New York Small Business Law

File your W-2s and Wage Reports Online

I'm back from a mini blogging break having to do with a lot of work, taxes and other miserable paperwork that needed to get done.  One thing I learned is that you can file your W-2s and wage reports for your employees with the Social Security Administration conveniently online.

It is free and as an added bonus, if you file your wage report online, it extends your deadline from February 28 to April 2, 2007.

**This post is for informational purposes only and does not constitute legal advice**

Do I have to repeat the LLC Publication if I change the Name of the LLC?

A reader asked this question in response to my post: Taking Care of the LLC Publication Requirement:

"I was hoping you could illuminate something for your readers. If a business were to file a pub requirement under one name (i.e. Acme, LLC.) but then decided that they wanted a different name and started a DBA name (i.e. Taylor Capital) would another NYS publication requirement need to be filed under the DBA name?"

Answer:  No.  The publication requirement has nothing to do with choosing to use a name for your business that is different from your legal name, i.e. choosing to "do business as".  If you want to use a different business name after you properly complied with the publication requirement for your LLC, you can do so, as long as you follow the "doing business as" rules.

P.s.  I welcome questions from readers and will try to address them in the blog where appropriate.  However, none of my posts constitutes legal advice, you cannot rely on my blog as a substitute for legal advice, and there won't be an attorney-client relationship between us.

**This post is for informational purposes only and does not constitute legal advice**

I am starting a Business - What can I do to minimize Risk and Sleep through the Night?

If you have ever started a business, you know what it is like to wake up in the middle of the night and be worried sick.  Being in business exposes you to a lot of risk.  The key is to plan for risk and minimize it where possible, so that you can find the sleep you need to succeed.

Here are the ten most common strategies to minimize risk when operating a business:

1.  Forming a Business Entity

The right business entity can shield your personal assets from creditors of the business. 

The right business entity can also shield business assets from personal creditors of the owners of the business.

2. Removing Assets from the Business Entity

Since business assets are exposed to attack by creditors of the business, it is wise to remove as many assets as possible from the business entity, or not even put business assets into the entity in the first place.  A combination of business entities, a regular withdrawal of business assets, and a smart funding of business entities with owner loans and liens can minimize the risk that important business assets are open to attack by creditors. 

3. Hiring Independent Contractors instead of Employees

Employees can get business owners into trouble.  Some of the liability issues are avoided by outsourcing business tasks to independent contractors.

4. Entering into Founder Agreements with your fellow Business Partners

Properly drafted founder agreements, such as shareholder agreements, operating agreements or partnership agreements can prevent sticky situations with co-owners and provide clear rules with respect to forced buyouts of owners, exist strategies for owners, vesting of owner equity and so forth.

5. Keeping your Books and Records in Order/Complying with Formalities

Co-mingling personal assets with business assets, neglecting to hold and document required corporate meetings, neglecting to properly document transfers of assets in and out of the business can be the death of any properly structured limited liability shield and asset protection strategy.  Creditors who can show neglect in such respects may be able to pierce the corporate veil of the limited liability entity and reach your personal and business assets.

6. Solid Business Contracts

Business Contracts that properly spell out the deal you want, provide for dispute resolution mechanisms and identify the proper parties can prevent many misunderstandings and hassle with your customers and suppliers.

7. Using the Law to your Advantage

Getting proper protection for your intellectual property to the full extent of the law can prevent theft and infringement of such property by third parties.

8.  Complying with the Law when raising Money

Being aware of and following state and federal securities laws and regulations when raising money can keep you out of serious (even criminal) trouble.

9. Assembling the Right Team to Look out for your Business

To paraphrase Seth Godin in How to Succeed in Business to Business, you need people who will be consistently on time, on budget and most importantly, people who don't cause you to loose sleep.  That your lawyers, accountants and other advisers are brilliant at what they do, should be a given.

10.  Getting Insurance

Despite the best business entity structure, adviser teams and other strategies, there remain risks that can be insured.  Even limited liability business entities have many exceptions to the limited liability shield.  A good business insurance broker can tell you about the risks that can be insured.

