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Choosing the Right Business Entity

October 31, 2014,

Among the most important decisions a business owner or entrepreneur can make is determining what business entity best suits their needs. This decision can affect how much you pay in taxes, the amount of paperwork that you will need to do, your own personal liability, and your ability to raise capital by issuing stock. Additionally, some business formations require certain formalities in order to be in compliance with state and federal law.

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Of course, every business is different, and what may be an appropriate business entity for one venture may be completely inappropriate for another. Business ventures that anticipate rapid growth or are formed with the intention of being acquired by another company may choose an entity type that may be unnecessarily onerous at startup but allow growth and compliance with federal securities laws, preempting the need for a potentially costly reorganization down the road. For these and other reasons, it is best for anyone considering forming a business entity to discuss their goals and options with an experienced Silicon Valley business lawyer before filing any paperwork with the state.

In the meantime, here is some basic information regarding the some of the most commonly used business formations:

Sole Proprietorships - A sole proprietorship is perhaps the most common type of business that exists today, and many people may own one without knowing it. Sole proprietors are simply individuals who engage in some sort of business venture for themselves. There are no filing requirements to start a sole proprietorship, and they may even do business under an assumed name if they choose to file a fictitious name with the state. One of the main drawbacks of sole proprietorships is that the owner can be held personally liable for all obligations incurred by the business.

Partnerships - A partnership involves two or more people who work together in a common enterprise and share in the profits and losses of that enterprise. Like sole proprietorships, partnerships can be formed without any state filings, and can actually be formed with a simple oral agreement. In some cases, a court may even determine the existence of a partnership even in the absence of an agreement. All partners are jointly and severally liable for the financial obligations of the partnership and profits or losses pass through to the partners for the purposes of taxation.

Corporations - A corporation is a legal entity separate from its owners created to conduct business. Because it is a separate entity, a corporation has the benefit of shielding its owners from personal liability for the debts or other obligations incurred by the corporation. One of the main disadvantages of a corporation is the legal requirements associated with formation and ongoing operations, which make them better suited to large, well-established businesses.

Limited Liability Companies - Limited Liability Companies are a relatively new business formation favored by many startups and small businesses because they combine the flexibility of partnerships with the liability protection of corporations. An LLC has the same limited personal liability as a corporation that is provided by state law and gets treated as a Partnership for Federal tax law purposes.

Choosing a business formation can be a complicated decision with far-reaching implications on the success and operation of your business. If you have any questions at all regarding business formation or any other matter related to business law, the skilled lawyers at Structure Law Group can help you. Please do not hesitate to call us today at (408) 441-7500 for assistance today.


About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

4 Steps to Starting a Business

October 24, 2014,

Do you have a great idea but aren't sure how to start a business? Creating a startup can seem daunting at first. There are many questions to consider when defining what type of business you want to start and figuring out what it will look like once your plan comes to fruition. There are also a few legal activities you need to complete before you can open up shop. Here are 4 steps to starting a business and some tips to help you get started.
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4 Steps to Starting a Business

1. Determine Your Market and Specialty

Before you create a startup, you'll need to determine what product or service you will offer your clientele. Make sure that your offering is focused enough so that your brand will become easily recognizable alongside your product or services. Once you determine what you will offer your customers, you need to think about your target market. This is known as conducting market research. Where is there a demand for your products or services in the market? Is the market already saturated with the products or services you plan to offer? Make sure you are able to utilize enough of the market share for the products or services you will be offering.

2. Select Your Business Type

There are many different types of business entities, such as sole proprietorships, limited liability corporations, partnerships or corporations. Each of these has its own advantages and disadvantages when starting a business. Hiring a business lawyer is a good way to determine which business type will best suit your startup's needs and protect both you and your company's interests. The team at Structure Law Group offers expert advice and council to make sure that when you start a business it's done the right way.

3. Register Your Business

When you're starting a business, you need to pick a company name that will be relevant for years to come. Pick something catchy enough to remember that also aligns with the brand you are trying to portray. Once you've picked a name for your startup, contact a lawyer to help you get your business registered, licensed and trademarked.

4. Write a Business Plan

A well-written business plan will help you chart measurable goals for the future. Your business plan will change over time as you amend or add ideas. In general, try to project your plans about 3-5 years in the future. Be sure to include financial information, like potential funding opportunities, a detailed marketing plan, and information about your company's mission and values. A solid business plan will also assist you in securing future funding for your startup.

