Legal Issues in Organizing your Business

Transcription

1 Legal Issues in Organizing your Business USAC National Conference November 1, 2014 Dave Steigerwald

2 Business Organization Drivers Liability Protection Tax Efficiency Business Goals

3 Liability Protection New Legal Person Entity

4 Liability Protection Segregate personal assets and business assets Treat as separate legal person

5 Liability Protection Follow the rules. Entity documents Separate bank accounts Adequate capitalization Contract in name of entity Insurance

6 Liability Protection Liability holes Failure to follow separation rules Failure to pay tax withholding Personal guarantees Result: personal assets at risk from business liability

7 Liability Protection Insurance Release/Hold Harmless Contract Terms

8 Liability Protection Why choose one type of entity over another for liability purposes? Avoid general partnership and sole proprietorship Select state recognized entity

9 Entities and Tax Efficiency Liability Tax

10 Entities and Tax Efficiency Sole Proprietorship General Partnership C Corporation S Corporation Limited Liability Company (LLC) Limited Liability Partnership (LLP) Trust

11 Entities and Tax Efficiency Sole proprietorship C Corporation S Corp, LLC, LLP, etc

12 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

13 Entities and Tax Efficiency Partnership taxation is taxable only at owner level LLCs, S Corporations, LLPs Entity return is informational

14 Entities and Tax Efficiency Why choose a C Corporation? Multiple classes of stock Employee stock ownership Tax-free acquisitions Investor comfort

15 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

16 Business Organization Drivers Liability Tax Business Goals

17 Entities and Business Goals End game Cash flow? Sell? Charity? Other?

18 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

19 Entities and Business Goals Employee ownership Qualified stock option plan = C corporation Venture capital Preferred stock = C corporation

20 Entities and Business Goals Charitable Access to grants 501c3 non-profit corporation Salary, not sale

21 Business Goals Contracts Terms: Clarity! Deliverables/Services Term and Termination Payment Terms Liability Caps Assignment

22 Business Goals Intellectual Property Protection

23 Intellectual Property Trademark: Branding Copyrights: Author Patents: Inventions

24 Intellectual Property Software Licensing Website Privacy Policy Terms of Use

25 Selected Hot Topics Independent Contractors Shareholder Aspects

26 Hot Topics Independent Contractors Independent Contractors vs. Employees Common problem IRS and DOL hot button (revenue)

27 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

28 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 (2)(a)

29 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 Fines for willful violation: 1 st offense up to $5,000 per day per misclassified employee 2 nd and subsequent offense up to $25,000 per day per misclassified employee

30 Selected Hot Topics Independent Contractors Shareholder Aspects

31 Hot Topics Buy-Sell and Shareholder Agreements Business partner = marriage Death, disability, separation, deadlock

32 Business Goals Continued Sweat Equity Compensation Stock for services is taxable (non-cash event) LLC allows for grant of non-taxable profits interest

33 Thank You Questions? Dave Steigerwald Sparks Willson Borges Brandt & Johnson, P.C. 24 South Weber Street, Suite 400 Colorado Springs, CO The materials presented hereby are informational only and do not constitute legal advice with respect to any particular situation.