Legal Entities – Finding the “Perfect Fit” for Your Business

In a previous blog post, we discussed the importance of structuring your business as a separate legal entity. Doing so helps protect personal assets from creditors, and it influences the amount you pay in taxes. There are different entity structures; each serves a purpose, and that purpose may or may not align with your business needs. It isn’t always obvious which entity structure best suits your business. While legal counsel can help you determine which entity formation will best complement your business operation, weighing the advantages and disadvantages of each can guide you towards the perfect fit between an LLC and a corporation.

A limited liability company (LLC) has the compositional qualities of a partnership, with the limited liability benefits of a corporation. LLC owners (or members) are only liable to creditors for the amount they individually invest. If you have a small, upstart company, forming an LLC might be the most attractive option, because it offers the most tax flexibility and structural flexibility, and least administrative formalities. First, owners can choose how they wish to be taxed, selecting from different subtypes of LLC’s. They can be taxed as a single-member LLC, where the company will be taxed like a sole proprietorship and not treated as a separate entity. Instead of the company being taxed directly, the IRS will tax based off of the single member’s federal tax return. They can be taxed as a multi-member LLC, in which all involved members choose to be taxed as if they were operating a partnership. Further, members can choose to be taxed as a corporation. In addition to tax flexibility, the eligibility requirements are more relaxed for LLCs, with low start-up costs and minimal paperwork. Paired with less mandated recordkeeping, lower administrative costs are favorable.

Despite these benefits, LLCs are not immune to disadvantages. In fact, most of these disadvantages arise because an LLC’s identity is tied so closely to its members. First, the departure of any member can terminate the LLC, requiring the company to file for LLC status again. For this reason, LLCs are said to have a limited life, unlike more durable corporations, whose existence is not tied to the presence and absence of shareholders. Second, unless members choose to be taxed as a corporation, they will be treated as self-employed, owing Social Security and Medicare taxes to be paid by their share of income.

However, LLCs are not always a sure fit for many companies who prefer the traditional corporation structure. Some benefits of small business incorporation include extensive personal asset protection and a complete legal separation between owner identity and company identity. The costs of operating flexibly can be prohibitive, as an LLC’s entire net income is subject to a hefty self-employment tax. Plus, to maintain its LLC status, an LLC has the (counterintuitively) difficult task of appearing as dissimilar from a corporation as possible. The IRS has listed four characteristics that define a corporation, and prohibits an LLC from possessing more than two. Exceeding two requires the business to refile as a corporation. Corporations are subject to formal obligations, which can be burdensome and often require additional administrative support. However, some of these obligations behoove corporations and help them to keep organized – a department in which many LLCs struggle. Unlike LLCs, corporations mandate that members be assigned specific roles, which can cause some organizational difficulties when it is unclear who has managing power, contracting power, etc.

Corporations tend to be a better fit for larger business, with the exception of S Corporations. Check out our next entry, where we’ll dig into the distinctions between different corporation structures, and see how they align with your business needs.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

A Takeaway from Ferguson – Protection for Small Business Owners

By Brittany Robinett

Unless you’ve been living under a rock, you have undoubtedly heard about the racial tension and civil unrest surrounding recent events in Ferguson, MO. On August 9^th, Michael Brown, an unarmed black teenager, was shot fatally shot by a white police officer, Darren Wilson. Protests emerged amidst numerous controverted facts and unanswered questions, sparking cries of racism in the American justice system. Since the shooting, local entrepreneurs began to experience a decline in business. As tensions escalated, many were forced to board up windows and shut down.

On November 24^th, the St. Louis County prosecutor announced the grand jury’s decision not to indict Wilson, triggering a local and national uproar. Riots ensued, leaving many small businesses looted, vandalized, or destroyed. Many business owners were by themselves, because they lacked the financial resources necessary to recover from such a catastrophic loss. In a few short minutes, many livelihoods were sacrificed in a community that had already lost so much.

The events of Ferguson, MO illustrate just how easily small businesses can bear the costs of civil unrest. Ferguson businesses find themselves asking, “How much does it cost to recover? Who bears the costs?” The tumultuous events have left many business owners wondering how they would cope in the same situation. Protests and riots are not as easily insured against as natural disasters and fires, because there’s no way to assess the risk and potential loss stemming from human emotion or civil discord. However, while those risks are unforeseeable and incalculable, they are not completely uninsurable.

