Month: September 2019

The Personal Guarantee: 5 Ways Small Business Owners Can Reduce Their Liability – Intrepid Law

Small businesses make a huge contribution to the U.S. economy. Nevertheless, starting a new business is risky. Lenders view loans to small businesses, particularly start-ups, as among the riskiest they make, particularly when there is little or no credit history or business revenue on which to base their decision. In an effort to lessen their risk, lenders frequently require small business owners to sign personal guarantees as a condition for giving the loan.  A personal guarantee is a legal commitment by a business owner to repay a business debt if the business is unable to repay it. These guarantees put the personal assets of small business owners on the line—savings accounts, cars, homes, and retirement funds. However, there are several steps you can take to minimize your liability.

  • Request limitations on when the guarantee goes into effect. Try to include terms allowing the personal guarantee to be utilized only once a certain number of payments have been missed or if the net worth of the business decreases below a specific amount.
  • Ask for the amount of the personal guarantee to be decreased over time as the business grows. Once your business has stabilized and established a good track record of creditworthiness, the amount of the personal guarantee could be reduced.
  • Seek a limited personal guarantee based on ownership percentage. Unless you negotiate other terms, lenders are likely to try to establish an unlimited personal guarantee. This allows the lender to collect 100% of the loan amount, as well as attorneys’ fees, from an individual business owner, even if there are multiple owners. It is important to avoid this “joint and several” liability, which allows the lender to recover the full amount from you if the other owners no longer have sufficient personal assets to cover the loan. Even if you only have a 50% stake in the business, you would be personally liable for the entire amount of the loan. Instead, seek to limit your personal liability based on your ownership percentage in the business.
  • Ask for certain assets, such as your home or retirement account, to be expressly excluded from the scope of the guarantee. Some states have homestead statutes that exempt primary residences from being sold to meet the demands of most creditors or limit the amount creditors can recover from the sale.
  • Agree to pay a higher interest rate–you may be able to eliminate or limit the need for a personal guarantee by doing so. It is important to evaluate the pros and cons of a higher interest rate, however, as the profits your business generates will be reduced by higher interest payments.

Note: Establishing a business structure providing limited liability, for example, an LLC, will not protect you from liability under a personal guarantee.


Lenders are likely to include terms in small business loans providing extensive personal liability. It is essential to seek legal counsel to explain the full ramifications of a personal guarantee before you sign on the dotted line. We can help you negotiate terms that will minimize your liability and maximize protections for your assets (and your credit rating). Call us today to set up a meeting.

What is the Difference Between an LLC and an LLP? – Intrepid Law

If you are starting a new business, the type of business entity you decide to establish will have an impact on the extent of personal liability, how the business is taxed, its management, the level of formality required, and many other factors. There are a wide variety of options, which can make this decision quite overwhelming. Limited liability companies (LLCs) and limited liability partnerships (LLPs) are two business forms that share some characteristics, but also have some important distinctions.


  • Liability

LLCs protect members and managers from personal liability for the LLC’s debts and obligations, as well as for any wrongdoing or negligence committed by the other owners or the employees of the LLC. However, it will not protect members from their own negligence or wrongdoing committed in relation to the business.

LLPs provide similar protection from personal liability for the partners. Generally, the partners in an LLP are not personally liable for business debts and obligations. Thus, creditors of LLPs cannot reach the personal assets of the partners and are limited to the assets of the business. In addition, in most states, partners in an LLP are not personally liable for the mistakes or wrongdoing (negligence, malpractice, or misconduct) of the other partners. However, as is the case with LLCs, partners can be personally liable for their own negligence or wrongdoing. The nature and extent of liability protection varies depending upon the state in which the LLP is formed, so it is important to meet with us to verify the scope of the protection in your state.

Note: A limited liability partnership is different from a limited partnership: In a limited partnership, the managing partner(s) are subject to personal liability for the business’s obligations. To qualify for limited liability, the limited partners cannot play a role in the management of the business but must be merely passive investors.

In certain limited circumstances, a court may “pierce the veil,” holding the members or partners of LLCs and LLPs personally liable for business debts or obligations: This could occur when the business is merely the “alter ego” of the members or partners, the business form is used to perpetuate a wrong, or there is a need to achieve an equitable result.

