Using an Online LLC Incorporation Service

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

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

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

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

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

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.

Insurance Needs of the Sole Proprietor

One major concern for many small businesses and sole proprietors is what type of insurance is required in New York.  Below is a brief description of the most important types of policies you should consider:

Health Insurance

While a number of private insurance companies offer health insurance for sole proprietors, New York has a special program, Healthy New York, that aims to promote and provide affordable insurance coverage to both sole proprietors and small businesses  that do not currently offer health insurance to their employees.  To apply for the program, click on the following link:  Healthy New York Application for Individuals and Sole Proprietors.

Additionally, the New York State Department of Insurance compares health insurance programs from several companies in this chart.

Disability Insurance

Basic disability insurance is used to replace the owner’s income in the event of a disability.  This type of insurance is often ignored despite the risk of becoming disabled being far higher than the risk of dying prematurely.

Another type of disability insurance known as Business Overhead Expense Insurance  is designed to allow a small business to stay viable while its owner recovers from a short-term disability.

Other potential disability insurance options to consider are policies that help fund the buyout of the disabled owner’s share or insuring an employee if the business is dependent on the skills of that key person.

Life Insurance

A sole proprietor life insurance policy specifically deals with what will happen to your business in the event something happens to you.  Life insurance helps to ensure that your family will not be responsible for the debts of the business and will help to avoid a forced liquidation to pay those debts.

Life insurance is also the most efficient way to fund a buy/sell agreement in a closely held corporation, partnership or LLC.  A buy/sell agreement is a contract among business owners that allows the other owners to buy the deceased person’s interest in the business.

Unemployment Insurance

If you have one or more employees, you are required to carry unemployment insurance in New York.  A useful publication is the Employer’s Guide to Unemployment Insurance, Wage Reporting and Withholding Tax.

A sole proprietor without employees is not required to pay unemployment insurance taxes on his/her salary, but a stockholder/employee of a corporation must.

Workers’ Compensation Insurance

If you have employees in New York, you are required to obtain workers’ compensation insurance from either an insurance carrier authorized by the New York Workers’ Compensation Board or you may self-insure if authorized by the Board.  The cost of this insurance must be borne entirely by the employer. This coverage is not required for a sole proprietor with no employees.  It is important to know that a sole proprietor with employees is not automatically covered but must elect to be included by filing a Form C105.32.  This form must also be elected by partners and members of  an LLC or LLP.

Property and Casualty Insurance

All small businesses, including home-based businesses, should carry property and casualty insurance in case of loss for inventory, equipment and potential injuries to customers, vendors and employees.

The above list is not intended to be complete.  Your small business may have specific requirements that depend on the type of business (for example, malpractice insurance is certainly high on my list of necessary insurance coverage).  If you have any other suggestions, please feel free to contact me or comment below.

Don’t Sign a Contract without Understanding What You’re Agreeing To

Contracts are a fact of life for a small business owner.  Employment agreements, vendor contracts and even the lease for your storefront or office are all contracts.  It is vitally important to understand all the different provisions found in these agreements, but I frequently hear clients state that they sign contracts without understanding or even reading them because “it’s all just boilerplate.”  In other words, since all contracts contain those provisions, they can’t be changed, so why bother to understand all the terms?

Those impossible to understand legal terms are the ones that will get you into the most legal trouble.  Not understanding what you are signing may lead to very expensive lawsuits and settlements.

Guest blogger Jonathan Ezor has started a series over at BusinessWeek.com entitled Demystifying Legalese in Contracts.  This week he gives a clear, concise explanation of the choice of law and forum clause.  As he explains, the choice of law clause tells the small business owner which state’s laws will be used to interpret the contract.  The forum clause tells you in which state your dispute will be heard.  In other words, you might be forced to defend a lawsuit in a state different than the one your business is located in.