If you follow these four steps, your startup will be set up for success. Remember, when starting a business, it is always important to consult a business lawyer like those at Structure Law Group to help you with any paperwork or legal decisions.

About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Sole Proprietorships: Advantages and Disadvantages

September 26, 2014,

Sole Proprietorships: Advantages and Disadvantages

Many small businesses in the United States operate as sole proprietorships. In fact, this is the most common type of business and is business in its simplest form. In this article we will discuss some advantages and disadvantages of sole proprietorships and more specifically, owning and operating a sole proprietorship in California.
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Advantages of Sole Proprietorships

· Low start-up cost. Since there is no legal distinction between the person and the business entity, the sole proprietor is not required to register as a legal corporation. This saves on filing costs. Here in California, there is also a high minimum tax which sole proprietors avoid.

· No business taxes. Income generated through the business is reported and paid on the sole proprietors' personal income taxes.

· No annual compliance. Unlike corporations, sole proprietors are not required to pay annual fees to retain their legal status.

· Simplicity and speed of setting up your business. While starting a sole proprietorship, LLC or corporation requires compliance with licensing, local laws and regulations, individual owners of sole proprietorships have lower overhead costs and speed though the process.


Disadvantages of Sole Proprietorships

· Personal liability. Since the business is not legally separate from the owner, the owner is personally responsible for all debts and transactions.

· Fewer investment opportunities. Once an investor or partner has joined the business, it is no longer a sole proprietorship. The transformation of the company will require compliance with licensing requirements and filing fees. As a result, it may be hard to find an investor to back your company.

· Debt. Many sole proprietors have dipped into personal assets or acquired loans to start their company. Since a sole proprietorship is not a formal business entity, personal loans may impact the owner's credit score.

Is a sole proprietorship the right decision for you and your business? Your team here at Structure Law Group would be happy to help you start your sole proprietorship or answer any questions you may have. You can find more about the services we offer here.


About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

What to Include in an LLC Operating Agreement

September 12, 2014,

In a previous blog post we briefly talked about operating agreements. This topic is important enough to merit further examination. We'll specifically look at what you need to include in an operating agreement for an LLC.
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The Purpose of an Operating Agreement

Think of an operating agreement as the founding document that spells out the essentials of your business. Everything should be outlined including the management structure, membership interest, capital contributions and the financial allocations and distributions. More isn't always better, but in this case being as detailed as possible will help you in the long run.

What to Include in an Operating Agreement


It's important to outline your management and financial structure. This will deter any potential disagreements if the LLC has more than one member. Failure to include such information in your operating agreement could make you subject to your state's default laws. For instance, some states have statutes that say members of an LLC must split profits and losses equally, regardless on ownership.

As mentioned above it is important to outline the capitalization of the Company. Capital Contributions are the amounts of money and values of property contributed by member(s). Also important is the distribution of profits and losses. Are members entitled to revenue generated by the LLC? If so, how much and how often are funds dispersed?

Finally, it is important to include guidelines for transfers of membership interest in the event of a death, incapacity, bankruptcy or if a member leaves or is bought out. You'll need to include rules detailing the buyout provisions. This can help make clear terms on how much is to be paid and when.

Creating an operating agreement can be a lot of work. It's best to consult a professional like the ones at Structure Law Group. A skilled attorney can help secure your business and provide you with peace of mind.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Business 101: Buy-Sell Agreements

August 8, 2014,

contract.jpgAny business with multiple owners should have a buy-sell agreement. A buy-sell agreement, provides order and clarity should anything happen to one of the owners. In this post we'll take a look at buy-sell agreements, how they work and what to include.

Understanding an Agreement

Let's say you and some family members get together and form a corporation or an LLC. Things are going pretty well, the business is making money and everyone is happy. Then something happens, maybe one of your family members dies or simply decides to leave the business. What happens to that person's stake in your company? A business without a buy-sell agreement can easily fall into in fighting and costly litigation, not to mention the impact on consumer confidence.

