Business Law, Legal

Which Corporate Entity Works Best?Legal Reasons #66

LLC (Most Recommended) (Most Ideal for Non-U.S. Citizens)

Limited Liability Company (LLC) is the most common and best business structure for most small businesses because LLC offers personal liability protection.

Having an LLC establishes your business as a separate legal entity — meaning members are not personally responsible for business debts and liabilities. In other words, if someone sues your business or if your business is liable to debtors, then your personal possessions, such as car or home, can’t be touched by creditors.

Also, unlike Corporations, LLCs enjoy pass-through taxation — meaning all the profits and losses are “passed through” the business to each members of the LLC. Members report their share of the LLC’s profits and losses on their individual tax returns, and any tax due is paid at the individual level.

The first thing most businesses do is form a LLC and as a business lawyer, I highly recommend having a registered LLC before you start your business.

 

C-Corporation

Corporation is also an independent legal entity, separate from the people who own, control, and manage it. Corporations can enter into contracts, incur debts, and pay taxes apart from its owners.

In other words, the Corporation itself, not the shareholders who own it, is held legally liability for the actions and debts the business incurs.

However, Corporations are more complex than other business structures because they tend to have costly administrative fees and complex tax and legal requirements. Because of these issues, Corporations are generally suggested for more serious companies.

C-Corporation is typically not suggested for most businesses to avoid double taxation. Ask me if you have any questions about this.

 

S-Corporation (Recommended for U.S. Citizens, Most Tax-Friendly)

S-Corporation is a special type of corporation created through an IRS tax election.

An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S-Corporation.

What makes the S-Corporation different from a traditional corporation (C-Corporation) is that profits and losses can pass through to your personal tax return. Consequently, the business is not taxed itself. Only the shareholders are taxed.

S-Corporation offers the best of both worlds: personal limited liability protection along with the tax benefits of an LLC.

S-Corporation is recommended for most businesses as well.

Can’t decide on which business structure is right for you?

business lawyer can help you choose the right business structure and relieve the administrative burden of registering, organizing, and forming your proper business structure with state and federal authorities.

 

 

Food For Thought, Inpsiration, Journal

On Being Selfish

This weekend was a bit rough as my a lot of family gathered to celebrate my uncle’s 80th birthday. I am truly blessed to have a loving family that I get to share so much with, but I chose not to attend. I chose instead to use the weekend to work on a seminar and a personal essay.

On the surface, it appears shallow and career driven, yet really it was about self-care.  I have said for years that I wish to be in private practice and do more writing. This week, I get to do a presentation on business law, and I will be submitting my personal essay to my Writers Critique group .  It was one of the most satisfying weekends I could think of in terms of personal goals. I got to visit friends, family friends, personal care, but more than anything else I got to make my vision a reality. I put measurable steps forward towards being a business lawyer and a writer.

It hit me that sometimes it is important to take care part in self-care that appears selfish at the outset, but it fills you and makes you feel whole, and proud that for once instead of words, I put myself into action rather than just vision.

Self care is not selfishness. It is energy that restores me, and allows me to be the best version of myself.

Happy Monday!

Business Law, employment law, Legal

So You Want To Start a Business?Legal Reasons #66

Before starting a business in California, you should consider the multitude of legal issues that surround such a task, including choosing the right business structure (sole proprietorship, corporation, limited liability company, or partnership), selecting the right company and/or product name, and how the business (including legal and accounting fees) will be financed, what potential liabilities you face with your proposed business, and what licenses and permits you will need.

Choosing the Right Business Entity For a California Business Start-Up.

Once you have determined that you are prepared to start your own business, you should begin the process of making your business legal. The first step should be to decide which legal structure is right for you. There are four main types: sole proprietorship, partnership, corporation and limited liability company. Which one is right for you? A sole proprietorship may be sufficient if: (1) you have no assets; (2) your proposed business is unlikely to be a source of liability; and (3) you don’t anticipate earning more than $50,000 a year. If you do have assets that you want to protect, or if you believe your new business will generate at least $50,000 in income, then you should consider either a corporation or a limited liability company. See, S-Corporation or LLC and then discuss your impressions with a local attorney, hopefully Melissa C. Marsh. Seeing an attorney for just an hour to learn more valuable information could save you thousands down the road.

Sole Proprietor.
If you are not ready to form a corporation, or a limited liability company, you can simply remain a sole proprietor. To start a business as a sole proprietor, all you need to do is get: (1) a taxpayer identification number ( EIN ), (2) a fictitious business name, (3) a local city business license, (4) a seller’s permit if you will be selling taxable goods, and (5) other city or state permits required for your particular business. Prior to selecting a fictitious business name, it is important to make sure the name is available.

Partners.
If you are planning to go into business with one or more other individuals, get a commitment — an agreement that sets forth your planned relationship, expectations, and financial commitment. If you are forming a corporation, make sure there is a shareholder buy-sell agreement in place. If you are forming a limited liability company, make sure the Operating Agreement contains buy-sell provisions. If you plan to operate as a general partnership, ask yourselves if the additional co-owners are merely going to contribute products and/or services as opposed to money. If so, consider forming a single owner business (sole proprietorship, corporation, or single member LLC) with contractual agreements with those who are to provide products and/or services. If a party later fails to perform, then you can typically find a replacement. If you are going to operate as a partnership, then make sure you execute a written partnership agreement that contains provisions addressing how each partner can leave the business.

It is always best to start a business on your own, rather than with partners. If co-ownership is essential, then make sure you have a well written partnership agreement that: (1) calls for the formation of a corporation or limited liability company if a certain goal is met, and (2) contains buy-sell provisions that provide for the buyout of any co-owner at a set price in the event the co-owner fails to perform, becomes disabled, dies, files for bankruptcy, or becomes involved in a divorce. Most owners of a business never intend, or expect, to become partners with their co-owner’s spouse, but that is exactly what can happen if you don’t have a well prepared buy-sell agreement executed by all of the co-owners.

