Business Law, Legal

4 Common Partnership Mistakes

Partnerships can be a useful strategy, especially when one is trying to start a small business, and there is a need for varying skills and money. Partnerships can bring complementary skills and capital into a business to make it grow and prosper faster. The odds of conflict and financial risk, however, can increase when two or more people get together to run a business.

Lack of Written Agreement
Like any other business arrangement, a written contract solidifies and clarifies the parameters of a partnership. Written agreements cover issues such as the extent of each partner’s tasks and responsibilities, the division of net income, and the rules around changes to the partnership structure. Partnerships that start without a written contract run the very real risk of serious partner disputes ending in legal action or even the dissolution of the partnership. When two or more people choose to go into business together, they should map out their shared understanding of the arrangement, and hire an experienced business lawyer to draw up the contract.

Incompatible Long-Term Outlooks
In the beginning of a business venture, partners are often optimistic of the chances of success and ignore some of the more mundane details, such as where each owner sees the business going and how he or she would handle situations along the road.  Ultimately, this can gridlock a business if partners cannot agree on a plan of action to take the company forward.

Different Customer Service Protocols
In almost all long-term businesses, one of the hallmarks of success is that customers are happy with their interactions with the business. One measure of satisfaction is that the customer feels he or she is being interacted with the same way every time. The same goes for business partners. If business partners both interact with customers and have vastly different ways of doing so, it can lead customers to avoid the business because they do not know what to expect when they call or come in.

Lack of Exit Strategy
When you first go into business with a partner, the last thing on your mind is leaving it. Everyone eventually turns over their businesses. It may be either through sale, passing it to family or through death. If a partnership turns sour, understanding the rules around leaving the business becomes even more urgent. Written partnership agreements – signed before you open the doors for the first time – should contain rules around how and under what circumstances each partner can leave the business. For example, there may be restrictions around who you can sell your partnership interest to or what happens to your share if you are medically incapacitated or die. Like most business disputes, it can be difficult to agree on these issues as they happen if there is no provision in the agreement for them upfront.

 

Business Law, Legal

Reasons Why a Small Business Should Incorporate

Many small business owners launch their companies as sole proprietorship in which they and their businesses are essentially the same. However, changing the format of a small business to a corporation or a Limited Liability Company (LLC) can offer a range of advantages for entrepreneurs.  Most notable is that a corporation or LLC protects entrepreneurs’ personal assets in case debts or legal judgments are claimed against the business.

The advantages of incorporating a small business include:

No. 1: Personal asset protection. Both corporations and LLCs allow owners to separate and protect their personal assets. In a properly structured and managed corporation or LLC, owners should have limited liability for business debts and obligations. Corporations generally have more corporate formalities than an LLC that must be observed to obtain personal asset protection.

No. 2: Additional credibility and name protection. Adding “Inc.” or “LLC” after your business name can add instant legitimacy and authority. Consumers, vendors, and partners frequently prefer to do business with an incorporated company. In most states, other businesses may not form an entity or use a trade name that is the same as your corporate name. This benefits the business legally and helps in brand-building and marketing.

No. 3: Perpetual existence. Corporations and LLCs can continue to exist even if ownership or management changes. Sole proprietorship and partnerships just end if an owner dies or leaves the business.

No. 4: Tax flexibility. A LLC is taxed at the same rate as a sole proprietorship while providing limited exposure to personal liability. Though profit and loss typically pass through a LLC and get reported on the personal income tax returns of owners, a LLC can also elect to be taxed as a corporation. When an entrepreneur sets up a corporation, he or she is taxed on both the individual and corporate levels. However, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.

No. 5: Deductible expenses. Both corporations and LLCs may deduct normal business expenses, including salaries, before they allocate income to owners.

Should My Business Incorporate or Form a LLC?

I am often asked this question.  It is important to consider the following:

1. Corporations and LLCs are both separate legal entities (business structures) that enjoy certain protections under the law and important benefits. Most people form a legal business structure to safeguard their personal assets.

2. Incorporating or forming a LLC allows you to conduct your business without worrying that you might lose your home, car, or personal savings because of a business liability.