How to Craft a Buy-Sell Agreement

Really, the first thing you should do once you start thinking about forming a corporation, LLC or partnership is to hire an attorney. However, that doesn't mean you can't start talking with each other about what to include in a buy-sell agreement. Generally, you'll want to list the conditions that would lead one owner to buy out another. This can be anything from death to termination. You'll also want to outline the process for transferring ownership. Will the owners purchase the shares with their own money or will it be done through the business? Also, how will the sale price be determined? Some companies negotiate that upfront while others use a formula.

It's important to be detail oriented. You and your fellow owners should understand each part of the agreement. You don't want to be surprised later on when one of the owners sues you for paying in installments instead of one lump sum. The more specific the better. In the end, a buy-sell agreement may not only save your business, it may save your relationships.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

3 Steps to Creating a Strategic Alliance

July 11, 2014,

hands.jpgA strategic alliance is a fairly simple concept. Two companies with similar interests join forces to produce favorable outcomes for all involved. An everyday example is the Starbucks inside of Barnes and Noble bookstores. This move helped Starbucks expand, but it also kept people in the bookstore, perhaps reading the first few pages of a book they were thinking of buying. A strategic alliance is good for business, but you'll need to take the proper steps to make it work.

1,2,3 - The Steps to Creating a Strategic Alliance for Your Company

Step 1: Choosing a Partner

Companies create a strategic alliance to help increase their profits. A solid partnership is one that generates revenue that couldn't be achieved by going it alone. Therefore, it's important to pick a partner you trust and that has a solid reputation. Also, a strategic alliance is a long-term commitment. Results are monitored over years, not months, so be sure the company you pick is one you can work with for the foreseeable future.

Step 2: Crafting a Deal

Perhaps the most important part of this step is determining a strategy. How will you go about achieving your goals over the next 3-5 years? This is also the time to set boundaries and determine roles. It's critical that you and your potential partner agree on such things like operation details and rules for intellectual property.

Step 3: Making it Work

Remember, these are two companies with two different ways of doing things. To make your alliance work you'll need to cultivate relationships. You'll need to know who's in charge and what happens when something unexpected happens. The way you handle a particular situation may be different than your strategic alliance partner.

The best way to avoid confrontation is by creating a clear contract. A good contract will outline roles and responsibilities as well as provide an "out" should the alliance fall apart. The team at Structure Law Group can craft an agreement that satisfies such objectives. By putting everything in writing you protect your company legally from any problems that may arise.

Have questions about creating a strategic alliance for your company? Contact Structure Law Group today!

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Gross Lease vs. Net Lease

July 6, 2014,

lease.jpgWhether you're starting a business or looking to expand, chances are you'll encounter some kind of lease. The most common are the gross lease and the net lease. In this blog post we'll take a look at the differences between the two and the benefits of each.

Gross Lease

In this scenario, the tenant pays a fixed amount each month. The landlord is responsible for the costs associated with property taxes, insurance and maintenance. A gross lease offers some flexibility because these properties are generally deemed as either Class B or Class C. They're less desirable so the landlord may be willing to negotiate over things like who pays the utility bill.

Net Lease

You'll likely see a net lease in properties deemed Class A. These are typically high value structures in a popular part of town. As such, tenants can expect to pay a fixed amount along with maintenance charges, insurance and taxes. The benefit to you as a business owner is exposure and the possibility of working in a new, less problem prone building.

Letter of Intent

Before you sign a gross lease or net lease, it's a good idea to craft a letter of intent. This document typically addresses issues like length of the rental, when the space is available and whether or not expansion is possible. You'll want to have a lawyer look over any lease documents. The professionals at Structure Law Group can help you craft a suitable letter of intent that protects your interests.

There is plenty more to consider when crafting a lease. At least now you understand the key differences between the two main types of commercial leases. This information will help you when you're coming up with a budget for your business. Knowing these costs up front eases some stress and makes it easier to get started.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Business 101: Litigation

June 20, 2014,

scale.jpgWith any luck, you or your business will never end up the subject of a lawsuit. Since this isn't a perfect world, it's best to start thinking about what to do if the unforeseen happens. Like most things, business litigation is an involved issue. We can't go through the entire process in one post, so we'll start with three basic steps to take if you find yourself in legal trouble.

