Insurance Needs of the Sole Proprietor

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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

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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

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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

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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 Trends .  Jim 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.

Disaster Planning for Long Island Small Businesses

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One of my favorite resources  as a small business owner is the New York Times Small Business section.  Several months ago, the Times started a blog aimed at small business owners entitled “You’re the Boss–The Art of Running a Small Business.”  While not every post will resonate with every small business owner, the articles are always well-written and thought-provoking.

One of this week’s posts, Unfinished Business,  relates the story of writer Jay Goltz’s cousin, the owner of a small accounting practice who died after a short battle with cancer.  The story is a very personal one, but holds lessons for every small business owner.

While business succession plans can be very important planning tools, not every small business owner has a business which can be sold or passed on to family members.  However, the author makes a great suggestion, one that applies to each and every one of us.

Goltz suggests creating and annually reviewing a disaster plan to  include information such as bank account numbers, passwords, and  insurance policy information.  I would suggest including contact information for any people or companies important to your small business–your lawyer, accountant, vendors, suppliers.

Goltz includes a list of possible succession alternatives for his business.  And since you are creating the disaster list to relieve stress and confusion at  a time when your family may be in no emotional condition to make major decisions, he includes a “get out of guilt free” card so his spouse and children don’t feel obligated to carry on the business because they believe it is what he would want.   I know in my own life, I heard my Dad express regret many times about giving up his small jewelry store to take over my grandfather’s  physically demanding, struggling business after my grandfather died suddenly.

This is a call to action.  Sit down with a pad and a pen, or at your computer, and start making your disaster list now.  Your family will thank you for it.

Feel free to post any suggestions you might have to add to this disaster plan for small business owners.  What would your family need to know in the event of an emergency?

How to Incorporate Your Sole Proprietorship

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Although the plethora of inexpensive online incorporation and LLC formation services would have you believe that all you need to do to incorporate your small business is  fill out a simple form, pay a few dollars, and voila! your business is incorporated, this is even less true if you have already been running your business as a sole proprietor.

The mere act of incorporation does not transfer the existing business assets and liabilities to the new corporation.  And while it is almost always a good idea to either incorporate or form a limited liability company (LLC) in order to reduce your personal liability and protect your personal assets, there are some administrative tasks and potential tax liability associated with changing the form you use for your small business entity.

You’ve Incorporated–Now What?

Let’s assume you’ve already incorporated. You’ve determined that the name you chose is acceptable under the New York Business Corporation Law. You’ve run a search on your company name (or had an experienced lawyer run one for you) to ensure you haven’t violated another company’s trademark under state or federal trademark law.  If you formed an LLC, you’ve published notice of the formation in two newspapers.  Here on Long Island, Newsday is a good choice for a daily paper, and Nassau and Suffolk Counties have many options for weekly local newspapers.

That’s All, Right?

Not quite yet.  There are numerous administrative tasks, including:

Obtain a new Employer Identification Number (EIN). You can learn how to do this here at the IRS website.  If you are forming a one-member Limited Liability Company (LLC), you can choose to be a “disregarded entity” for tax purposes, and continue to use your own Social Security number. However, I would strongly encourage the use of a separate EIN so you don’t  share your personal number with employees or vendors.  You want to protect your Social Security number against identity theft.

Your assets must be transferred from your name as sole proprietor to your new company’s name.  This must be done formally.  In exchange for the assets, you will receive shares (corporate stock)  of your new corporation.

Your small business bank accounts must be closed, and new ones opened in your new corporate or LLC name.  Insurance companies need to be notified.  Any permits or licenses that have been issued to you need to be formally transferred.  Inform your employees, customers or suppliers.  Should your small business own any intellectual property  registered with the United States Patent and Transfer Office,  it may need to be assigned to the new owner.  If your business owns a car or truck, you need to change the title and pay fees to the New York Department of Vehicles.  Any transfer of real property must be reported to the clerk’s office in Nassau or Suffolk Counties.

Additionally, corporations must have formal meetings, take minutes and prepare and ratify resolutions for all the changes.

Are You Done Yet?

There may be both state and federal tax consequences from transferring assets and liabilities from a sole proprietorship to either a corporation or an LLC.  If you are transferring real property, New York State may assess a transfer tax on any mortgage still owing.

If you have previously taken deductions on your income tax returns for your small business assets (i.e. furniture, computers), depending on how you transfer those assets to the new corporation or LLC, you may create a taxable event.  There are two ways an item that has already been depreciated by the sole proprietor can be transferred.  You can make either a capital contribution or  a sale in your capacity as sole proprietor to your new corporation or LLC.

The mechanics of choosing the method of transfer for tax purposes is beyond the scope of this article.  It is best before you make any transfers to speak to a qualified CPA as well as an attorney.

Should You Just Forget the Whole Thing?

Absolutely not.  Despite some expense, paperwork, time and energy there are numerous reasons you should incorporate your small business or form an LLC.  To list just a few:  Protection of your personal assets should your business fail or get sued; savings on employment tax and deductions for insurance; protection of your business assets should you get personally sued; ease of raising funds to expand your small business.

When you are ready to take your Long Island small business to the next level, contact a small business lawyer in your area.