The smaller your business, the more challenging and costly it is to prepare for extreme situations. As a business owner, it is crucial to consider all contingencies affecting your business – no matter how unlikely they might be. It is important to consider those protections available to you. Hopefully, some of the following steps will provide some guidance on how to combat the risks of a civil uproar.

Investigate your insurance coverage.

First and foremost, it is important that you know what exactly your insurance covers and what coverage options are actually available to you. Many small businesses are eligible for a “Business Owner’s Policy” (BOP), which resembles a bundled policy of property insurance and general liability insurance. Under a BOP, there might be a way to recover lost income and expenses incurred when business comes to a halt as a result of some covered event. BOPs can include “business interruption insurance,” which reimburses a business for some of those losses. This business income coverage is not automatically triggered with the mere passing of a covered event. Certain requirements must be met, such as severe physical damage to the property that either prevents the business from operating or prevents customers/employees access, or a government-imposed curfew or restriction that keeps people from accessing the business.

As a business owner, you want ask your agent what events and harms are specifically covered under your current policy. Ask whether coverage includes business interruption insurance, and if it does, find out whether your business is eligible. Even where you are eligible, it is important to determine whether your policy covers only specific, named events or it covers all events that might result in harm to your business. If your insurance does not offer such coverage, it might be worth shopping around to determine whether another policy might better protect you and your business.

Backup your data.

Particularly where so much business data is stored electronically, it is crucial to back your data to an offsite location. Even absent a risk of rioters stealing or destroying your business, it is incredibly unwise to have all of your business’s electronic data stored to one physical location. There are a number of online backup services for small businesses. If you do not already have a system in place, you would be very wise to research which option suits your business and your budget best. (Click here to review some of the top-ranking systems.)

Budget for emergencies.

It never hurts to budget for emergencies. Depending on your financial situation, “budgeting” might mean investing at the outset or storing funds in case necessity arises. Should you invest beforehand, you might be wise to install roll-up doors or security grills. Doing so will provide you a quick-and-easy mechanism to board up your business, should the situation arise. Should you elect to put off “boarding up” unless necessary, make sure you have funds stored away to purchase plywood and other necessary materials to secure your place of business.

Invest in a security system.

In the context of emotion-driven people, do security systems serve a significant deterrence function? Maybe not. However, being able to identify a culprit might enable you to pursue civil damages from harms caused. If alarms enough are not to dissuade someone from intruding, video surveillance might provide you a remedy for that intrusion. Additionally, given that social media drives today’s news outlet, surveillance might provide some disincentive.

Ultimately, no state, no city, and no business are immune to the risk of a civil uproar. Like any storm, once you are in the path of destruction, you are bound to get hit. All you can do is have faith in the safeguards you have in place and hope for the best.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a rising third year law student at the Georgia State University College of Law.

Community Service: Moving towards Exceptional Customer Service

By Brittany Robinett

At first thought, what would you rank to be the most rewarding, yet unsung business skill? Many would argue that it is compassion, which yields greater long-term rewards and customer loyalty than any scheme driven solely by profit. Of course, many minds hear “compassion” and go automatically to customer relations during business hours; however, there is something to be said for serving your customers outside of the workplace. And, by “outside of the workplace,” I mean inside the community.

Big or small, every business is part of a community. When it comes to smaller businesses, a greater opportunity exists to build personal ties to a customer base and to present a united front with the locale that it serves. Operating at a local scale often gives small businesses a hands-on advantage at connecting with their customers. People are more likely to show interest in your products and services when you show an interest in what’s important to them – their community, its citizens, and its values.

Volunteering and community participation can give rise to a number of benefits; investing time and efforts can be one of the smartest and cheapest ways to market your business as a truly “local” business, as well as a philanthropic one. Too often, employers forget that customers greatly value company altruism and would rather return to a business that gives back to them and the community that they are serving. Not only does it show that it has those communities’ values at heart, but that it has the people of those communities at heart as well. Outreach programs are a great way to market your business to community members who might not patron your business without knowing a bit more about it, enabling you to build up your reputation in the public eye.

