Author Archives: Ellen Victor

New York Religious Corporations Law

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It makes sense for religious organizations such as churches, temples, synagogues and other religious nonprofits to form corporations. Incorporating enables the religious organization to enjoy the benefits of limited liability and other attributes of corporate entities. In New York, religious corporations are controlled by both the Religious Corporations Law (RCL) and the New York Not-for-Profit Corporations Law (NPL).  This interplay between the two laws can be complex.  Any church or synagogue considering incorporating should consult an attorney familiar with both the RCL and the NPL.

Because of the separation of church and state, the requirements for becoming a religious corporation can be less onerous than other corporation law.  The New York Religious Corporation Law has general statutes that apply to all religious corporations and numerous denomination-specific articles.

For example, the articles of incorporation for religious organizations that maintain a place of worship are filed in the county with the county clerk where the religious organization is located, instead of with the Secretary of State as are other corporations.

Churches and other religious corporations who wish to dissolve do not have to get the attorney general’s permission, unlike other nonprofits.  Although religious corporations do need to get the attorney general’s permission to sell property, if that sale is pursuant to dissolution, only the Supreme Court needs to give permission.   However, if an issue is not addressed in the RCL, then the New York Not-for-Profit law must be followed.

Because the Religious Corporations Law is such an unknown part of New York non-profit law, affecting how to sell property and dissolve the church, you should contact an attorney knowledgeable in this law before forming or dissolving a church or other religious corporation, or selling property.

Long Island 501(c)(3) Not-for-Profit Formation

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What is a nonprofit organization?

Terms: Some confusion exists because of the different names for these organizations: Not-for-profit, non-profit, nonprofit.   These terms are used interchangeably in the charitable world.

Are nonprofits the same as 501(c)(3) organization?

While almost every 501(c)(3) organization is a nonprofit, not every nonprofit has 501(c)(3)status.  A nonprofit organization such as a Lions, Kiwanis or Rotary Club is usually a 501(c)(4) organization operated exclusively for the promotion of social welfare. This means that any donations received by the club are income tax free, but donors cannot deduct their donations on their tax returns.

Why apply for 501(c)(3) status?

Any organization hoping to receive large donations, or to apply for grants should apply for 501(c)(3) status.  Organizations expecting annual donations in excess of $5,000 are required to apply.

Are there any other benefits?

In New York, a 501(c)(3) organization can be exempt for sales tax on purchases, franchise tax and property taxes.  Additionally, special nonprofit bulk rate postage discounts are available for qualifying nonprofit organizations.

Why use a local lawyer?

Online services do not offer personalized mission statements and then charge additional fees for registering with the New York Attorney General, another requirement.  They frequently charge additional fees for applying for separate EIN numbers and for applying for New York sales and franchise tax exemptions.

Even more importantly, establishing a relationship with a New York attorney gives you the ability to ask questions about running the organization.  Some examples of this are whether an organization can use proxies for voting at Board or member meetings, what is a quorum, what are the duties of the Board as opposed to the membership, can voting take place by email.

About Ellen Victor, Esq.

Ellen most recently successfully formed the Merrick Lions Club Foundation, Inc., a 501(c)(3) organization currently fundraising for the Purple Heart Pups.  PHP was established to raise money to help disabled veterans lead successful and independent lives by raising the money needed to provide them with access to service dogs and other supportive programs.

Your Family Small Business Succession Plan

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When your business succession planning involves family, a whole new set of variables need to be thought about.

In some ways, it is easier when you have family to leave your business to, in other ways it can be way more difficult as you add family dynamics to the mix

First of all, some statistics: according to the Small Business Administration and researchers at Baylor University’s Institute for Family Business, only 30% of family businesses survive from one generation to the next, and even fewer to a third generation.  The mostly commonly given reason for this huge drop is the lack of a plan for an orderly succession.