Step 1: Purchase Liability Insurance

This step should happen long before trouble starts. In reality, this is one of the first things you should do as a business owner. Liability insurance protects the purchaser from the risks of liabilities imposed by lawsuits and similar claims. Say a customer slips on a wet spot in your store; your insurance would step in and handle the costs. You may want to add extra protection such as errors and omissions coverage. For businesses that have a Board of Directors it's a good idea to have directors and officers coverage. This type of coverage protects the corporation as well as the personal liabilities for the directors and officers of the corporation.

Step 2: Separate Yourself from Your Business

Sole proprietorships are a popular business structure. Unfortunately, these entities can leave you personally exposed. In this arrangement your personal property, including your home or car, are fair game in a lawsuit. To avoid this you want to create separation by forming a trust, or consider an alternative business structure. A trust is a legal entity that pays its own taxes and can own assets. Making the trust the legal owner of the business safeguards your money and property. Also, consider forming a corporation. Trusts and corporations are miles apart in terms of regulation but offer protection to the individual.

Step 3: Hire a Good Attorney

Of course it is always advisable to have an attorney on your side before any litigation to avoid potential lawsuits. If all else fails and you are served with the lawsuit, you should immediately consult your attorney. Time is of the essence. A quality attorney can help you through the initial steps.

Finally, it's a good idea to hire lawyers who specialize in specific fields. If you're served with a lawsuit or anticipating one then it's smart to hire an attorney familiar with litigation like the professionals at Structure Law Group.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

LLC: Choosing a Management Structure

June 6, 2014,

llc.jpgLimited liability companies combine parts of both corporations and partnerships. Because they're a hybrid, LLC's can be more difficult to setup. One part of this process involves choosing a management structure to fit your specific LLC.

Single Member or Multiple Member LLC

The difference here is implied in the name. Single member LLC's have only one owner, while multiple member LLC's have at least two. Choosing one over the other typically comes down to financing. Starting a single member LLC comes with a higher level of risk as the profits and losses are reported on the individual's tax return. However, as the sole owner, you don't have the stress of running a company with another person.

Member Managed LLC or Manager Managed LLC

This type of structure only applies to Multiple Member LLC's. If both owners (members) plan to be actively involved in the business, then a member managed LLC is the best choice. In this scenario each owner can act on behalf of the company. A manager managed LLC is a good option if you have investors who don't plan on being involved. These silent partners typically elect the owners to run the day-to-day operations of the company.

Operating Agreement

Whatever you do, make sure to put it in writing. An operating agreement outlines the particulars of your business and helps to ensure your status as a limited liability company. A good operating agreement should include: powers and duties of members, distribution of profits and losses, buyout and buy-sell rules, ownership percentages and voting rights.

It should be noted that California recently revised the Uniform Limited Liability Company Act or RULLCA. The revised act specifically addressed operating agreements. New details were added concerning which RULLCA sections can be, and which cannot be, overridden by the operating agreement. Also, more detail was added regarding withdrawal and the consequences of withdrawal of a member from an LLC

Determining which type of company organization to choose can be difficult. Consider hiring an attorney, like the ones at Structure Law Group, to guide you through the process. If you've done most of the leg work but need help crafting an operating agreement, the professionals at Structure can help with that too.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Employee vs. Independent Contractor

May 30, 2014,

You're ready to hire. Should you go with an employee or independent contractor? Your decision will have implications for your business. In this blog post we'll address the differences between employees and independent contractors, the benefits of both and how to tell the difference between the two.

What is an Employee?

A simple definition of an employee is someone you hire and directly manage. Employees are generally provided training by the business and work for only one employer. A benefit of hiring an employee is that you get to set a schedule and train the person in the way you want things done. Employers generally have more control over the end result in this situation.

What is an Independent Contractor?

A contractor can have his or her own business. They do not fit within the company framework. Contractors can work for more than one business at a time and they set their own schedule. A major advantage to hiring a contractor is that you don't have to pay into Social Security, Medicare and unemployment. You also can set the terms for employment. If you don't like their work you can let them go at the end of the contract.

How do you know?

The IRS offers some general guidelines to help you determine whether or not you have an employee or independent contractor. The agency looks at degrees of control and independence. The three categories they use are behavioral, financial and relationship.

• Behavioral refers to whether or not your business has the right to control how the worker does his or her job.
• Financial is a measure of how the worker is paid and if he or she is reimbursed.
• Relationship examines any contracts or benefits.