Active volunteer participation helps you to present yourself as a business that contributes not only to the community’s economy, but also to its social fabric. While donations are noteworthy and not to be undervalued, human interactions often leave a more powerful impression than a financial transaction. (Of course, financial contributions can both improve your reputation and increase your eligibility for tax deductions.) It is important for your business to develop an outreach plan tailored to activities that best suit your company. When determining what outreach project best suits your business, whether it’s volunteering monthly at a food bank or running a clothing drive for a local homeless shelter, it is important to consider what the community needs and what you can best provide to serve that need. Naturally, a restaurant owner will likely have an easier time catering an awards ceremony for the Special Olympics than an accountant, whose skills might better situate him to assist with administrative matters. Volunteer activities aren’t one-size-fits-all; no need to stretch yourself in a direction you are not skilled or prepared to handle. However, you should aim to deliver community service of the same quality and caliber as the customer service your business prides itself on.

In addition to improving your reputation and connections within the community, participating in community outreach projects can help boost employee morale. Studies have shown that when companies regularly involve their employees in community service projects, many employers witness increases in job satisfaction, employee retention, employee morale, and workplace camaraderie. Creating an atmosphere of community concern within the workplace can be simultaneously rewarding on both a personal and professional level. Add the cost-saving benefits it provides, and you can only ask why you wouldn’t work towards it.

(Note: You shouldn’t be afraid to flaunt your philanthropy. You wouldn’t keep quiet the excellence of your product, the exceptional customer service you have to offer, or the superiority of your brand: Why would you silence the values of your company that you’ve expressed through community involvement? Let your business reflect its values; if community activism belongs in that value pool, let it shine.)

Face it – good energy is contagious. When that good energy is associated with the services you offer, people will be more and more compelled to take advantage of those services. If the New Radicals had it right, you get what you give. Give big.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a third year law student at the Georgia State University College of Law.

 

Thin Mints and Business Hints

The Simple Brilliance Behind Girl Scout Marketing Practices

By Brittany Robinett

The year of 2014 has ushered in several stories about successful Girl Scouts members who have rightfully earned their “cookie business” badge, as several made headlines for selling an abundance of America’s favorite cookies.

Most of us are familiar with the hilarious story that came out this February about a young scout from California who ingeniously set up shop in front of a medical marijuana clinic. Within a mere two hours, she managed to sell over 100 boxes of cookies. (This, of course, was not well-received by many chapters, who found it inappropriate for its members to sell in front of adult establishments.) Then, this March, we heard about an Oklahoma City scout who broke the all-time cookie sells record, selling up to 18,107 boxes within a seven-week period. How did she reach this record? According to her, she simply asked every person that she met to buy a box.

It’s interesting to contemplate how much media attention the organization’s cookie sales receive. What enables these young girls, ranging from ages of 5 to 17, to influence their communities enough to create and maintain what has grown into a $700 million empire? (Given, our taste buds have all been captured by the spiritual experience that is a Do-si-do.) There must be some common sense principles at work that businesses of all sizes can take note of and employ.

Along with leadership skills and community involvement, the organization aims to instill entrepreneurial skills into its members. What seems to impress the media the most, however, is the outgoing marketing strategy that the girls learn to employ. At the end of the day, the Girl Scouts is not a business – it’s a youth organization that operates at a national level. However, although a national organization, cookies must be sold and bought locally from a Girl Scout. Perhaps this focus on a national brand at a local level shows just how important it is for customers to attach people to a brand.

The Girl Scout’s online marketing materials cite the number of facts that the girls are advised to consider during the selling season. Summed up, each of these points encourages the girls to sell their cookies with four customer-based principles in mind:

• Customer outreach
• Customer loyalty
• Customer interest

Why do you see local scouts selling outside of Kroger or in front of your neighborhood park? It’s because they recognize the importance of coming to the customer. The Girl Scouts do not have shops or stores; rather, cookies are sold seasonally, and quite frankly, nobody keeps track of when Thin Mints are “in season.” Scouts understand that it is not the customer’s job to keep informed about their product; rather, they realize a duty as young entrepreneurs to keep their customer base abreast about what they can “bring to the table.” They bring the cookies to the customer; they are encouraged to offer samples. Whatever it takes to earn and secure a customer, that’s what they aim to do. Ultimately, they operate with the ideal intention of keeping no person in the dark about their product – something all businesses should strive towards. Whether it’s keeping clients up-to-date through the mail, phone calls, or a gentle reminder through a discounted service, businesses are responsible for reminding clients why they are worth it.

Girl Scout customers tend to be a loyal base, buying annually when the chance arises. Of course, repeat purchase practices cannot develop if past customers are not given chances to buy in subsequent years. One frequently undervalued way to thank a customer for their support is to follow-up and ask that they subscribe to your services again. Offer loyalty points and discounts to returning customers, and extend those offers to individuals who have not come back yet. Keep record of services or products needed by individual customers so that you can tailor those benefits accordingly. At the end of the day, every customer is a person, and every person wants to feel remembered.

