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Uploaded byElizabeth Lewis
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Business law update

The document provides an overview and outline of topics related to business law updates presented by Elizabeth Lewis, Esq. The topics covered include business entities at both the state and IRS/CDOR level, recent legislative and judicial updates regarding contracts, employment, taxes and bankruptcy, and trends in the sale of businesses, home-based businesses, online marketing, and funding of companies. Contact information is provided for Elizabeth Lewis and her law firm for any questions.

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Business Law Update Elizabeth Lewis, Esq. Law Office of E.C. Lewis, P.C. 720-530-3405 www.eclewis.com [email_address]
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 1 st 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: 720-530-3405 Blog: www.eclewis.com/wordpress Facebook: www.facebook.com/legalsolutions Email: Elizabeth.Lewis@eclewis.com