If you're looking to hire a business attorney, then congratulations are in order, because that is probably a good sign that things are booming. But as you set off to find the right business attorney, you have to keep a few things in mind. First and most importantly, if you're hiring a business attorney for the first time, you need to make sure you don't get ripped off. This requires surveying the market to find out what the going rates are, deciding how much of your budget you want to allocate for legal expenses, and then selecting an attorney who fits within your budget.
Please note that when it comes to business attorneys, more money does not always mean more quality. In fact, sometimes, the opposite is true. Business lawyers at large firms charge insanely high rates, and they tend to specialize to a very narrow degree. For example, a given lawyer doesn't just practice business law, nor does he specialize on a particular type of transaction or even a particular type of deal document. Instead, a given lawyer might specialize exclusively on a particular clause within a particular deal document! Granted, he's probably one of only a few hundred experts on that clause, but if your legal matter doesn't pertain to that clause, you don't give a rats ass. You would rather have an attorney with a broader view of what's going on. The point is, you shouldn't assume that more money means higher quality of service.
The next thing to think through is the scope of the engagement. If you're hiring an attorney to perform a limited scope of services, you should search one way, but if you're hiring an attorney to be a long term partner and advisor in growing your business, then your selection process should be very different. As an example, some people hire an attorney to form their corporate entity (LLC, corporation, etc), and they know, at the time, that they have no intention of sticking with that attorney for the long haul. If this is the case, then it's perfectly fine to hire based on price and proximity (there are some caveats, which we will explain in a future article). On the other hand, if you're looking to hire someone who you will view as a trusted advisor and who will grow with you as a business owner, that is a very different story. It's the difference between searching for a provider of commodity legal services and searching for a true legal counselor.
The final thing that you should be aware of is the basics of how different services are priced. For services where the attorney is able to predict, with reasonable confidence, the amount of time and effort that will be involved, attorneys will generally be willing to price their services on a flat fee basis. Examples of this include incorporation, forming an limited liability company, and writing a partnership agreement. By contrast, services that appear open ended tend to be priced on an hourly basis. This is for good reason - if the attorney has no way of knowing how long the engagement will take or how much work will be involved, he would be ludicrous to commit himself to a fixed price. Examples of this tend to come from contentious cases - disputes between founders, disputes between management and owners, disputes between company and stockholders, etc.
That wraps it up for Business Attorney Fees in a Nutshell. In another article, we will put some actual numbers onto all of this to help you form a better idea of how much it will cost to hire a business attorney for your legal needs.
By Elspeth Crawford
An S corporation is a corporation created under state law that elects to be taxed under Subchapter S of the Internal Revenue Code. This election results in an S corporation being treated as a pass-through entity for federal income tax purposes, the profits and losses of which pass through to the shareholders rather than being taxed to the corporation.
Apart from the manner in which it is taxed, an S corporation is indistinguishable from a C corporation. A S corporation is formed in the same manner as a C corporation, its shareholders enjoy the same limited liability protections, and it is managed in the same manner.
In order to qualify as an S corporation for federal income tax purposes, the corporation must file an election with the Internal Revenue Service. This election can be revoked at any time by the consent of the shareholders. It may also be terminated under certain circumstances.
If an S corporation election is in effect, profits and losses of the corporation are passed through and taxed on the individual returns of the shareholders. All shares of stock of an S corporation must have the same rights to dividends and liquidating distributions.
In some states that levy income taxes, S corporations are treated as pass through entities. In other states with income taxes, S corporations are treated in the same manner as C corporations.
The treatment of S corporations is the same as that of C corporations from the standpoint of shareholder liability. Making an S corporation election only affects the income taxation of a corporation. It does not affect the limited liability of the corporation's shareholders, who enjoy limited liability to the same extent as shareholders of a C corporation.
S corporations the same as C corporations from the standpoint of management and control. Making an S corporation election only affects the income taxation of a corporation. It does not affect the management of the corporation.