If you own a family business, and would like to see your business survive  into the next generation, there are a few questions you should address:

  • Do your children or grandchildren want to take over your business?  It is never a good idea to insist your children take over the business.  You know how much hard work it is to make the business you love succeed, imagine if it was not a passion.
  • Is the interested family member qualified?  Has that family member worked in the business?  Learned skills at school or on the job?
  • If you have more than one child, there are other possibilities to consider.  More than one of your children may want to go into the business, but it is possible that some will not.   Many of us want to treat our children fairly when we leave our assets in our wills.  Can you treat your children fairly if leaving the business to one child?
  • If no family members want or are capable of running your business, do you want to hire management to run the business while retaining ownership, or does it make more sense to sell the business?

This is not a decision the business owner should make on his or her own.  The best thing to do is to sit down with your family and discuss it.

One of the most important aspects of family succession planning is estate planning.  If you are ready to start planning for the next generation, contact your Long Island small business lawyer soon.

Do You Need A Business Succession Plan?

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Once you’re past the startup phase of your small business, it is time to start thinking about your business succession plan.  If you are years from retirement, this may be the last item on your to-do list.  You surely have enough to do in your daily operations without building in time to work on the future.  However, succession of your business should be built into any business plan from the beginning.

Starting  from your choice of name for your company (have you named it after yourself?  While law firms in New York have no choice but to include the owner’s name in the name, is your company name going to prevent an orderly transition?) you should be thinking about succession planning.  After all, you would not have started a business if you had no expectations it would live on to support you during your retirement, and hopefully continue to take care of your family after you are no longer able to do so.

A  business succession plan should be considered years before you plan to retire in case of a sudden emergency, such as a serious accident or illness.

Business succession planning should also be an integral part of your estate plan.  You must consider where the money will come from to pay estate taxes, or, if you have a partner, where the money will come from to buy out the deceased partner’s share.

f you own a small business either as a sole proprietor, or an S- or C-Corporation, or LLC, you need to consult with a business lawyer and your accountant to start planning for an orderly transition.

Using an Online LLC Incorporation Service

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This past month, I have had numerous Long Island clients calling me and asking me to fix their corporations and LLC’s that they ordered and paid for online.  It seems that these online documents come complete with any number of their forms left blank.  I have seen two this week where the first page of the bylaws or the operating agreement still reads “Sample.”

I can tell why people are accessing my blog, what search terms they use when they find me.  The biggest “hits” to my blog are the ones looking for Long Island publications to fulfill the LLC publication requirement.  So, I know many of you are attempting to do this on your own.

And then you get sued.  Or you apply for non-profit status.  Or you just read something that advises you that if you don’t do proper recordkeeping, your personal assets are not protected from your business liability.  And then I get called and you need me to amend your Articles of Incorporation, or help piece together all your corporate actions since you incorporated five years ago.   Now how much money have you saved by incorporating online?

If you are looking for the convenience of online incorporation or LLC formation and don’t have the time to meet a lawyer at their office, many of us, myself included, can do your incorporation by phone, and fax and e-mail.

It angers me when small business owners like myself are paying for services that they are not receiving.  And then having to pay again to do it correctly.

If you have corporate books that have been sitting on your shelf, and many of the pages are still blank, or you have never updated that book by having annual meetings, adding resolutions about opening bank accounts, taking out leases, contracting with employees or vendors or any other of a number of corporate acts, please call to schedule an appointment to ensure you will get the protection you originally sought for your personal assets.

Free Tax Calendar for Small Businesses

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In its continuing efforts to help small businesses and the self-employed, the Internal Revenue Service (IRS) has designed a tax calendar filled with useful nuggets of advice and tips for the small business owner.  Not only is the calendar useful, it is even cute, featuring a gardening theme. to help small businesses “cultivate sound business practices.”