  • Tax Treatment

LLCs are not typically taxed as a separate business entity; rather, the profits and losses pass through to the members, according to their percentage of membership interest in the business, who report them on their individual tax returns. Like an LLC, an LLP is not a tax-paying entity. Rather, its profits and losses are passed through to the partners according to their percentage shares in the business. The partners pay taxes on their shares at the individual tax rate.

By default, under IRS rules, LLCs and LLPs are treated as partnerships and must file a partnership information return. One exception to this is a single-member LLC, which is treated as a sole proprietorship (note that partnerships must have more than one partner) and does not have to file a partnership information return. Both LLCs and LLPs can elect to be taxed as an S or C corporation if they meet certain qualifications.

  • Formalities

Both LLCs and LLPs avoid the extensive recordkeeping and operating requirements imposed on corporations. LLCs typically must file articles of organization providing basic information about the business with a state or local agency and pay a filing fee. This is the act that creates the LLC in most states.

Partnerships are created automatically when two or more individuals engage in a business enterprise for profit. However, partnerships that elect to become LLPs must typically file a registration form with their state’s secretary of state to acquire status as an LLP and enjoy limited liability benefits.

Both entities may also have to file an annual report with the state. Regardless of which entity you choose, we can help you make sure you are meeting your ongoing responsibilities to the state.


  • Business Purpose

Some states limit the use of LLPs to businesses offering professional services, such as lawyers, accountants, or doctors.

LLCs, on the other hand, usually can be formed for any type of business. In fact, many states allow LLCs to be formed for any lawful purpose, that is, a specific business purpose is not required. However, a few states prohibit certain licensed professionals from forming an LLC, and others require professionals to form a special kind of LLC called a professional limited liability company.

Because the law varies by state, it is essential to work with us to ascertain the types of entities your business is permitted to form.

  • Management

In most states, LLCs can elect to be member managed, or the members can designate or hire one or more managers, creating a manager-managed LLC. All the members can participate in the management of a member-managed LLC, although they may choose to alter these rights and responsibilities in their operating agreement. Only managers can manage the operations of a manager-managed LLC. If the articles of organization do not specify that the parties have elected a manager-managed structure, state LLC statutes generally default to a member-managed LLC.

In an LLP, all the partners can participate in the management of the business, as is the case in a general partnership. Unlike an LLC, there is no option to hire an outside manager.

We Can Help

The factors discussed above are only a few of the important considerations relevant to choosing the right structure for your business. The decision about which type of business entity to form is a complex one that will depend on your particular circumstances and the goals you seek to achieve. We can provide guidance about the type of business structure that will work best for you. Please call us today to set up a meeting.

What You Need to Know about Family and Medical Leave

Federal law has required certain businesses to offer family and medical leave for decades. An increasing number of states have also enacted or considered passing laws requiring businesses to offer family and medical leave. For small businesses, these laws have distinct pros and cons. This article discusses some of the most important factors small business owners should keep in mind about family and medical leave.

Family and Medical Leave Act

The federal Family and Medical Leave Act (FMLA) mandates that employers having 50 or more employees within a 75-mile radius of the worksite allow them to take unpaid leave for up to 12 weeks to address their own medical issues, care for a sick family member, and upon the birth or adoption of a child. Under the law, the employer cannot terminate an employee for taking leave, thus providing job security.

Note: The federal Pregnancy Discrimination Act prohibits businesses with 15 or more employees from discriminating against women based on pregnancy, childbirth, and related medical conditions, requiring them to be treated the same as other employees who have medical impairments. As a result, if a business with 15 or more employees permits sick or disabled employees to take leave, pregnant women temporarily unable to perform their jobs must also be allowed to do so.

State Law

Many small businesses have fewer than 50 employees, meaning that they are exempt from the requirements of the federal FMLA. However, some states have enacted laws applying similar requirements to businesses with fewer employees.

In addition, a few states have enacted laws requiring employers to provide paid leave to many of its employees. The statutes requiring paid leave typically allow the employee to continue to receive a certain percentage, for example, 50% or 75%, of their average weekly pay for a certain time period, usually less than the 12 weeks of unpaid leave guaranteed by the federal FMLA. The paid leave is funded by state-administered insurance programs to which employees contribute, which is aimed at lessening the burden on small business owners.

Tax Credit

The Tax Cuts and Jobs Act of 2017 provides a tax credit for employers who allow employees to take paid family and medical leave during 2018 and 2019 (unless Congress decides to extend the credit). Thus, even if a business is not required to offer paid family and medical leave to its employees, if it chooses to, it can then claim a direct reduction of its income tax liability for the year of up to 25% of the compensation paid during the leave. The amount of the tax credit depends upon the percentage of the employee’s wages paid during the leave.