A contributing factor to the Girl Scouts repeat customers is not just a love for Thin Mints, but a co-existing love for supporting a cause. The Girl Scout organization has transparent goals and principles that it has formed a business model upon, and most community members are willing to support a cause they can understand. Make clear to your customers what your business stands for, be it in the way your employees interact with them or the advertising materials that you send their way. People might not always care about what someone stands for; however, they generally care that they stand for something. Make sure you know what that is, whether it is providing a subliminal sandwich or saving the world.

At the end of the day, children can teach us a lot. Let them!

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a rising third year law student at the Georgia State University College of Law.

 

Is your business follower friendly? Consider Google Plus.

By Brittany Robinett

With so many online mediums being used by today’s consumer, establishing a footprint in this digital landscape has become more important than ever.  For a largely tech-savvy generation, social media networks dominate in an Internet-focused society where users have begun demanding easy ways to look up and connect with products and companies that they enjoy.  Simply put, having a website doesn’t cut it anymore when it comes to making a business well-known and well-reputed throughout the online community.  For this reason, it is becoming imperative that small businesses establish an online presence through social media, and that those businesses familiarize themselves with those media outlets in a way that maximizes their presence.

For a business trying to make a name for itself online, social media provides a way to not only advertise to your customers, but it also provides an opportunity to start a conversation with them.  Online networking provides an avenue to interact with customers by posting information about the company and updating the community and followers on its services and products.  Rather than simply “putting yourself out there” and hoping that people like what they see, networks like Facebook and Twitter permit you to gauge whether customers actually like what they see by giving you access to feedback, such as “comments” and “likes.”  Both of these forums allow user interaction, as users can voice opinions through polls, apps, and even be invited to “events.”

Many small businesses have realized the growing importance of not only building up a business physically, but building up a business digitally.  Those same businesses have recognized this trend and created Facebook, Twitter, or Instagram accounts as a means to interact with a consumer-base.  Many businesses flock to Facebook, as it holds title as the dominant social networking platform.  (In fact, Pew Research Center recently released a study showing that Facebook is used by roughly 57% of American adults and 73% of Americans between the ages of 12 and 17.)  Twitter, although lagging behind Facebook, has received growing attention from businesses who appreciate its short-and-sweet communication style.

Unfortunately, many businesses overlook an undervalued social media provider – Google Plus.  Sure, several of us remember all of the hype surrounding Google Plus before it went public in 2011, only to see that excitement quickly fade.  However, Google Plus has the second largest membership numbers for any social networking site.  (Given, it is used less, although by a more industry-focused user base.)  Although Google Plus might not be the preferred forum for personal networking, it certainly provides advantages that other media outlets do not.

First and foremost, it improves your business’s chance of coming up in search results.  Each time you create a new post, a brand new webpage is created.  With each post, there is a greater chance that your page might appear in a Google search.  Having a highly-trafficked or highly-followed page on Facebook or Twitter does not make your page more “searchable” on search engines like Google.  As explained by Google Webmasters, Google does not have any signals in its web search ranking algorithms that allow it to return “popularity-based” information (such as number of likes or followers) in its search results.

Further, it attaches a “person” to your business.  Unlike other sites, Google Plus allows business pages to be attached to creator profiles.  Particularly with smaller businesses, customers want to see the “man behind the curtain.”  The ability to link your business profile to your personal profile provides that avenue and can give an additional dimension personality to your brand.

Does this mean that services such as Facebook and Twitter should not be used to build up your personal business?  Certainly not.  There is undoubted value in each of these networks, as each is unique and can be tailored to advertise your business.  It is important to consider who your audience and customer base are and decide the best way to target that cohort.  These considerations may drive your business to focus on more “popular” media sites, like Facebook and Twitter, or more “focused” media sites, such as Google Plus.  Do not, however, discount your options based off of the idea that “one should be enough.”  The Internet’s bounds are endless, as should be the possibilities for your company’s growth.  When in doubt, you can never go wrong with being present in more than one place, so long as an earnest effort is made to maintain that presence well.

http://commons.wikimedia.org/wiki/File:Google_Plus_logo.png

http://upload.wikimedia.org/wikipedia/commons/0/04/Google_Plus_logo.png

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a rising third year law student at the Georgia State University College of Law.