The IRS’ own description of this resource states:

“This calendar is filled with useful information to help you start up and tend to your small business concerns. Tax reminders and instructions are shown by date.  There are also highlights of various tax topics related to small businesses provided in the calendar. In addition, the calendar also provides Tips for Business Success, a list of Forms and Publications, and a list of online resources and tools available for small businesses.”

Although the actual calendar has been out of stock the past few weeks, an online version is available.  I’ve already printed out my copy!

Obama Calls Small Business The Little Engine that Could

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President Obama gave a speech Thursday directed towards small business owners, calling them “the engine of job growth in America.”  In his continuing efforts to get the nation behind his health care initiative, Obama addressed not only small business owners and organizations from across the country but also members of the U.S. Chamber of Commerce and the National Federation of Independent Business.

The text of the speech can be found in its entirety at  The White House Press Secretary’s website,  or you can see the video of the 15-minute speech at the White House blog .

After months of criticism directed towards the White House for ignoring the needs of small businesses, the President has begun to address this issue.  Prior to the speech, the President had announced new incentives and assistance aimed at easing lending to small businesses, including higher caps on loans guaranteed by the Small Business Administration (SBA).

Many small business owners have stopped offering health care to their employees, and may even have canceled their own insurance in an effort to save money.   Employees who have health insurance in their current jobs may be reluctant to strike out on their own and open a small business because health care premiums are prohibitive.

The President’s proposal includes numerous benefits for small businesses that already have health care employee benefits in place.  For those businesses that currently are not offering benefits, the President is proposing forming an “exchange” to pool small businesses together for greater bargaining power with the insurance companies.

The bad news is that businesses of a certain size will be required to contribute to the costs if they choose not to offer coverage to their employees.

I expect there to be much criticism of the mandate to penalize businesses that do not provide health care insurance for their employees, however, companies with payrolls under $500,000 (income after business expenses) would be exempt from the requirements.

So, what do you think?  Will the President’s proposal help small businesses succeed, or are you still feeling like the little engine chugging up the hill on your own with no help?

Overpromising? “Limited” Liability and Small Business

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If you are just starting a small business or have a sole proprietorship, you have probably thought about and received advice about either incorporating or forming a limited liability company (LLC).

What protections do these business entities actually offer to the small business owner?

The Promise

You have probably heard that by incorporating or forming an LLC,  you, as the owner, will be protected from personal liability, whether  through contract (from creditors) or tort (from intentional or negligent wrongful act, injury or damage other than breach of contract).

This is true to a great extent.  However, as a small business owner you are probably not totally shielded from personal liability even if you do incorporate or form an LLC.

The Reality

Leases

Commercial landlords will often demand a personal guarantee from the principals or owners of the small business despite business entity status.  A lease is a contract between a landlord and a tenant.  If you have not been in business for very long or your business assets are limited, you can expect to be asked to personally guarantee a lease.  Your spouse may also be asked for a personal guarantee.  Depending on how long you have been in business or how in demand the property is, this may be a negotiable point. You might want to contact a business attorney to review and negotiate your commercial lease.

Loans

Bank loans. Whether you need a loan to finance inventory or to expand, a lender may require you  put up your personal property as collateral.  Even  if your business were to dissolve, you would remain personally liable for paying back the loan.  However, depending on the business’ creditworthiness, this too is open to negotiation.

Small Business Administration loans.  The SBA requires that all loans they guarantee must be collateralized with both the business assets and a personal guarantee.  Often you may need to take out a second (or third) mortgage on your home.  Nevertheless, SBA loans often have excellent terms.

Credit Cards

Most business credit card issuers will not approve a business application unless the owner personally agrees to be liable for any debt incurred.  Take note that any default on your business card will impact your personal credit.  After several years of being established, you may want to ask the issuer to allow you to separate your business and personal liability.

Torts

Your own acts.  Corporate/LLC formation provides protection for corporate acts;  it may not provide protection for your own acts.  Even if you are acting for the corporation, if you are negligent you are potentially personally liable. You can’t commit intentional wrongdoing even in the guise of your corporate self.  You can’t embezzle, defraud or assault someone.