Why Small Business Owners Need to Consider Twitter as a Marketing Tool

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Earlier this week, the New York Times posted an article online entitled  “Mom-and-Pop Operators Turn to Social Media.” According to the Times, small business owners now outnumber big companies using the microblogging service as a free marketing tool to promote their products and services.

The Times noted that Twitter has become the sole source of marketing for many small business owners that have no ad budget. According to the Times, these small businesses do not have websites and had no intentions of starting an e-commerce business. Nevertheless Twitter has become a very valuable tool that allows small businesses to expand their customer bases, find suppliers and allows the owners to connect with their customers in a way they could only do in person prior to signing on to Twitter.

One great idea discussed in the article is the ability to “tweet” promotions and discount offers directly to your “followers.” This can be easily done right from your phone and instantly reach your clients, who will re-tweet the offers to their friends and family.

Here on Long Island, a small business would either only be able to affordably reach out to their small community weekly in a local neighborhood paper, or include an ad in one of those fat bundled envelopes or coupon books that many of us simply throw out, or save and never use.

You can learn about Twitter here from Wikipedia, then go to twitter’s home page to join.

Your Federal Tax Dollars at Work—A Small Business Online Community

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A great resource for any small business is Business.Gov Here you will find many of the tools you need to start and operate a small business successfully.

Within this site, the Small Business Administration operates a government-sponsored online community where business owners can discuss and share information. Additionally, there are many articles and tips for small business owners.

Choosing the Business Entity That’s Right for YOUR Small Business

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If your business is located in Nassau or Suffolk County, Long Island, New York, there are four (4) main types of business structures to choose from:

  • Sole proprietorship: In both Nassau and Suffolk Counties, a business that is operating as a sole proprietorship must register with the County Clerk in the county in which it is conducting business. You can find the Certificate of Business online at the respective County Clerk websites. The cost to file the Certificate of Business is $35.
  • Corporation: A certificate of incorporation needs to be prepared. A sample form can be downloaded from New York’s Department of State, Division of Corporation website. The form then needs to be filled out as required by the New York Business Corporation Law and returned to the Division of Corporation along with a check for $125. However, I recommend you pay for expedited service and additional certified copies so that you don’t have to wait weeks to start running your business. Most banks will not open a business account without a filing receipt and a certified copy of your certificate of incorporation, so expect your total cost to be $170 for a timely filing.
  • Partnership: General or Limited. General partnerships are formed when two or more people start doing business together without choosing a business entity. You must file a Certificate of Business with either Nassau or Suffolk County. I suggest you see a qualified business lawyer before choosing this form of doing business. By not choosing a different business form, you are opening yourself up to unlimited liability for not only your acts, but also any acts of your partners. Your partner could incur debts and enter into agreements in the name of the partnership. Limited liability partnerships and limited partnerships in New York are acceptable partnership forms. New York charges $200 to file the paperwork, and I recommend paying for expedited service and two copies of the certified filing, bringing the total cost to $245.
  • Limited Liability Company (LLC): Many new small businesses and real estate ventures are choosing LLCs these days for the flexibility they offer. LLCs are often known as hybrids between partnerships and corporations. They offer the flexibility of a partnership, and the protection from business liabilities of a corporation. However, New York makes this process a bit more difficult and expensive than other forms of business entities. Filing the Articles of Organization costs $200, and after expediting the filing and requesting certified copies, the total cost to you is $245. However, within 120 days after the Articles of Organization have been filed with the state, you must publish the facts of the LLC’s formation in two newspapers, one daily and one weekly for six successive weeks. This can cost between $300 and $500. Afterwards, you will receive an affidavit of publication from each of the two newspapers, and these must be filed with NYS along with a completed Certificate of Publication and $50.

Additionally, many small businesses require special licenses and permits to operate their business in New York State. Professionals, as defined in the New York statutes, have special rules regarding naming and forming their business entities.

Choice of entity is a highly complicated issue involving liability and tax issues. A qualified small business lawyer will help you understand the consequences of this choice for your small business.

7 Things Your Small Business Lawyer Can Do For You

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Small business lawyers:

  1. Assist clients in deciding which entity is right for their small business by describing the benefits and liabilities of each type of entity (corporations, limited liability companies, partnerships);
  2. Research the availability of the business name you’ve chosen, and follow New York’s rules regarding business names. Additionally, a trademark search should be conducted to ensure you’re not infringing on another company’s trademarked name;
  3. Purchase and sell businesses;
  4. Plan for succession and exit strategies;
  5. Incorporate strategies into the original business plan to avoid conflicts between business associates, using shareholder, partnership or buy/sell agreements;
  6. Negotiate and review contracts and leases; and
  7. Advise businesses as to copyright, trademark and other intellectual property matters.

Each of these topics will be discussed at length in future blog posts. Many business owners only contact an attorney once a problem has already occurred. The right lawyer will help you avoid risk and protect your business from the beginning, leaving you to run and grow your small business. If you have any questions about any of these issues, you should contact an attorney who focuses on small business law.

Almost everything you do in your small business will have a legal implication. Establishing and maintaining a good relationship with a lawyer is sound business practice. A good choice for a small business lawyer is one who owns and runs their own small business as I do with my legal practice. As the owner of my own small business on Long Island, I understand the issues your business is faced with daily in New York.