Month: October 2018

5 Steps to Take When Winding Down Your Business

5 Steps to Take When Winding Down Your Business

There are many reasons business owners close up shop, including retirement, starting a new venture or, hopefully, because they’ve won the lottery.  No matter what the reason, it’s important to diligently wind down a business before moving on.

Here are five steps to take:

  1. Reach consensus. If you’re a sole proprietor, then the only consensus you need is your own.  However, if you’re a partnership, limited liability company (LLC), or corporation, you’ll have to reach a consensus with your business partners on how and when to dissolve.  Make sure that everything is in writing (this cannot be stressed enough) and follows whatever guidelines are applicable to your articles of incorporation, bylaws, and other organizational documents.
  2. Seek counsel. Just as you would seek experienced counsel when starting a business, you should do the same when shutting one down.  Dissolution is a multi-tiered process.   Everything must be identified, addressed, and resolved.  This includes canceling licenses and permits, as well as filing legal and tax documents with courts, creditors, and government authorities.
  3. Comply with laws. State law will generally require dissolving businesses to pay employees for any work performed up until the closing date as well as for any unused vacation, sick, or personal time.  State law will also govern possible notice provisions under the Worker Adjustment and Retraining Notification Act (WARN) which requires at least 60 days advance notice to those who work for companies with 100 employees.
  4. Resolve financial obligations. All businesses have financial obligations that need to be resolved before dissolving.  Those include:
  • Business taxes. When you file income tax returns for the year in which your business closes, check the box that indicates the document is a “final” return. Many state revenue agencies require additional filings for sales tax as well.
  • Payroll taxes. If you have employees, you must satisfy your payroll tax responsibilities or you will risk personal liability.  Inform your federal and state tax agencies that your business is closing and that you will cease to file unemployment returns and an employer’s quarterly tax form.
  • EIN accounts. Businesses should close their Employer Identification Number (EIN) account by contacting the IRS. The IRS cannot cancel your account, but closing your EIN account notifies the IRS that you are not planning to use the number in the future.
  • Business debts. Notify creditors of your plans to dissolve the business, contact business associates to whom you owe money, and arrange to settle all accounts.
  1. Maintain records. Although your business may be dissolved, you may be legally required to maintain records for a certain number of years depending upon the applicable federal and state law.

Whether dissolving your business is a happy or sad occasion, it should be handled thoroughly.  Failing to wrap up all loose ends can lead to years of frustration and possible litigation with former employees, vendors, and partners.  We’d be happy to help you wrap things up and move on to your next venture.

Laws, Rules, & Regulations That May Not Apply To Small Businesses

Laws, Rules, & Regulations That May Not Apply To Small Businesses

An extraordinary number of laws, rules, and regulations govern businesses and their employees.  A small business, however, may be exempt from one or more of them depending on its number of employees. For example:

  1. Discrimination Laws. Small businesses may be exempt from Title VII, the ADA and the ADEA:
  • Title VII. Title VII prohibits employers from discriminating against employees on the basis of sex, race, color, national origin, and religion. It generally applies to employers with 15 or more employees, including federal, state, and local governments.
  • The Americans with Disabilities Act (ADA) prohibits discrimination against people with disabilities and guarantees equal opportunities for individuals with disabilities in employment, transportation, public accommodations, state and local government services, and telecommunications.  It also generally applies to employers with 15 or more employees, including federal, state, and local governments.
  • The Age Discrimination in Employment Act (ADEA) protects certain applicants and employees 40 years of age and older from discrimination on the basis of age in hiring, promotion, discharge, compensation, or terms, conditions, or privileges of employment.  It generally applies to employers with 20 or more employees.
  1. OSHA Requirements. The Occupational Safety and Health Administration (OSHA) oversees workplace safety conditions, seeking to avoid employee injuries. Businesses who violate OSHA requirements pay fines – sometimes quite large fines.  However, OSHA cuts small employers a break.
  • Employers with fewer than 25 employees only pay 40% of a normal fine.
  • Employers with fewer than 10 employees are actually exempt from requirements to report workplace injuries at all.
  1. Workers Compensation. State laws set workers compensation insurance requirements, so every state’s laws vary. Some states exempt small businesses with 5 or fewer employees, some offer no exemption, and others fall somewhere in between.  Check with your state’s workers compensation department to see what applies to you.
  2. FDA. The Food & Drug Administration (FDA) exempts nutritional labeling requirements for some small businesses in the food industry. Businesses which employ fewer than an average of 100 full-time equivalent employees and sell fewer than 100,000 product units in a 12-month period are exempt from labeling requirements. To qualify, a notice must filed with the FDA.

Businesses with annual gross sales of less than $500,000, or with annual gross sales of foods or dietary supplements to consumers of less than $50,000, are also exempt.  However, the FDA does not require notice in this situation.

How We Can Help You

Have questions about how to start, manage, or operate a business?  Confused about which laws apply to you?  We can help.  As business attorneys, we understand the challenges you face and can help you to achieve your goals.  We invite you to schedule an appointment to make sure you’re working within the laws applicable to your business.

5 Reasons Your Single-Member LLC Needs an Operating Agreement

5 Reasons Your Single-Member LLC Needs an Operating Agreement

An operating agreement is a contract that controls your LLC’s operations as well as member interaction with each other and with the LLC. You may think that an operating agreement is not necessary for your single-member LLC – after all – why make an agreement with yourself?

Is the Operating Agreement a Legal Requirement?

Most states don’t require an LLC to have an operating agreement. Of the states that do, some require the operating agreement be written while others permit oral agreements. No state requires an LLC to file an operating agreement with the Secretary of State; instead, the operating agreement is kept with other business records. No matter what state you’re in, however, it’s always a good idea to create a formal, written operating agreement—even for a single-member LLC. Here’s why:

REASON 1 – Avoid State-Imposed Default Rules

Without an operating agreement in place, your LLC is bound by the default rules of your state. Most state laws governing LLCs allow the default rules to be overwritten in the LLC’s operating agreement.

REASON 2 – Maintain Control

As the business gains momentum, you may want to hire a manager to take care of the day-to-day business operations so you can shift your attention to business-development opportunities. An operating agreement can define the manager role—designating the authority and compensation and what happens if the manager leaves or competes with the company.

REASON 3 – Keep Business and Personal Identities Separate

An operating agreement helps distinguish the business from the owner for liability purposes. A major benefit of an LLC is that it limits liability going both ways: the LLC protects a member from business liabilities and the business assets from a member’s personal liabilities. Without an operating agreement in place, the business may look like a sole proprietorship. If a court doesn’t see your LLC as an entity separate from you, you could lose the liability protection that an LLC offers.

REASON 4 – Clarify Succession

An operating agreement can specify what happens if you die or become unable to run the business. Without this specific provision, your family may have a hard time continuing the business or winding it down.

REASON 5 – Scalability

Successful businesses grow. And growth requires capital. An operating agreement can specify how future investors will be treated.  If you structure these terms in the operating agreement, the LLC will be better positioned in the investment negotiations.

Let’s Continue this Conversation

An operating agreement serves an important role, even for a single-member LLC. The operating agreement puts you in the driver’s seat and enables the LLC to perform its main task—to limit liability.

If you have an operating agreement in place, we’d be happy to review the agreement as well as your business needs to ensure the operating agreement and LLC are in sync.  Or, if your single-member LLC doesn’t have an operating agreement in place, we’ll work with you to craft an appropriate agreement.