There are several questions to ask yourself to determine if you're hiring an employee or independent contractor.

1. Do you want full control of how the person does the work? If so, the person will be an employee.
2. Do you plan to have the worker paid regularly via your normal payroll system as opposed to having them send you invoices for their services? If so, the person will likely be an employee.
3. Will the worker will be paid by the project rather than hourly? If so, they're likely an independent contractor.
4. Will the person be eligible for company benefits? If so, the person will be an employee.

These are just some of the important things to consider when determining if you're hiring an employee or an independent contractor. If you need help you can fill out a Form SS-8 and send it to the IRS. For quicker results consider calling or email the professionals at Structure Law Group. We're happy to help.

About Structure Law Group

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Business Tips: 4 Steps for a Successful Contract Negotiation

May 19, 2014,

Business is an ongoing back-and-forth between interested parties. Contract negotiations, whether they be with employees or a competing business, can be contentious. There's a lot at stake and big feelings are involved. A successful contract negotiation is one where all parties feel they got something out of the deal. This isn't wishful thinking. By following these four simple tips you can create an environment where everyone is heard and respected.

1. Multiple Meetings

The first tip is pretty straightforward. Break down the negotiation into multiple sessions. The longer you sit at a table arguing over the same points the less likely you'll come to an agreement. Give the person time to digest the information. Clear eyes and a fresh head make for better judgment.

2. Focus on Interests not Positions

The second tip involves removing emotion from the table. If a person is angry or frustrated, chances are it's not because of you. Identify the interests behind the issue. Business is a world of clashing personalities and ideas. Depersonalize the process by removing statements like, "I think" or "I believe." Instead, focus on the facts. If an employee is asking for a salary increase you can't afford, then be honest. Say something inclusive like, "We don't have the funds right now." This way you're not making a judgment about the person's abilities, which can lead you into trouble.

3. Know your Priorities

The third tip is all about you. What do you want to see happen? Know what you want before you go into the negotiations. This doesn't mean you should box your ears and ignore what the other person has to say. Good faith negotiation requires keeping an open mind. Still, knowing what you want and expressing those views provides a starting point that is clear to the other party.

4. Ask Questions

Finally, don't be afraid to delve deeper. If the other party is coming back to the same issue it's okay to ask why. This is clearly an important topic to them, so find out why it's so critical; just be mindful of your approach. You want to sound interested and not accusatory.

A successful contract negotiation will help your business. These four tips are a good start. If you need further guidance consider consulting an attorney like those at Structure Law Group. This is a good idea if you need clarifications about contract law or have an especially difficult other party.

About Structure Law Group
Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and litigation.

Photo Credit: Jonny Goldstein via Flickr

Business Plan 101: The Legal Steps to Starting A Company

May 8, 2014,

Starting a business can feel overwhelming. Whether you're opening a brick and mortar store or an online business, there are a lot of steps involved in turning your idea into reality. Creating a business plan and securing funding are a solid beginning; at this point you'll also need to do a few things to make sure your business is legal.

Steps to Legally Starting a Business: It Takes More Than a Business Plan! 

Picking a name is a fun element of starting a business. A name not only tells potential customers what you sell but it also reveals something of your personality. Before you jump into the next activity on your business plan and start advertising your store front or online business, make sure someone else isn't already using the name. Fortunately, most states offer a searchable database through the Secretary of State's Office. Also, be sure to do a national trademark search to find out if another company owns the rights to the name.

It's also extremely important to choose an appropriate structure when starting a business. Will you be operating as a sole proprietorship, a Limited Liability Company or something else? The form your brick and mortar or online business takes will determine which regulations you are governed by as well as the taxes you'll need to pay. A second part of this process is obtaining a federal tax ID number. The IRS uses this number to locate your company and assess the appropriate tax level. You'll also need an employee identification number, better known as a tax ID, before you can start hiring.  

Whether you're a brick and mortar store or an online business, you'll need to secure the proper licenses and permits. Some companies, like ones that sell alcohol, need federal approval. Different states have different rules. The Small Business Administration has a helpful tool to get you started. It's quick and easy; all you need to do is enter your zip code and business type.