 

BYOD – Making Mobile Devices Work for Your Business

By Brittany Robinett

Today, many businesses are implementing “bring-your-own-device” policies, which permit employees to conduct company business on their own mobile devices.  Encouraging the use of employee-owned devices can save employers the costs of purchasing and maintaining technology, while motivating employees to work harder through increased flexibility and mobile access to the workplace.

Decreased overhead expenses?  Increased workplace productivity?  Sounds like a win-win.

However, allowing employees to conduct company business on their own devices can prove less than cost-effective, as it subjects businesses to multiple security and liability risks.  The greatest of these risks are caused by the removability of devices from the workplace, and the accessibility of confidential company data outside of the workplace.  Employers can mitigate these risks by creating protocols to decrease dangers posed by using personally-owned devices.

Allowing employees to conduct business on their personal devices puts stored data at risk, because that data leaves the workplace.  This non-stationary data may fall prey to wandering eyes, as employees may connect to public access points or private access points that are not properly configured.  Plus, mobile devices are frequent targets of theft.  Passcodes and other security features are not foolproof, and they do not necessarily protect the contents of memory cards or hard drives.  Some of these dangers may be eliminated by requiring employees to use a VPN (or a “virtual private network”).  A VPN allows employees to access their employer’s intranet securely when working remotely.  These networks require authentication prior to access, which helps protect against data breaches.

Employers should always have breach response plan in place.  These plans should focus on complying with regulation requirements, assessing risks of potential breaches, and preventing future breaches.  When it becomes clear that data has been compromised, immediate action should be taken to determine whether federal and state regulations require the data to be reported.  Once a determination is made, necessary parties must be immediately notified.  Even if no regulations demand notification, it is important to determine what data has been compromised, what risk the compromise poses, and what steps could have prevented the compromise of such data.  Encourage employees to report any breaches; it should be remembered that they, too, are exposing themselves to greater legal liability, and should be punished for blatant wrongdoing, not necessarily accidents.  Employers can encourage reporting by providing employee training to recognize at-risk situations data apprehension.  (Note: As the use of mobile technology within the workplace is a growing trend, it is important to keep abreast of new regulations, as the government has given the topic a great deal of attention.  Attorney consult can ensure that nothing goes unnoticed and save employers the hassle of conducting their own research.  They can also provide oversight in drafting company protocol and employee consent agreements.)

Companies should lay out clear frameworks for data preservation and destruction on personal devices.  Personal devices present a unique problem when it comes to preserving data for legal discovery.  Legal counsel can help businesses determine whether a preservation duty exists and what that duty requires.  Employers may demand that employees sign consent agreements, recognizing that their devices may be subject to search and seizure should litigation require it.  Signing a consent agreement puts employees on notice that their devices could be subject to future search and seizure processes.  (This is especially important, as personal and professional information often become intermingled with the dual-use of mobile devices.)  Also, business owners are advised to maintain duplicates of all company-related information from employee devices.  That way, data can still be produced, if not from the original device.

Once a duty to preserve disappears and data is no longer needed, employers should make sure that company data is properly destroyed from device storage.  Simply “deleting” data, such as documents, emails, and contacts from a memory card is not always enough, as the device’s internal storage may retain information.  For this reason, employers should require that devices be restored to factory settings prior to an employee parting with a device.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a rising third year law student at the Georgia State University College of Law.

Ambition on a Budget: Maximizing Your Nonprofit’s Resources

By Brittany Robinett

We’re all familiar with the adage, “Money isn’t everything.”  What life experience more often affirms, however, is its caveat, “Money isn’t everything, but it’s certainly something.”  For nonprofit organizations, that “something” is the chance to survive and impact the communities that rely on them.  While this impact seems immeasurable, the operating costs certainly come with a number attached.

The majority of nonprofits in the United States classify as “small” nonprofits.  Financial stress is almost a given for small nonprofits, who are often forced to operate on limited budgets.  Because most revenue is immediately used rather than invested in long-term resources, structural shortcomings arise out of these budget constraints.  One of these shortcomings is the inability to afford financial expertise at the executive level.  Basically, nonprofits often suffer from the top down, because their executive directors cannot provide the necessary financial support.