Your employees’ acts.  Although in theory, the corporation or LLC should shield your personal assets from your employees’ bad acts, in reality, if the act is egregious enough you are likely to be brought into the lawsuit.  Negligent hiring, failure to ensure the person you sent on an errand has a clean driving record, or negligently maintaining your property are just some of the ways you personally can be brought into litigation, even though you’re incorporated.  This doesn’t necessarily mean you will lose the lawsuit, however, even good defenses cost money.

Taxes

You can be held personally liable if  the corporation neglects to pay over to the IRS  the employees’ share of withholding and social security taxes.  Many states also will hold corporations personally liable for failure to turn over retail sales taxes due from the corporation.

The Solution

Despite some pitfalls and incomplete protection, it is still worthwhile to either incorporate or form an LLC.  Business formation will protect your personal assets to a great extent.  The longer your business exists,  the more creditworthiness your business can show, the better your bargaining power will be with landlords, credit card companies and lenders.

Insurance

It is a good idea to ensure you have sufficient personal insurance coverage on your assets to cover any business liability.  Consider buying an umbrella policy for your cars and home.  Insuring your business is also a necessity.  Should you get sued, the insurance company will defend you, pay for your attorney and pay up to policy limits.

Small Businesses and Federal Tax Help

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I love recommending government resources.  Many of us wonder where our tax dollars go.  It helps a bit to realize that there are resources provided by the federal government specifically designed to help the small business owner.

The Internal Revenue Service maintains a Small Business and Self-Employed Center section on its website dedicated to providing tax help and information to small business owners and sole proprietors. The site  links to workshops designed to help small business owners understand their federal tax responsibilities.  If a small business owner is unable to attend a workshop in person, virtual workshops are available in both DVD and streaming media formats. Locally in October free courses are being offered at the Patchogue Library, including how to start and grow your own business, how to write a business plan and for more advanced business owners, how to market or franchise your small business.

The IRS Small Business Center also  has a helpful tutorial designed to help small business owners determine if people providing services to you are independent contractors or employees.

Additionally, there is a dedicated section for information new business owners need to know about federal taxes.  The site includes information on recordkeeping, selecting an accounting method, establishing a retirement plan and suggestions on how to choose a tax year.

Both sites feature a link to an online classroom that includes audio and video presentations, a tax calendar and a tutorial on how to recognize and avoid tax scams.

If you have any questions about taxes prior to starting a business or changing the form of your business entity, the IRS.gov website is a good place to start your research.

Long Island Small Business Development Centers

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If you are starting a small business or in need of help to make an existing business grow, you should contact your local Small Business Development Center (SBDC).  Locally on Long Island, there is an SBDC in Farmingdale with outreach locations in Brookville and Hempstead.   There is also a center in StonyBrook with satellite offices in Great River and Calverton.

The SBDC is administered by the State University of New York (locations are usually campus-based) and funded by the U.S. Small Business Administration and New York State.  While the SBDC emphasizes counseling and training services to women, veterans, minorities and those with special needs, its programs and one-on-one counseling services are available to everyone.

All SBDCs offer free counseling by professional business advisors. Services range from answering startup and business structure questions to assisting with business plans, cash flow projections, marketing plans, and loan information.

Upcoming training courses at the Farmingdale center range from Business Basics ($15), How to Write a Business Plan ($15) to a 5-part series on setting up, navigating and tricky transactions for a Quickbooks account ($40 each or $150 for the entire series).  I’m planning on attending the Quickbooks series, so if you’d like to meet me, sign up!

The StonyBrook center is offering a free 5-series Contract Readiness Program and an OSHA Construction Safety course ($30).

The Farmingdale center also offers two free publications, Business Basics and A Business Plan Guide through the website.

If you are not located on Long Island, there are SBDCs located throughout New York and the rest of the United States.