Once you’ve completed the above steps, you're just about ready to open to the public. One of the last things to do is familiarize yourself with the laws concerning employees. There's quite a bit to learn. Some of the finer points center around verification and insurance. Even if you're an online business, the federal government requires companies to verify all employees are eligible to work in the United States by filling out an I-9 form. Finally, if you plan on having employees then workers' compensation insurance is a must.

Of course there's plenty more to know when it comes to starting a business, but these few important steps should help get you started on the right path to creating a successful company. Does your business plan allow for these vital start-up activities?

Structure Law Group is a San Jose based firm that specializes in business issues including business formations, commercial contracts and taxation.

Photo Credit: Jake and Lindsay Sherbert via Flickr

Business Entities: Beware of New Reporting Requirement for Change of Mailing Address, Business Location or Responsible Party

February 20, 2014,

If you are an employer in San Jose, you are most likely aware that on January 1, 2014, the minimum wage increased to $10.15 per hour for your business; California's minimum wage increase was to $9 per hour. In addition to new employment laws, there, there have been other new laws that affect businesses in 2014, such as the all new California limited liability company act. But one law actually applies to all business entities with an Employer Identification Number ("EIN"), including entities such as corporations, partnerships, limited liability companies, and even nonprofit organizations. As of January 1, 2014, any entity with an EIN must notify the IRS of a change of (1) a mailing address, (2) a business location or (3) the identity of a "responsible party." A change in a company's mailing address or business location is pretty clear, but the identity of a responsible party may not be so clear.

If you are not sure who the "responsible party" was initially, check the Form SS-4 application that was filed initially by the organization to obtain its EIN, and it will be the person or entity listed as responsible on that form. Then, look at the instructions to Form 8822-B to determine if your responsible party has changed. The instructions define a responsible party as "the person who has a level of control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets." If the entity's original responsible party at the time of filing the Form SS-4 is no longer affiliated with the organization or no longer fits that definition, then the entity must use Form 8822-B to let the IRS know.

Form 8822-B must be filed within 60 days of the change. If such a change occurred before January 1, 2014, and the entity has not previously notified the IRS in some other manner, Form 8822-B must be filed before March 1, 2014. If you no longer have a copy of the SS-4 Application or remember who was named as the "responsible party," you may wish to file a Form 8822-B before March 1, 2014.

So, if you are a corporation or LLC making changes on your Statement of Information filing with the California Secretary of State, or if you are amending your LLC operating agreement or your corporate documents, keep in mind that you may also need to notify the IRS of the change. If you are not sure whether your company needs to notify the IRS or other agencies of changes, or if you have questions regarding the "responsible party" for your business, you may wish to consult with a business lawyer or accountant.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.

Tax Planning Reminders for Businesses Before Year-End

November 7, 2013,

It is that time of year again. Every year in the fourth quarter, businesses in San Jose and all over the United States are looking at the quickly approaching year-end and trying to figure out what they can do now before it is too late to save on taxes for 2013. This is especially true for small businesses, where every dollar of deduction is important because it hits the owner(s) directly in the pocketbook. My law firm is an LLP, so all items of profit and loss flow through to the partners. Therefore, this is the time of year that I look very carefully at how much money is available and what my law firm is going to need or want to buy in the next few months. Do we need a new copier? Do we want to upgrade our software? If so, let's do it in December rather than January and get the deduction this year. With this in mind, here are a few things for business owners to consider before 2013 is over.

Purchase Equipment for Your Business
Make your equipment purchases before year-end. In 2013, up to $500,000 of both new and used assets purchased and actually put in use by December 31st can be expensed. This means you get a dollar for dollar deduction this year, without having to depreciate the asset over its useful life. This is really helpful for partners that want a deduction for every dollar spent so that they do not have taxable profits without available cash for distribution. But this benefit is limited. If you purchase and put in place more than $2,000,000 of assets during 2013, the $500,000 expense is phased out on a dollar for dollar basis. These limits will likely be even lower next year, so take advantage of them now.

Make Tenant Improvements on Your Commercial Property
Another tax break set to expire after his year is the 50% bonus depreciation, which allows companies to write off half the cost of new assets with useful lives of 20 years or less, in the first year. This includes interior leasehold improvements for commercial real estate. The remaining 50% is depreciated as usual. So, if you are planning some nice tenant improvements in your office, do them before year-end, just in case Congress does not get around to extending this tax break.