Food For Thought, Immigration, Inpsiration, Journal, Legal

Adding Practice to Theory

I no longer watch news and continually work to cut down my consumption of social media. More and more, Facebook feels like a place of shouting opinions and personal bias. There are days I dread opening the site for fear of the messages that will come barreling towards me.  I walk around, and I see people lost in their phones. Couples eating together with both looking at their phones rather than engaging in conversation. It feels to be a lonely life when so much passes me by. Yet I know that getting lost in helplessness is not only a quick road to failure, but one that fosters indifference.

Last week, I spent four days learning about Immigration Law Practice. While the theory portion absolutely overwhelmed me, there was a growing conviction inside me that with the political climate the way it was, it behooved me to take part.  What scared me is how easy it is for permanent residents to lose their green cards, and how difficult the current administration has made it for immigrants to come or stay in this country.

And so I put practice into place for a new area, and I plan to grow. It is the only way I know to live.

Happy Tuesday!

 

Business Law, Legal

Remember UBER/LYFT Cheaper than a DUI: Legal Reasons #76

DUI Checkpoints

DUI checkpoints are used throughout California to find and arrest drunk drivers. These checkpoints are commonly found on the highways or surface streets. If the symptoms of a DUI are noticed, the driver will be requested to step out of the vehicle and perform field sobriety tests at the scene.

The United States Supreme Court found in the case of The Department of State Police v. Sitz, 496 U.S., 444 (190) that DUI checkpoints do not violate the Fourth Amendment’s prohibition against unreasonable searches and seizures and sobriety checkpoints outweighed the constitutional rights of the individual citizen. It was ruled that interests of government in identifying DUI drivers, reducing the fatalities overturned, the intrusion of human privacy rights, and sobriety checkpoints, were acceptable.

This weekend, be smart and don’t drive if you plan on drinking. The cost of a using a car service is still much, much cheaper than a defending a DUI

Here are some planned checkpoints for Orange County and LA County

Business Law, employment law, Legal

Upcoming Business and Employment Law Seminar: Legal Reasons #75

I am glad the week is done as I and my senior associate Jemal Yarbrough cannot wait to present information that we feel is vital for anyone considering starting a business or any business with employees. One of the main things that motivated me to start my own law practice was to find ways to be in service to others in the legal arena and give information that is beneficial (and affordable) to anyone who desired it.

As in house counsel for Ziba Beauty for the past 17 years, I know it is very easy to run afoul of the many employment laws in California.  Too often, small businesses are not aware of the various rules in regard to wage and hour issues as well the recent uptick in sexual harassment claims. If you are interest, please do come out.

 

Happy Friday!

Business Law, employment law, Legal

Common Small Business Employee Lawsuits: Legal Reasons #74

The most common lawsuits brought against businesses are wrongful termination suits brought by employees or candidates who have suffered a negative employment action. This can be anything from being fired to being demoted or even passed over for an advancement opportunity. If the employee or candidate believes that the action was taken for a reason related to race, gender, religion, identity, or another protected classification, that employee might file a lawsuit. For this reason, it is important to document any sort of negative or positive behaviors at work, so that if an employee does complain of discrimination, the courts can see the employee’s work history and the real reason why he or she may have been passed over for a promotion. Disparaging remarks made about any of these protected classes have no business in a work place as they can create a hostile work environment and lead to lawsuits as well.

Many employers choose to save money by denying their employees overtime pay. This can create many extra costs, as employees will sue for the money they are owed, and the legal fees can be significant. It is a good idea to have contracts establishing the boundaries of a relationship between an employer and an employee to minimize confusion.

It also makes sense to put agreements with vendors and customers in writing. The contracts should include a general description of the work to be performed, a list of any items to be delivered, a project schedule with deadlines, the fee, and the circumstances under which additional fees might be charged, warranties included with the work, how long the contract lasts, how it can be terminated, and how disputes will be resolved.

Personal injury lawsuits against businesses are also common, so it is important to make sure that a place of business is kept in safe condition. Floors should always be dry and warnings should be presented to customers of any dangerous conditions. Drivers should be selected carefully as any accident they cause can be made the responsibility of the business that employs them. Employees who are injured at work are usually precluded from suing their employer and are instead referred to worker’s compensation courts which have their own legal fees. Most states require employers to carry insurance in case of a workplace injury.