Transferability of Ownership Interests
An S corporation is the same as a C corporation from the standpoint of transferability of ownership interests. But there are limitations on the types and number of persons that may hold stock of an S corporation. If stock of an S corporation is transferred to a person other than an individual (who is not a nonresident alien), estate, or trust qualified to hold S corporation stock, or if a transfer results in stock being held by more than 100 shareholders, the S corporation election will be terminated. Consequently, S corporations typically have in effect buy-sell agreements or other arrangements that restrict transfers of stock that would cause termination of the S corporation election.
The same securities law and control issues that affect the transferability of stock of C corporations also affect S corporations. As with a C corporation, an S corporation's existence that is not affected by the death, dissolution, incapacity, or bankruptcy of a shareholder, although its S corporation election could be jeopardized if stock ends up in the hands of a person who is not qualified to be an S corporation shareholder. The existence of an S corporation, like a C corporation, is not affected by the resignation of an officer or director.
Organizational and Maintenance Costs
An S corporation the same as a C corporation from the standpoint of the formalities required for creating and operating the corporation. The only difference between an S corporation and a C corporation in this regard relates to income tax return filing requirements. An S corporation must file an information return for federal income tax purposes even though its income or losses are passed through and taxed to its shareholders, whereas a C corporation files its own income tax return and pays tax on its own income. For state income tax purposes, an S corporation may be treated as a pass-through entity or may be treated the same way as a C corporation.
A corporation can avoid the double taxes that are imposed on profits of a C corporation if the corporation elects to be taxed as an S corporation. An S corporation is taxed something like a partnership. The corporation files an information return for federal income tax purposes, but its income or loss is passed through and is taxed to the shareholders of the corporation. The deduction of losses by S corporation shareholders is subject to the passive loss limitations and at risk rules.
As with a limited liability company (LLC), an S corporation combines limited liability with pass-through income tax treatment. The taxation of S corporations and limited liability companies is, however, not the same in all respects. An LLC with more than one member is taxed as a partnership and therefore provides three tax advantages not shared by S corporations:
On the other hand, S corporations can provide employment tax advantages. Shareholders are subject to FICA tax only on salaries or other compensation paid to them—undistributed S corporation income and dividends paid by S corporations are not subject to employment tax. In contrast, each member of an LLC who is an individual must, in most cases, pay self-employment tax each year on his or her share of the LLC's income, whether or not the income is distributed to the member. The only members who are exempted are those in manager managed LLCs who do not materially participate in the business of their LLCs.
An S corporation can also provide favorable tax treatment in connection with the development and sale of real property. If a shareholder sells undeveloped property to an S corporation, the shareholder will recognize capital gain or loss. If the corporation develops and then sells the property, the incremental increase in value created by the corporation's development services will generate ordinary income that will pass through and be taxed to the shareholder of the corporation. But the shareholder will not be subject to employment taxes on the income, except to the extent it is distributed in the form of compensation.
If a partner or member sells development property to a partnership or LLC, any gain realized will be ordinary income under I.R.C. § 707(b) if the person owns more than 50% of the capital or profit interests in the purchasing entity. Moreover, the person will be subject to self-employment tax on any income realized on the development of the property. Consequently, the after-tax return realized by the original owner from the sale, development, and resale of the property will not be as great with an LLC as it would be with an S corporation.
It should be noted that the problem of double taxation of C corporation's gains on sales of assets is not solved by having the corporation make an S corporation election. If a C corporation makes an S corporation election in anticipation of a proposed sale, it will be subject to built-in gains tax, which results in double tax at the highest rates. If the corporation is already an S corporation, there will not be a double tax on property distributions. There will, however, be a single tax.
The inability to withdraw assets from an S corporation without tax prevents business organized in this form from being converted to other forms of entity, such as limited liability companies without tax consequences. On the other hand, rearrangement of the corporate structure or ownership of a S corporation may be possible through several types of tax-free reorganizations so long as the assets remain in corporate solution.
By Elspeth Crawford
The Pre-incorporation Checklist (PIC) is an attorney-drafted agreement used by individuals and entities prior to forming a corporation. The PIC lays out material terms between the prospective shareholders so that there is no confusion once the corporation is actually formed. The goal of the PIC is to lay out the essential and material terms between the prospective shareholders so that there is no confusion once the corporation is actually formed.