Once you understand what you are agreeing to, you or your small business attorney can negotiate more favorable terms.  Don’t assume that just because the contract is on a standard or pre-printed form that it cannot be negotiated.  Once you understand what you are signing, you will know how to reach the best agreement for both parties.

NY LLC Publication Requirements are a Burden for Small Businesses

In order to form a Limited Liability Company (LLC) in New York, the LLC must first choose an available business name, the county in which your LLC will be located, and prepare and file Articles of Organization with the Department of State along with a check for $200.  However, if you do not take the extra step of publishing notice of the formation of your LLC within 120 days of formation, your authority to conduct, transact or carry on any business within New York state will be suspended.

Although the courts have not yet addressed what the consequences would be of operating without the authority to conduct business, it is possible that the members of the LLC might become personally liable for actions taken or that contracts could be voided if the publication requirement is not fulfilled.

LLCs cannot get around the New York publication requirement by forming their LLCs in a less expensive state.  Foreign LLCs doing business in New York are subject to the same publication requirement.

Section 206 of the NY Limited Liability Company Law calls for the newly formed LLC to publish notice of its formation, the location of its principal office (the county), the date of formation and a statement that the Secretary of State has been designated as agent against whom process may be served and several other items that can be found in the LLC’s Articles of Organization.  This notice must be published in one daily newspaper and one weekly newspaper, once each week for six weeks.

Fortunately for Long Island LLCs, the costs are much less than those found west of us in NYC.  Newsday and a weekly local newspaper cost between $300 and $500 for the six weeks.  Additionally, information about which designated newspapers are approved to fulfill the publishing requirement can be found online at the Nassau County Clerk and the Suffolk County Clerk websites.

At the end of the six weeks, the newspapers will send you an affidavit of publication which must be sent to the Department of State along with a Certificate of Publication and $50.

Although the requirement to publish is purportedly intended to protect the community, hardly anyone actually reads these notices in the paper.  The information itself is of little use, as it does not list an actual address or name the members of the LLC.  Newspapers rely on these notices as a source of income.  You may draw your own conclusion as to why the New York legislature included these provisions in the NY LLC law.

I conclude, however, that the publication requirement for LLCs in New York is unduly burdensome for small businesses and should cause local Nassau and Suffolk small businesses to think twice before choosing this form of business entity over incorporation.

More Twitter Tips for Small Business Owners

I know what you are thinking–”oh, no, not Twitter again.”  But yes, I believe that small businesses need to keep up with new technology and marketing to survive.  I confess that I had to be rather forcefully encouraged to join Twitter.   We are all busy enough with the numerous other tasks associated with running our own businesses without having to adapt to new technology.  The most common objections I hear is that Twitter seems like a waste of time, or that it might be too easy to get addicted to following the constant messages and leave no time for other work.  We all have read the news stories about how Twitter is about sharing every detail of people’s lives, and few of us care about what someone ate for lunch or what errand they are running.  I am here to share with you that while  it needs to be managed, Twitter is far more than a diversion.

How To Get Started on Twitter

There are numerous sites that explain how-to get started on Twitter, but I recommend a great starter guide over at Small Business TrendsJim Kukral explains “How and Why to Use Twitter for Small Businesses” and includes a ten-minute video which shows you exactly how to sign on and “tweet.”

After the Basic Twitter Lesson

This week, over at Twittips, Mark Hayward guest posts “20 Must Read Beginner Tips for Small Business Owners.”  Mark, like myself, Jim Kukral and  numerous small business owners, all initially dismissed Twitter as of being no value, but we all  quickly changed our minds.  Mark suggests there is a learning curve to get through before you find the marketing and social value.  I encourage you to read the entire post, it is filled with valuable tips and suggestions.

More Advanced Twitter Tips from Small Business Owners Like Us

You can find more (137!)  advanced suggestions from actual successful business users compiled by the folks over at  Small Business Trends.  You can learn about how best to manage and categorize the flow of information, and some of the ways Twitter has proven successful for their small businesses.

Please give it a try, and let me know what you think.