Corporation. To determine if a corporation will best suit your needs, I will cover in the next blog post.

Food For Thought, Inpsiration, Journal

The Unfinished Me

It is hard to believe that we are already in the middle of February, the days get faster and faster, and I cannot let go of this nagging feeling to go, go, go! There is a constant energy inside me which pushes me to be the best version of myself, and I am not satisfied with my progress in some matters such as my writing and being in service. Each day feels as if I am playing catch up, yet it is not an emotion of putting myself down but pushing myself forward.

There are many around me suffering me, and it hits me that life is a treasure to be treasured and instead of focusing on what I don’t have. I get to celebrate my blessings. If I am being completely honest, it is not always easy but more and more I set myself up ways to win by just showing up, my having a morning routine that feeds me emotionally, physically and spiritually.

It has become a pleasure to take in the mornings where I sit in silence and contemplate my day, and that nervousness inside me that used to hold me back from jumping into the best version of myself now propels to take ever more chances.  I finally get so many of my father’s lessons, and more and more I realize that a Sabarwal man does not take things or people for granted. He gets to leave the world better than he found it. So off I got to another day.

Happy Monday!

Brownness, employment law, Legal

5 Things Small Businesses Should Be Aware of:Legal Reasons #65

California’s state minimum wage increased for California’s employers on January 1, 2018.  California’s minimum wage law provides for two different rates based on the size of the employer, and the minimum wage increases are reflected in this chart:

Date Minimum Wage for Employers with 25 Employees or Less Minimum Wage for Employers with 26 Employees or More
January 1, 2017 $10.00/hour $10.50/hour
January 1, 2018 $10.50/hour $11.00/hour
January 1, 2019 $11.00/hour $12.00/hour
January 1, 2020 $12.00/hour $13.00/hour
January 1, 2021 $13.00/hour $14.00/hour
January 1, 2022 $14.00/hour $15.00/hour
January 1, 2023 $15.00/hour

 

Once the rate reaches $15 per hour, it will be adjusted annually based on inflation.  Here are five potential pitfalls California employers need to be careful to avoid with the increase in the state minimum wage.

 #1: Who is considered an employee?

California’s Department of Industrial Relations website provides the following explanation:

Labor Code section 1182.12 defines “employer” as: “any person who directly or indirectly, or through an agent or any other person, employs or exercises control over the wages, hours, or working conditions of any person [and] includes the state, political subdivisions of the state, and municipalities.”

Any individual performing any kind of compensable work for the employer who is not a bona fide independent contractor would be considered and counted as an employee, including salaried executives, part-time workers, minors, and new hires.

 #2: The salary level to qualify as an exempt employee increases based on the state minimum wage.

Employers need to review the base salary for all exempt employees to ensure the employees meet the salary required to be exempt.  To be exempt from the requirement of having to pay overtime to the employee, the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.” (Lab. Code, § 515, subd. (a).)

With the increase in the state minimum wage in 2018, the equivalent of two times the minimum wage of $10.50 per hour for small employers equals $43,680 per year, and two times the minimum of $11.00 per hour for large employers equals $45,760 per year to qualify for the white collar exemptions.

It is important to note that the salary basis test is set according to the California state minimum wage, not the applicable minimum wage that may apply in the various local city and counties in California.

#3: Which minimum wage rate applies if the number of employees raises and falls below 26 employees throughout the year? 

The California Department of Industrial Relations provides that: “An employer with 26 or more employees at any time during a pay period should apply the large-employer minimum wage to all employees for that pay period.”  Changing the rate of pay for each pay period raises another pitfall about the notice employers are required to provide employees before changing their rate of pay ( #4 below).

 #4:  Employers are required to update the notice to employees setting forth the employee’s rate of pay. 

California employers are required to provide non-exempt employees with certain information upon hire as required by the Wage Theft Protection Act.  The law became effective in 2012 and is codified at Labor Code section 2810.5.  Many employers use the Labor Commissioner’s template to meet this notice requirement.

However, employers who pre-populate the form will need to revise the forms to ensure that the wage rates comply with the increased minim wage rate in 2018.  Likewise, it is a good practice to review the notices mid-way through the year to ensure compliance with  the various local cities and counties (such as Los Angeles and Santa Monica) that typically increase their minimum wage rates in July each year.

 #5: Employers still need to comply with local city or county minimum wage requirements if those laws provide a higher minimum wage rate. 

Employers need to review any applicable local city or county laws that may provide for a higher minimum wage than the state minimum wage requirement.  Employers must comply with the highest minimum wage rate applicable to their workforce.  It is also important to review the local minimum wage ordinances as many ordinances differ in how to determine if the employer is small or large, and usually contain their own notice requirements.

Food For Thought, Journal, Writing

A Challenge

“Why should I read your stuff? What do I get for giving up my time to read your story? Where are you going to submit your stuff?” Recently a friend asked me these questions, and I kind of hemmed and hawed my way out of answering of them. But the questions lingered, but not for their content but their assumption. I have never written for others The fact that I am blessed enough that others read me has never entered into my equation into the things that I write about.

My writers critique group sometimes has asked me to write fiction better (namely because I am not good at it), but their gist is the same as any writer. It’s a lonely field, namely because of many of us write for ourselves. I use writing to make sense of my world, emotions or thoughts. I haven’t thought about publishing or putting my work out there, yet.

2018 will be the year I finish some works that have been long in the making, and I commit to begin submitting pieces to contests and periodicals each quarter. My goal is to finish one essay a month. Wish me luck!

Happy Monday!