Business Law


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Friday, November 1, 2013

The Importance of Corporate Formalities

Small business owners face many challenges, such as finding financing and the right employees, not to mention bringing in new business. As a business law attorney I often advise clients on another important issue—avoiding liability for lawsuits, especially personal liability. A business owner should always use a structure such a limited liability company (LLC) or corporation for his or her business. This structure cannot prevent against all personal liability, because sometimes you are going to have to sign personally, such as when you take out a loan for your business. But if properly documented and maintained, a corporation or LLC can help avoid personal liability in many situations.

I would recommend first talking to your tax advisor, most likely your accountant, before getting started. Depending on the kind of business there may be certain advantages to choosing one type of entity over another. Then I would suggest you hire an attorney to set up your new business. Yes, you can probably do it cheaper online, but only an attorney can ensure that you and your business are properly protected. You should be able to obtain a quote for the fee up front. In addition, online companies will often charge you high annual fees for a statutory agent and other services which you often do not need. In addition, if there is more than one owner in the business, your attorney can help you to document your agreements concerning the ownership and management of the business.

Once your business is up and running, it is important that you not forget about the formalities that are required. The documentation for a small business is not burdensome, but it is important. Make sure you file your annual reports with the secretary of state. Keep all of your corporate records in a secure location and where you can easily find them. And I also recommend having an annual meeting of the business and keeping notes of the meeting with the records.

But by far the most important practice is to keep your business and personal finances separate. If you need to infuse your business with some cash, then by all means do so. Your accountant can advise you on how best to do this. But other than that, keep finances separate. Do not commingle personal and business funds. Business expenses should be paid from the business account, and personal expenses should be paid from your personal account. Do not use your business to pay your personal expenses.

Courts, including Connecticut courts, will generally recognize the liability protection provided by corporations and LLC’s. But if they view the business as a fraud or sham, they will not hesitate to hold the business owner(s) liable for obligations of the business. This is called piercing the corporate veil. The best way to protect your business and yourself is to consult with an attorney and maintain your business as a distinct entity.


Friday, February 25, 2011

New SBA Loan Program for Maturing Mortgages

Small businesses maturing commercial mortgages or balloon payments before Dec. 31, 2012, may be able to refinance their mortgage debt with a Small Business Administration (SBA) loan through a new program that begins Monday, February 28. The program, authorized under the Small Business Jobs Act, will be in effect through Sept. 27, 2012.

 

The new loan program is structured similarly to a traditional SBA 504 loan, which is offered to businesses that want to expand. Borrowers will be able to refinance up to 90 percent of the current appraised property value or 100 percent of the outstanding mortgage, whichever is lower, plus eligible refinancing costs. No expansion of the business is required.

 

I could not find any information about the new loan on the SBA website, perhaps because the program does not start until February 28th.  But any business which is interested in this new loan program should contract Carolyn Welch at the Connecticut Community Investment Corporation, (203) 776-6172 Ext. 132 or cwelch@ctcic.org.  CTCIC, located in Hamden, is one of the organizations in Connecticut which administers SBA loans. I have worked with Carolyn on several transactions and my clients have been very pleased with her work.


Tuesday, December 1, 2009

Increase in Filing Fees at the Connecticut Secretary of State

Effective October 1, 2009 there has been a significant increase in filing fees at the Connecticut Secretary of State for business and UCC filings.  For example, the fee for filing a UCC-1 Financing Statement is now $50 (previously $25), and the fee for filing Articles of Organization for a limited liability company is now $120 (previously $60).  The fee increase has not been very well publicized.


Monday, May 12, 2008

Limited liability companies: The entity of choice for Connecticut businesses.

There is no question that limited liability companies (LLCs) have become the dominant vehicle for new businesses being formed in the State of Connecticut. In fact, in 2006 formation of new LLCs outnumbered corporations by six to one! LLCs have become extremely popular because they combine the major advantages of two other types of entities: the limited liability of corporations and the pass-through tax treatment of partnerships.  Limited liability companies are easy to set up and maintain, and very flexible in structure.  There is virtually no limit on the different types of ownership and management structures that can be established.  LLCs also benefit from pass-through tax status, meaning that there is no tax at the entity level and all income and loss is reported on the owner’s tax return. As a result, income tax filings are much simpler. LLCs with only one owner do not have to file a separate tax return for the LLC, but instead report everything on Schedule C of their personal tax returns.
 
Since its introduction in 1993 the LLC has also become the entity of choice for real estate ownership and development. The low cost and flexibility of the LLC allows real owners to set up a new company for each property, and even for separate parcels within the same development. This allows the owner to protect his or her personal assets from liabilities associated with the real estate business. And it has the added advantage of insulating each property or project from liabilities associated with other projects or properties.
 
Limited liability companies can now be set up with one member, two members, or many members. The ownership can be as simple or as complicated as complex as the parties desire to structure it. There is virtually no limit on the different types of ownership structures. The management of the LLC can also be set up in a variety of ways. There can be one person in charge of the business, or all of the owners can be involved, or anything in between.  
 
There are still some situations in which the use of a corporation or other entity may be preferable to a limited liability company. And although setting up a LLC requires fewer documents and formalities than a corporation, there are still key documents that need to be prepared and executed. For this reason it is important to consult with an experienced attorney before setting up any new business, including a real estate business.



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