Having a PIC can facilitate the process of exploring pre-incorporation considerations with the principals of the corporation and gathering the information necessary to prepare organizational documents for the corporation.
Such a checklist should cover such things as:
Capitalization of the Corporation:
Management of Corporation:
By Elspeth Crawford
Trademarks are identifying names or symbols that mark a product or service as being uniquely associated with the company which sells or offers that product or service. Two or more companies may sell similar products, but trademarks distinguish one such company from another. Both McDonalds and Burger King sell hamburgers, for instance, but only McDonalds is allowed to mark its food products with the golden arches. Trademarks help build brands, and the law of trademark helps companies hold onto those brands once they become recognizable on a larger scale.
Short words and phrases are not eligible for protection under copyright, but they can be trademarked. Things which are eligible for trademark protection include:
Descriptive, Suggestive, and Arbitrary marks all have something in common: they are presumed to have “secondary meaning.” Secondary meaning is a legal term indicating that a product or service has become associated in the mind of the public with the particular product or service which it represents. When a name or mark has secondary meaning, the owner can claim trademark protection.
How to Get a Trademark
One can get a trademark for a product or service in a number of ways:
No one is required to register for a trademark, but doing so provides certain advantages. For one thing, registration puts those who might want to register their own marks on notice of yours. For another, registration gives you a legal presumption of ownership, so if there’s ever a conflict the law will assume that you are the owner of the trademark and the person who allegedly infringed upon it will have to prove otherwise.
Consequences for Infringement: The penalties for using a mark without the owner's permission can be serious. If you infringe someone else's mark without knowing it, you could have to pay the owner lost profits from the sales of the owner’s goods or services. If you intentionally infringe upon someone else’s mark, you may have to pay all profits you made selling the goods or services that used the mark, plus attorney's fees.
By Elspeth Crawford
One of the top areas of concern for employers is compliance. This is where the legal and human resources worlds collide. Compliance encompasses any laws or regulations the business must follow, as well as the employer’s own policies. Often a lawyer and/or human resource personnel work to ensure that employees at all levels of the company are working in compliance with these laws and policies. Legal issues and lawsuits can arise if compliance rules are not followed.
Ensuring quality compliance in the scope of employment takes planning, action, checking, and responding. As an employer, staffing is the first place to start. Employers want to hire employees that understand and work in compliance with company policies and procedures. Employees should respect and promote a culture of compliance. By doing so, legal issues for the employee and employer are avoided. Additionally, planning quality compliance requires attention to policies. Policies should be simple, updated, and realistic. They should establish reporting (including self-reporting) procedures and provide examples.
Once policies have been established, a calendar should be created with a built in “tickler system”. A tickler system is a way of checking compliance obligations. Once these triggered obligations are identified, decide on a period for the “check-ups”. Also, consider what steps to take if an obligation has not been completed. When planning the tickler system calendar, it is important to remain organized and decide who receives alarms resulting from the checks. This system should be organized so that there are independent, separate authorities that can police.
The next step is educating employees about the created policies, and any laws or regulations pertinent to their positions or the industry. To establish training expectations, an employer needs to identify needs by considering any contracts, regulations, permits, and policies to which the employees are subjected. Scheduling training requires the employer to consider the period, length and frequency of the training, as well as whether internal or external sources will be providing the training.
For compliance purposes, determining how training was conducted, who attended, and testing should measure the training process. Measuring training is important to ensure that the tactics were effective in providing employees with an understanding of the required compliance for their jobs. If training is not measured, the employer has wasted time and money, and legal issues with noncompliance are more likely to arise.
It is important to check employees’ performance with respect to compliance. The employer should have in place a system by which to monitor, assess, and audit. Completing reports and addressing inquiries efficiently will lessen noncompliance. With an agenda and record focused on education and improvement, examining issue-areas will be much simpler.
If compliance issues do arise, it is important to act quickly. This goes for the employee and the employer. An employee should report any noncompliance that becomes known to them, and the employer should be prepared to respond with assistance. If the non-compliance can be corrected, then the liability could be reduced or eliminated. If noncompliance becomes serious, changes in organizational structure, roles, and responsibilities may be due.