What are some characteristics of a successful executive director?  Google lists of traits, and they will all boil down to enthusiasm for organizational goals, good communications skills, motivational skills, the ability to strategize, and financial acumen.  The absence of any one of these traits could cripple an organization; yet, financial savviness seems to hold a greater slice of the pie.  Simply put, you can’t compensate for what you can’t afford.  Too often, nonprofit executives stretch themselves thin “handling” finances without the knowledge or experience to effectively do so.  Because they can neither afford training nor outside expertise, they find themselves misinterpreting data and making decisions that negatively affect the organization’s purse.

Of course, it isn’t necessary for an executive to have any financial expertise.  (In fact, executives who lack understanding and conviction for the goals at hand are less than desirable to organizations that aim to have a local – even global – impact.)  However, it is important that the executive have a plan to make such expertise easily accessible and to rely upon it.  When orchestrating a game plan, executives should keep three tips in mind:

First, give your passion and your pocketbook equal attention.  (After all, an organization cannot further goals that it cannot afford to promote.)  Focus your energy on selecting staff members who can actually further the organization’s vision.  Nonprofits naturally attract passionate people, and while it’s important to pack your organization with goal-driven individuals, it is more important for those individuals to understand and develop strategies necessary to achieve those goals.  It’s not always affordable to bring in financial experts to bookkeep or interpret audit data.  However, it is possible to model the qualities of an organization that can afford such experts.  Hire staff with backgrounds in finance management.  Rather than stretching yourself thin by struggling to complete tasks you’re not qualified to do, distribute the responsibility among employees who can see your blind spots.

Second, your board should consist of individuals who actively serve.  While it is tempting to surround yourself with fundraising aficionados or folks with strong community influence, it is important to surround yourself with individuals who offer more than the appearance of power.  Your board is a reflection of your organization, so you want to build a well-rounded group of individuals who can effectuate its goals.  Build a board with strong financially-geared minds, enthusiastic individuals, and people who are willing to roll up their sleeves and take on the not-so-lovely “staff” tasks that come their way.  Although board members hold a higher rank, a servant’s heart holds a value all its own.

Third, “know when to hold em’ and know when to fold ‘em.”  Executives could circumvent a number of financial challenges by not jumping at every deal that pops up.  Cheap (or free) isn’t always better, and it’s important to know when to accept a bargain and when to reject it.  Consult with more financially savvy staff or board members before investing in resources – particularly cheap ones.  While the price tag looks attractive in the beginning, there may be long-term costs that make them prohibitively expensive in the long run.   Sometimes, donations and volunteers are best left declined, particularly when there is no plan to replace them once they’ve diminished.

There’s no room for excuses in leadership, only responsibility.  Don’t make your budget your excuse.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a rising third-year law student at the Georgia State University College of Law.

Covering Your Assets – Steps to Guarding your Goods from Creditors

By Brittany Robinett

When you own a business, you often juggle multiple jobs: from marketing, to hiring, to bookkeeping, the list can seem never-ending.  Add the demands of personal life, and wearing several hats can easily blur lines between personal and business transactions.  Without an established asset protection plan, personal assets become an easy target for business creditors.  There are many ways to make personal assets appear “unattractive” to creditors.  Remembering four keywords can help prevent unnecessary risk to your personal assets:  structure, separate, research, and insure. 

1.     Structure your business as a separate legal entity.

Many minds equate asset protection with establishing a business as a separate legal entity.  Doing so distinguishes your business as its own legal “person,” capable of incurring its own debts and liabilities.  While business creditors can go after the business’s assets, personal creditors cannot.

When forming a business entity, most owners either form an LLC (“limited liability company”) or a corporation (usually an “S Corporation”), because they provide the most extensive liability protection for small businesses.

An LLC is an “informal” entity, operating more flexibly than a corporation.  “Limited liability” means that creditors cannot hold an owner liable for more than the amount he or she has personally invested.  LLCs are the more popular structure for small businesses, given the low start-up cost, minimal paperwork, and pass-through tax treatment.  However, this structure is not always appropriate, given the limited duration of LLCs and the crystal-clear distinctions required between the LLC’s affairs and the owner’s affairs.

A corporation is more “formal,” requiring the business to satisfy several technicalities, such as mandatory reports, meetings, and shareholder limitations.  Usually, an S Corporation is a more appropriate structure for small businesses, given the high tax payments associated with C Corporations.  Owners are generally not held liable for debts or liabilities incurred by the business.  They demand higher start-up costs and compliance with strict structural guidelines.  However, excess profits are entitled to tax benefits that LLCs do not offer.

When forming a business entity, attorney consultation can help you assess the positives and negatives of each structure and determine which formation best serves your interests.