**This post is for informational purposes only and does not constitute legal advice**

Why your Personal Credit Score is Crucial for your Business

Find the answer in this recent article in the New York Enterprise Report:  "It's not Personal, it's Business."  The article also describes the differences between your personal credit and your business credit and why maintaining both in good standing is crucial.

**This post is for informational purposes only and does not constitute legal advice**

Business Entity Overview

CCH has a good overview over the business entities available to the business owner.  Be mindful, though, that choice of entity is influenced by your state laws.  For example, the overview states that corporations are usually cheaper to form than LLCs.  This is not true in New York.

Usual price tag for forming a limited liability company in New York (City): $1300, excluding legal fees.

Usual price tag for forming a business corporation (or s corporation) in New York: $195, excluding legal fees.

**This post is for informational purposes only and does not constitute legal advice**

Must Read for hungry Startup Entrepreneurs: How not to Hand out Equity

Learn how a young startup died an early unnecessary death due to a faulty capital structure in "A Fatal Paper Cut."

Great post, but IMHO, bad title.  Had I not found it through Ask The VC, I would have never read the post based on the title.

Don't sweat your B Plan

Don't think you are doomed to failure, if you neglect to craft the perfect business plan.  Apparently, appearance and credibility is more important than a business plan, as reported by this research report:

"The researchers also found that whether or not an entrepreneur had created a business plan for their start-up venture had no bearing on the success of that venture. Newberg speculates that perhaps investing a lot of time creating the perfect business plan document takes time away from executing the ideas described in the document. He also suggests that entrepreneurs may become too attached to their initial conceptions or misconceptions once they are formalized by inclusion a business plan. Because things change so rapidly for an emerging venture, it is important to be flexible, Newberg explained.

**This post is for informational purposes only and does not constitute legal advice**

Why Independent Contractors are Gold for Small Business

1.  Tax and Payroll Savings

Compared to employees, independent contractors save small businesses a lot of hassle, taxes, and paperwork.  A small business does not have to do payroll for independent contractors; it does not have to pay social security and Medicare taxes, unemployment taxes or provide workers compensation and disability insurance.  These taxes and insurances really add up, as well as the cost for preparing all necessary paperwork and complying with the tax and reporting requirements.

2.  Limited Liability Exposure

A small business may not automatically be responsible for damage caused by an independent contractor, whereas wrongdoing of an employee is often directly imputed to the small business employer, even if the employer had no fault in the wrongdoing of the employee.

In addition, many anti-discrimination and similar laws do not apply to independent contractors, only to employees.

So why would any small business ever hire an employee?  Very simple, the decision whether their "hired help" is an independent contractor or employee is not up to them.  There are numerous legal tests and court cases available to determine whether a worker is an independent contractor or employee.  Very, very generally speaking, the more control the small business has over the worker in terms of hours worked, equipment used, power to terminate, and other aspects of the working relationship, the more likely it is that a worker would be classified as an employee.

To make matters even more complicated, the various state and federal agencies and courts have different tests that may result in different classifications.  In other words, while the IRS may be o.k. with your worker's status as an independent contractor, New York courts may have a different opinion when having to decide whether a tort was committed by an independent contractor or an employee, i.e. whether the small business should be made liable for the tort without any wrongdoing of its own.

To learn more about the IRS' ideas about independent contractors/employees, look here.

Independent Contractors explained by the New York State Department of Labor.

**This post is for informational purposes only and does not constitute legal advice**

Startupping

Check out Startupping, the new

"one-of-a-kind community resource created for Internet entrepreneurs by Internet entrepreneurs. It is a place to share information, ask questions, and tap into the experience of others who have built and are building web businesses. Read blog posts about startup issues, participate in our discussion forums, and view our wiki resources, including sample term sheets and a glossary."

Does your Lawyer have a Blog?

Probably not.  Even though blogs, or blawgs (get it...?), seem to be more common nowadays, very few business lawyers have them.  In my area of practice I can only think of two other (small) business law blogs that really try to talk to the small business owner:  Rush Nigut's Rush on Business and Nina Yablok's BizBlawg (Nina: you should really try to post more often, every time you do, your posts are great).

Please let me know if you've come across any other small business law blogs.

All the best,

Imke Ratschko

P.s. I almost forgot the mother of all small business blogs:  BizzBangBuzz by Anthony Cerminaro