5 Steps to Preserve Liability Protection

Business owners of any size should make sure that they have protected their personal assets from business liabilities. This matters whether you run a multi-million dollar corporation with hundreds of employees or simply own a couple rental properties.  

Business owners often choose to operate their companies as a Limited Liability Company (LLC) or Corporation (usually as an S-Corporation), since these business structures provide what is known as a “liability shield”. However, a court can dissolve this liability shield (pierce the corporate veil) if the proper steps are not taken by the business owner to keep this shield in place.

If you operate an LLC or S-Corporation, be sure you have taken these five important steps to preserve your liability protection:

1.  Don’t use it to commit misconduct. If you use your business entity to commit serious misconduct or fraud, a court could likely “pierce the veil” and hold you personally liable for business claims.

2.  Always use the name of the entity on contracts and business communication.  Business owners should not sign contracts or any important business communication with their personal names.  Use the name of your LLC or Corporation in all business dealings so it is clear to third parties that they are dealing with an entity and not you personally.

3.  Keep business and personal finances separate.  There should be no overlap of business and personal finances.  Maintain separate bank accounts and records for your personal accounts and business accounts. This includes credit cards and other debt or loans associated with the business or personal property.

4.  Follow the rules.  While the rules for an LLC are less stringent than those for a corporation, a limited liability company still requires an operating agreement and needs to track and document its business decisions.  For a Corporation, you require bylaws, annual meeting minutes, and corporate resolutions.  Make sure that you file your annual report and keep your registered agent information up-to-date with the Colorado Secretary of State.  An easy way to do this is to sign up for email notifications. If you need support with compliance, let us know. We can help.

5.  Be sure the business is adequately capitalized.  If a business entity lacks adequate capitalization and something goes wrong, that may cause a court to pierce the veil of the business.

If you have questions about taking the right steps to protect your existing business or have not yet set-up a  business entity to protect your personal assets from business liabilities, call us today at 720-248-7621 to schedule an appointment to see how our firm can help you.

The 4 Legal Agreements Every Business Owner Needs

One of the most common questions small business owners want to know is what kind of legal agreements they need. And while the answer to this question depends a lot on what kind of business you operate, there are four key legal agreements that virtually every business owner needs to protect and operate their business legally:

1. Owner Agreements. If you are in business with another person, it doesn’t matter if your business structure is a partnership, an LLC or a corporation – you will need an owner agreement. These can take the form of a partnership agreement, an operating agreement, a founders’ agreement or a shareholders’ agreement. The agreement, or sometimes multiple agreements, detail how ownership in the company is being distributed, how compensation will be paid to owners and managers, how capital contributions will be handled and other operational issues – including what happens if someone wants out, becomes incapacitated or dies.
2. Employee/Contractor Agreements. These agreements set the rules for how your relationship with employees and contractors will be governed. Business owners that use independent contractors want to be sure that the relationship is documented properly, especially in terms of allocating responsibility for payment of taxes and exclusion of such items as workers’ compensation and unemployment. Having employment and contractor agreements for everyone that works for/with your business ensures that expectations for job performance are spelled out and what the grounds are for termination.
3. Vendor Agreements. Every business needs formal agreements with vendors and suppliers that help ensure the needs of the business are being met as agreed upon. Issues of exclusivity, indemnification and liability all need to be set forth in your vendor agreement to protect your business against claims where a supplier is at fault.
4. Customer Agreements. Whenever you make a sale to a customer or client, you have entered into a contract. Thus you want to be sure that the terms and conditions of your agreement for sale of goods or services is designed to provide both the business and the customer with the proper legal protections. If you are making sales online, you need to be sure you have the proper terms of service and privacy policy agreements on your website that details what customers can expect from the business.

If you are interested in learning more about business protection strategies, call us today at 720-248-7621 to schedule an appointment to discuss how we can help you set up your business for success.