Purchase an SUV for Your Business
Have you been thinking about a new Sport Utility Vehicle? You can deduct most of the cost of new SUVs that are used 100% for business and weigh over 6,000 pounds, in the year of purchase. First, there is the special $25,000 deduction for new SUVs, add to that the 50% bonus depreciation, plus normal depreciation on top of that, and you end up with approximately $46,000 of a $60,000 heavy SUV being deductible this year.

So whether you are a partner in a law firm like me, or a partner in any type of business partnership, or a shareholder in a corporation, do not wait until tax time to look at what deductions are available to you. Start planning now for tax savings later.

Source: The Kiplinger Tax Letter, Vol. 88, No. 18, Aug. 30, 2013

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.

A Checklist for Closing Down a Business

August 7, 2013,

Small businesses dominate the U.S. economy. According to the U.S. Small Business Administration (SBA), 99% of all independent companies in the U.S. have less than 500 employees. As a small business attorney in San Jose, most of the time I am working with clients to form new businesses. However, as we all know, not all businesses succeed. Recently I was counseling a client with regard to the sale of her retail store. She had worked hard building the store into a business that could support her needs, but it was time to retire. Rather than going through the hassle of selling the business as a whole, she decided to simply sell the inventory to a competitor and shut the doors. However, shutting down a company can still be a hassle, and if you forget to do one thing it could result in a big liability later.

So, what does it take to shut down a small company? Here is just a short to-do list of the basic items common to most small businesses. This list does not take into account the added complexities of a business with multiple owners.

1. Talk to your accountant, attorney, financial advisor and any other professionals that may be able to assist you in a smooth closure of your business.

2. Check your leases and terminate them. If they cannot be terminated, try to negotiate with your landlord. For example, if your real property lease still has a number of years left to run, advanced notice to the landlord may allow time for the landlord to re-rent the space. Or, the landlord may take a lump sum payment of a portion of the total liability to let you out of the lease now. Do not forget smaller leases like your postage machine lease or copier lease. If you have a car lease, talk to the dealer about assigning the lease to you individually.

3. Check your contracts for rights to terminate and any personal liability. If allowed, provide notice of termination. Try to complete contracts if possible. If not, return any unused deposits or payments.

4. Try to sell off as much inventory as possible. Use a liquidator, have a 'going out of business' sale, and contact competitors to see if they want to buy what is left at a discount. Publish a bulk sales notice if required.

5. Liquidate other business assets - furniture, equipment, etc.

6. Collect as much of the accounts receivable as possible - after others hear you are going out of business it may be harder to collect.

7. Notify anyone that may be affected by the closure - especially creditors. Pay or settle your debts as much as possible. Ask each creditor for a confirmation that they have been paid in full, or settled in full satisfaction. Note that there are specific bulk sales requirements for notifying creditors if you sold your inventory. If you cannot satisfy your creditors, contact a bankruptcy or insolvency attorney to help assess your options. A bankruptcy or an assignment for the benefit of creditors may affect your rights to take actions on this list.

8. Tell your employees and give them as much notice as you can. Be ready to pay them their final paychecks, including all accrued and unpaid vacation, on the date of their termination. Notify your payroll company that these are the final paychecks so they can notify the Employment Development Department (EDD), or if they do not notify the EDD, file a DE-24 form yourself.

9. Submit final sales taxes and employment taxes.

10. File all final federal, state and local tax returns.

11. Cancel any business permits or licenses, including sales tax resale permit. File a Notice of Closeout for Seller's Permit (form BOE-65) with the California Board of Equalization,.

12. Close your bank accounts, cancel any line of credit and outstanding credit cards, and shred business checks.

13. Turn off utilities.

14. Forward mail and email accounts.

15. Shut down websites (or post a notice) and turn off any e-commerce accounts.

16. If you have a fictitious business name, file a statement of abandonment with the county.

17. Distribute remaining assets to yourself (the owner), but only after creditors have all been satisfied. It is important to transfer any assets that are currently titled in the name of the business, before the business entity is dissolved.

18. Dissolve your business entity with the Secretary of State.

Businesses with more complex ownership structures may wish to consult with an attorney or tax professional to guide them through the shutting-down process.

The information appearing in this article does not constitute legal advice or opinion. Such advice and opinion are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to the author.