2.     Separate personal accounts and business accounts.

Certain things in life are better left unmixed –bleach and ammonia, for example.  Comingling funds is equally ill-advised, as creating a business entity does not immunize an owner’s personal assets from business creditors.  If your business creditors and your personal creditors are the same people, you’ll likely find yourself treading dangerous waters.  For this reason, any debts or judgments that you are personally responsible for ought to be satisfied entirely by your own pockets and assets.   Additionally, any debts or judgments incurred by your business should be satisfied solely by the business.

To simplify the separation, create an account devoted purely to handling business transactions.  Funds in that account should NEVER touch personal expenses.  Likewise, funds within any personal account should be kept separate from business expenses.

3.     Research available asset protections.

As trivial as it sounds, it is important to regularly inventory all of your assets, as well as the values and debts associated with them.  Doing so enables you to identify which assets might be exposed to creditors.  Once familiar with your weak spots, you can research which assets are exempt from creditor action by state or federal law.

Assets falling within the business entity may only be pursued by business creditors.  Personal assets that are not exempt may be pursued by personal creditors.  To protect these personal assets, you can set up protective entities, such as trusts.  A trust places asset ownership into another’s hands for your intended beneficiaries.  While assets are removed from your ultimate control, they may be removed from creditors’ reach.

4.     Insure both personal and business assets.

Asset protection does NOT substitute the protection that insurance offers.  The two are unique and serve separate functions.  Asset protection helps deter creditors, but it is not always 100% effective.  Should creditors pursue your personal assets, insurance pays for legal defense in a lawsuit.  Types of policies regularly considered are liability insurance, property insurance, and umbrella liability insurance.

Be certain to have an attorney look over any policies prior to signing.  Attorneys can determine whether you are getting the best coverage available and whether your assets are effectively protected.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a second year law student at the Georgia State University College of Law.

Estate Planning: Safeguarding Your Business when Hindsight Is Not an Option

By Brittany Robinett

“What would you do to protect your loved ones?”  For most people, the instinctual response is “anything.”

It should follow that those individuals would plan to protect their families in case something unfortunate, such as terminal illness or death, befell them.  Statistics, however, speak to the contrary.  A recent poll revealed that too few Americans – a maximum of 50% – have wills in place.  Even fewer have arranged a living will or power of attorney to carry out their wishes in the event of incapacitation.  Perhaps such inaction stems from the misconception that wills are for the wealthy or from fear of thinking about the unpredictable end.  Regardless of social status, however, surprises are rarely welcomed by the survivors left to pick up the pieces.

Suppose I instead asked, “What would you do to protect your business?”  It seems to escape many small business owners that their personal estate includes, in fact, their business, and it is in their best interest to establish a plan for it to continue in their absence.  For both emotional and financial reasons, owners often resist relinquishing control; yet transfer of ownership, like death, is inevitable.  Planning for the future not only eliminates stress on the bereaved, but it is also cost-effective.

Consider some consequences that could arise if your business’s affairs were not in order.  If death or illness struck, could family members and co-owners tie up loose ends?  Would someone be familiar with all associated accounts, know how to run the business, and manage it accordingly?  How would the IRS value and tax your estate’s assets?  Would the estate be left to probate and at what expense to your loved ones?  When you weigh the risks, why wouldn’t you plan ahead?

Every business structure is unique, and the steps necessary to protect each differ.  Additionally, the personal interests of owners influence those steps.  Legal counsel can evaluate these concerns and advise the best course of action for a business to take.  While plans may differ, there are certain safeguards that all small business owners should consider adopting: a living will, a power of attorney, and a trust.

1)     A living will documents an individual’s healthcare wishes in the event of incapacitation.  Living wills ensure that these wishes will be carried out, even if the person cannot express them.

2)     Two types of power of attorney are recommended for business owners: a healthcare power of attorney and a durable financial power of attorney.  A healthcare power of attorney is a document appointing an individual to make healthcare decisions fulfilling the wishes of the incapacitated.  For various reasons, an owner might not want a person with healthcare power of attorney to have additional financial control.  Since incapacitated persons cannot legally contract, a financial power of attorney appoints someone to handle your financial affairs and run the business within the scope of your instruction.  Financial POAs may handle anything from paying bills, to handling paperwork, to managing the business in your absence.