Don’t Bet the Family Business on No Estate Plan

Don’t Bet the Family Business on No Estate Plan

Being the owner of a family business can complicate your personal estate planning, since no doubt much of the wealth you want to pass on to your heirs is tied up in the business.  Being able to do so in a tax-advantaged way – and in a way that won’t cause a family feud – is one of the best reasons you should be talking with a lawyer about a business succession or exit plan as part of your own estate plan.

Even if you don’t have to pass on as much as the Waltons (Walmart), the Fords or the Murdochs, you do need to plan for what you have.  Here are some things you should be considering:

  • How to handle not only the death of a family business owner, but also his or her possible disability, incapacity, bankruptcy or retirement.  The owner needs to not only think of the impact on the business for any of these events or circumstances but also on his/her family, both now and in the future.
  • Do your heirs want to continue to run the business without you?  If so, a business succession plan needs to be put into place.   If you transfer family business assets to the next generation before you die, you will be able to lower estate and gift taxes.  If not, then an exit strategy for selling the business and divvying up the proceeds would be a necessary task.

Remember not having a plan is a plan… just a really bad one.  Not taking steps to provide instruction and cover a variety of circumstances will in the best case result in unnecessary expense for the business you built and your loved ones, and in the worst case mean the end of your business.

If you’re a small business owner, call us today at 720-248-7621 to schedule a Family Wealth Planning Session to ensure that your estate plan takes into account your business needs.

IRS Provides Tax Relief to Colorado Storm/Flood Victims

Due to the Colorado flooding, the IRS is allowing 9/16 tax returns and payments due to be postponed until 12/2.  For more information about this visit IRS Provides Tax Relief To Victims of Colorado Storms.

It’s National Small Business Week – Find Out What’s Happening in Colorado or Online

This week is National Small Business Week, celebrating 50 years of by the U.S. Small Business Administration.   The SBA is offering a number of online webinars as well as local activities around the country.  The main events are being streamed live at http://www.sba.gov/nsbw/

Some of the great webinar/Google+ offerings include:   Getting Started with Social Media, Managing Your Business’s Online Reputation, How a Mentor Can Help Your Business and How to Get a Business Loan.

There are also local events being held around Colorado.   If you want to find something near you, a great place to start is the Colorado SBDC.  There is also great information on activities in Colorado Springs from the CS Business Journal.

 

Fatal Legal Mistakes Family Businesses Can Avoid With Planning

Fatal Legal Mistakes Family Businesses Can Avoid With Planning

Anyone involved in a family business knows that working with family has its pleasures and its pitfalls. However,  some legal pitfalls can prove deadly to your family business.  Here is a list of four commonly seen mistakes and how to fix them with fairly simple planning.

1.  Mixing family & business finances.  Unfortunately, we live in a litigious society, so as soon as your family business is up and running, it’s important to shelter your personal assets by forming a legal entity like a corporation or limited liability company, which will protect the personal assets of investors/owners (i.e., family members) from business liabilities.  Without that protection, everyone’s assets are vulnerable if something goes wrong with the business.

2.  No business license.  Many businesses, even those that are home-based, require a local, state or federal license to operate.  Without the proper license(s), you can face stiff fines or even be shut down.  Your city hall or county government office can tell you what is necessary to operate your business legally in your area of Colorado.

3.  No agreements.  Unless you want employment in your family business to be a birthright, you need to have employment (or Independent Contractor) agreements that spell out – in writing – what the expectations are for the job each family member is doing and how they will be compensated.  These agreements should also have termination guidelines because there will probably come a time when you will have to transition a relative out.  Having a written agreement to refer back to can help keep things civil and maintain important personal and familial relationships.

4.  No succession plan.  You must start your business with the end in mind so you can ensure your business takes care of your family throughout all of your life’s stages, including retirement and beyond your life as well. And what happens if the person who started it all suddenly wants to cash out, falls ill or dies?  If you want your business to go on without you, a succession plan that spells out how this will be accomplished is crucial.

If you’re a small or mid-size business owner, call us today at 720-248-7621 to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit or LIFT Start Up Session.