can create errors with disbursements and interest calculations

- Lack of transparent communication with borrowers and/or heirs about the reverse mortgage process

Upon a loved one’s passing, many heirs are shocked to find a lien on their home or even a foreclosure already in progress. It can take some time investigating to find out what went wrong and how to proceed. An attorney who is experienced in elder law matters can help.

07/08/2020

The Force (Majeure) Awakens
Law Firm in Los Angeles: Eanet, PC
Since the start of the Coronavirus pandemic, we have been anticipating a wave of litigation over the interpretation of contractual force majeure clauses. It is now upon us. Force majeure is a concept by which a party may be excused from nonperformance of its obligations where it is the result of unforeseen circumstances beyond its reasonable control. The triggering circumstances typically include a laundry list of so-called “acts of God” ranging from floods, fires and severe weather to strikes, riots, war, famine and civil unrest.

This is one of those “wild west” areas of the law. It is not that force majeure as a concept is unknown to lawyers. In fact, such clauses commonly appear in commercial contracts. That’s the point: they are boilerplate, largely untested and relegated to those unlikely “what if” scenarios (“You’re saying, what if something akin to martial law is declared and the government forces businesses to close against their will? You mean in the United States of America?”)

Earlier this month, retail developer Pacific Collective, LLC sued in Los Angeles Superior Court and invoked force majeure contending that Covid-19 prevented it from completing a $4.2 acquisition of a Culver City property from ExxonMobil Corp. Pacific’s position is that it could not bring in inspectors, architects and others to redevelop the property and it sought to extend the closing of the acquisition from March to May, which Exxon refused. The suit, styled as a breach of written contract, specific performance and declaratory relief, seeks millions in damages and to prevent Exxon from selling the property to any other buyers.

Most of the literature on force majeure focuses on the specific contractual language and an inquiry into (a) whether the force majeure clause includes the applicable triggering event, i.e., here, whether it lists “pandemic” or “disease” or similar; and (b) if it does not, whether the coronavirus pandemic and emergency orders will fall under catchall language such as “other acts of God.”

However, there is reason to believe that California courts will be less focused on contractual language than the courts of New York, Delaware and other states. In other words, California judges will likely take a more liberal approach in in interpreting force majeure. This is because force majeure principles appear in California statutory law. California Civil Code, section 3526, states that “no man is responsible for that which no man can control.” Similarly, California Civil Code, section 1511, provides that “[t]he want of performance of an obligation, or of an offer of performance, in whole or in part, or any delay therein, is excused … [w]hen it is prevented or delayed by an irresistible, superhuman cause … unless the parties have expressly agreed to the contrary[.]” In other words, unless the parties have specifically contracted otherwise, nonperformance is excused in the case of prevention by a “irresistible” or “superhuman” cause.

Meeting the above standards may be equivalent to so-called “impossibility” or it may be somewhat less stringent. If the latter is the case, parties to a contract may be grateful for (or regret) provisions in their agreement providing for choice of law and jurisdiction in California.

The above questions will not have to wait long as attorneys are expecting additional suits involving force majeure to hit the courts within a matter of weeks.

06/08/2020

Understanding Building Codes
Building codes establish standards for the construction of buildings and other structures. Virtually every structure in a modern building is subject to at least one, and usually several different building codes.

In the United States, most building codes are first created by professional groups within a given trade then enacted at the state and local levels. This also means that building codes undergo regular updating. The U.S. once had several building codes but these eventually were subsumed by the International Building Code (IBC), which was developed and published by the International Code Council (ICC). Despite its name, the International Building Code (IBC) is used primarily in the U.S.
Code Changes
Code changes are difficult to keep up with, but not impossible. Typically the changes are driven by either technology, catastrophic events, or new knowledge and experience that suggest a better way to do things. For example, modern codes are moving in an increasingly “green” direction to take advantage of eco-friendly technologies and combat pollution and climate change. Previous trends included improving structural safety standards in different locations after hurricanes, tornadoes, floods, or earthquakes. Understanding current trends can help one predict the direction code requirements are likely to move.
Enforcement
But, what good is a code without enforcement? Awareness of how codes are enforced in a particular areas will also be crucial to understanding the effect these laws will have on a particular project. For example, some areas will be more concerned about certain violations than others, so adequate exterior joint sealant is likely to be more of a concern in wet environments and roof straps will be more important in windy areas. Similarly, bifurcated houses with multiple entry ways are more likely to create a code violation in urban settings where traffic flow and population densities are more important than in rural areas where such matters are likely to be less well enforced.
Purpose
Building codes are intended to protect the public and improve the quality of life, not burden design professionals and builders, or to add to the cost of construction. Keeping up with the codes, talking with local building officials, and making sure all parties are communicating will result in a building that protects its occupants from a number of possible hazards.

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