3)     A trust permits an owner to transfer property with others while retaining some management authority and ability to recover income and benefits.  Since the trust owns your assets, there is no fear of them going into probate.  Essentially, it allows a business to run in your absence while freeing it from any personal debts and obligations upon death.

In the words of Lieutenant General Claude Christianson, “Your biggest enemy is the unknown and assumptions.”  Don’t be your own worst enemy.  Plan for today so that the fruits of your labor can be enjoyed tomorrow.  Those you leave behind will surely thank you for it.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a second year law student at the Georgia State University College of Law.

Preserving Privacy in a Publicized World: Maintaining an Online Presence while Protecting Personal Data

By Brittany Robinett

We live in a world where phonebooks are obsolete, maps rest in photo frames instead of dashboards, and online reviews are given preference over word of mouth.  When locating a carpet cleaner, people use their iPhones.  If they can’t MapQuest Peking Palace, they will order takeout from MuLan’s instead.  When choosing a doctor’s office, they choose the location with the highest Healthgrades reviews rather than trusting their co-worker’s opinion.

To summarize, Internet presence is everything in today’s business culture.  Why?  Because a business’s online image serves as its face and reputation; the more publicized the presence, the greater the trust consumers are likely to have.  In what Forbes refers to as the “mobile app culture,” small business owners are keystrokes away from countless, affordable advertising and marketing opportunities.  Yet, surprisingly, small business owners fail to maximize their online business opportunities for two reasons:

1. They do not utilize the Internet to their fullest extent.
2. They utilize online services without protecting themselves from legal oversight.

In her article “How Small Business Owners are Wrecking Their Own Chances of Success,” Forbes contributor Erika Anderson notes that only half of small businesses maintain a website or social media presence.  Although less shocking, those that do maintain an online presence do not take the precautions necessary to protect themselves from data breaches.  Some business owners are reluctant to develop an online presence, particularly where a website would be used to gather personal information from customers.  Such reluctance, though understandable, could be alleviated if businesses protected themselves by obtaining legal counsel.

Small businesses pride themselves on providing a higher quality of care from an intimate distance.  In a globalized, computer-centric generation, such intimacy may be necessarily achieved through a readily accessible link on a screen.  While convenient, this exposes both clients and companies to risks of privacy and security breaches.  These breaches may subject businesses to liability.  With this in mind, can “high quality” truly be delivered when the risk of legal errors runs concurrently “high?”

Contrary to popular belief, hackers don’t simply target large business corporations.  In 2013, USA Today reported that over half of small businesses in the country admitted to experiencing privacy breaches.  Over half of those businesses fell victim to multiple attacks.  The constant media coverage surrounding the recent (and massive) Target credit card breach might lead one to associate such financial fiascos with larger businesses; however, credit card breach is problem that more commonly plagues small businesses.  Where they are comfortable with their internal privacy policies, smaller business owners may be more reluctant to invest in more expensive software, to conduct more far-reaching background checks, and to pay extensive amounts for liability insurance.  However, data breaches more frequently occur externally, and they require that additional privacy measures be taken.

Most states require all businesses to report data breaches to the affected individuals, although many businesses chose to ignore breaches and let them go unnoticed.  However, this can subject businesses to hefty fines and negative publicity, as well as threats of consumer lawsuits.

Clearly, it is important for businesses to abide by online privacy policies.  Unfortunately, businesses that lack legal counsel might not know what steps to take to effectively follow those policies, nor know what steps to take when following those policies isn’t enough to protect them.  For these reasons, hiring legal counsel prior to a breach is often a legally effective solution.  Retaining an attorney can also be more cost efficient than hiring after a breach has occurred.  Prior to sharing personal data with payment processors and other third parties, businesses may contract with those parties to hold them liable for breaches occurring while personal information is in their hands.  Having an attorney prepare and execute the contracts may prevent any loopholes from going unnoticed and effectively bind third parties to their errors.  This greatly prevents the risk of consumer lawsuits.  As well as eliminating risks of immediate financial damages, an attorney’s legal oversight additionally eliminates the risk of a damaged reputation arising from a litigated breach.  Further, since data breaches are not 100% unavoidable, having attorney ensures that the correct measures will be taken immediately – preventing both businesses and their reputations from harm.

Ultimately, people chose a business because they trust it.  In a culture that most values the information on the screen in front of them, make sure the business behind that screen can be trusted.

Bexley Law Firm, LLC
http://www.bexleylawfirm.com

About the Author:  Brittany Robinett is a second year law student at the Georgia State University College of Law.