The tax credit is also subject to a number of limitations:

  • It is not available for leave of two weeks or less,
  • The paid leave must be offered to all qualifying employees,
  • The employee must have worked for the business for one year or more,
  • The paid leave cannot be less than 50% of the employee’s normal wages, and
  • The credit is not permitted for highly compensated employees.


Regardless of whether it is required by law, offering paid or unpaid leave to employees can be costly for small businesses. Other employees may have to cover the workload of the employee who is on leave in addition to carrying out their own duties, or the business may have to hire and train a temporary employee to do the absent employee’s job. However, there are also some benefits to offering leave that small businesses should consider.

Small businesses that offer family and medical leave are more attractive to potential employees. Further, they are more likely to retain their current employees by decreasing the possibility that they will be lured away by larger companies with more attractive benefit packages. Offering family and medical leave also allows valuable employees to take a temporary leave of absence, preserving their jobs, and encouraging them to return when the underlying reason for the leave has been resolved.

As part of our legal services for businesses, we can provide guidance to ensure that your business is in compliance with applicable federal and state law regarding family and medical leave. Even if your small business is not required by law to offer family and medical leave, we can help you think through whether offering leave to employees would be beneficial to your business. In addition, we can assist you in setting up a paid leave plan for employees that would enable your business to take advantage of the current tax credits. We are here to help, so give us a call to set up a consultation.


In honor of September 11th, a day that we will never forget, Intrepid Law is continuing our effort to help current and past first responders.  During the month of September we are offering free wills and other estate planning documents to first responders and or their spouses.  If we can help, please contact us.

Dealing with Negative Online Reviews of Your Business – Intrepid Law

You’ve worked hard to build your small business. Nothing is more frustrating than negative online reviews, particularly if you feel they are unjustified or have been posted in bad faith. There are several steps that you can take to prevent your business’s reputation from being damaged by unfavorable reviews.

Respond promptly and professionally. More and more potential customers are turning to internet review sites like Yelp or Google My Business when they are making decisions about which businesses to patronize. If a dissatisfied customer has left a bad review of your business, you can act to mitigate its effects. Take care not to respond defensively, and don’t just ignore the bad review. Instead, respond to the user’s negative review by posting a reply on the review site apologizing for their bad experience while offering to take steps to resolve the issue. Invite them to call or email you so that future communications can be private. If a particular issue is the subject of repeated negative reviews, make changes to your business aimed at avoiding future dissatisfied customers.

Once the issue is resolved, ask the reviewer to remove the bad review. Once you have gone the extra mile to resolve the issue and are sure that the customer is satisfied, ask if they will remove the unfavorable review from the website, or update it to indicate the favorable response you have taken.

Encourage happy customers to leave positive reviews. If your business is working hard to provide a high-quality product or service, then it is likely most of your customers will have a positive experience. A negative review is less likely to damage your business’s reputation if it is surrounded by dozens of positive reviews. Give customers the opportunity to post reviews by including links to review sites in your business’s emails and on your Facebook page and website.

If the review is clearly fake, threatening, or profane, report it to the review website. Review websites are exempt from liability for their users’ posts under the Communications Decency Act, but many of them have procedures allowing business owners to request the removal of certain negative reviews. Although there is a high bar for removal, many review sites will delete posts that contain threats or profanity, or are clearly fake—for example, reviews written by the opposing party in a lawsuit or a business competitor.

Unfortunately, it is often difficult to identify the person who left a negative review, as some users post anonymously. If the review website refuses to remove the bad review, the best solution may be to post a reply explaining that you have not been able to locate the customer in your records and offering to resolve the situation or even to provide a full refund. If the person who posted the review was not really a customer, they will not respond, but potential customers will know that your business is committed to good customer service.

If the negative review contains false statements of fact about your business, consider pursuing an action for defamation. If your business’s reputation has been damaged by a negative review containing provably false statements of fact, an experienced business attorney may be able to convince the review site to remove it. Further, you may have a viable legal claim for defamation against the person who posted the review. If you think the review contains false statements of fact, not just expressions of opinion or hyperbole, contact a business attorney to evaluate whether you should file a lawsuit.


If you are concerned that your business is being damaged by negative internet reviews or need guidance about how to protect your business’s reputation, we are here to help. Give us a call today to set up a consultation.