business succession

Business Succession – Where to Start

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You’ve spent a lifetime building your business and now it’s time for retirement. So, where do you begin?  When developing your business succession plan, it’s important to consider all of your options because each will have a significant impact on your estate plan, taxes, family, and financial well-being.  Here are a few helpful tips to get started.

Valuation

Regardless of whether you sell to your family, third-party, or employee, you will need a comprehensive valuation of your business.  Many business owners commonly overvalue their business because they place an emotional value on the blood, sweat, and tears they’ve spent working instead of what the company is actually worth in the marketplace.  To avoid this common misstep, it’s imperative to get a third-party analysis to better understand what your company is actually worth, and who is willing to pay for it.

When evaluating, a third-party attorney or financial planner will consider several approaches to your company’s worth:

  • Market Approach – Revenue Growth, Profitability, Company size, and Liquidity
  • Income Approach –Revenue Growth, Profitability, Cost of Capital, Leverage; Working Capital Efficiency; Low Capital Expenditures
  • Asset Approach –Asset Intensive, Leverage, Scarcity, Time

After using all or one of these valuation strategies, you then must consider the most tax efficient method of selling while also providing a secured payment structure.

Let’s consider the following options:

Lump Sum

Selling your business for millions of dollars is every business owners dream.  However, this may not be a viable option for a number of reasons.  First, if selling to employees or family, the buyer will likely not have enough capital or credit to purchase your business’ asking price.  In addition, selling your business outright will result in a large capital gain and tax consequence compared to taking payments over time.  Most notability, it could actually place you in a different tax bracket entirely.   Thus, when considering selling for a lump sum, you should weigh the tax consequences of a lump sum with the potential stream of income over time.

Lump Sum + Installments

If a lump sum will create an unfavorable tax consequence, then you can structure the deal to take a smaller lump sum up-front, and then payments over time.  Most commonly sellers will take a lump sum that is just under the threshold of a tax bracket.  Installments can be made over a number of years that is consistent with your retirement plan.  Here you can increase the number of buyers by avoiding a high-cost lump sum for buyers.  In doing so, this may entice inside employees and/or family members who have worked hard within the company but cannot afford your asking price.  And because there is a partial payment up-front, buyers are motivated by their initial investment.

Installments Only

If selling to family and/or employees, installment payments are an affordable way to sell your business and avoid a lump sum tax burden.  However, business owners are often still involved using this method because employees don’t have as much “skin in the game.” This method often requires the owner’s expertise in maintaining operations.  In other words, you won’t get paid unless the business is able to sustain itself with its successors.  This strategy is recommended for smaller companies where the owners are able to work part-time and still have some degree of authority. It’s recommended that certain provisions be implemented that would cease payments in the event of a “dead beat” buyer/employee.

Self – Cancelling Installment Note

You can give your employees a business in exchange for a promissory note by using a “self–cancelling installment note.”   The promissory note is usually coupled with a personal guarantee signed by the employee.  Payments are then made over time but cease when the business owner passes away.  This option reduces capital gains and estate taxes.  However, the payments made will be set at a premium set by the IRS mortality tables to account for the business owners’ lifetime.  If the business lives past this time, the payments cease.  If the owner dies before this timeline, the payments cease.

For more information or to request a free consultation with a business and/or estate planning attorney, call Baron Law LLC at 216-573-3723 or dan@baronlawcleveland.com.

 

CARES Act – What Every Business Owner Should Know

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The Covid-19 Economic Relief Package was approved on Monday, March 30th. This unprecedented $2 trillion dollar stimulus package may be incredibly beneficial for our clients, especially business owners.  Here are some of the more significant points you should know:

  • Single-households that earn $75,000 or less a year (as per their latest tax return) will be supplied with a one-time payment of $1,200.
  • Couples who earn $150,000 annually will receive a one-time payment of $2,400 with an additional $500 per child within that household.
  • These benefits are capped around the $99,000 income level and tapper between $75,000 and $100,000.

Small business protection and aid is a major component of the stimulus package. The key points include:

  • Businesses and nonprofits with 500 or fewer employees are generally eligible for assistance. Further, self-employed workers and gig workers also qualify. Qualified borrowers must have been in business before February 15, and must have paid employee salaries and payroll taxes or contractors.
  • The program is meant to ensure that businesses have the funds to pay their employees and to prevent layoffs. Loans offered through the program are forgivable, if used for their intended purpose: As long as a business receiving a loan maintains the average size of its workforce, it will only need to pay back the interest accrued, and the principal will effectively become a grant.
  • Businesses can receive loans up to $10 million at up to 4% interest rates, depending on how much they paid their employees between January 1 and February 29.
  • Loans are provided through banks, credit unions, and other lenders, and are guaranteed by the Small Business Administration. Loan applications should be submitted through lenders who are partnered with the Small Business Administration.

Link to the 2020 Stimulus bill: https://www.documentcloud.org/documents/6819206-CARES-ACT-FINAL-TEXT.html

Wage Garnishment

Wage Garnishment Guide For Employers

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Not everyone pays rent on time, pays child support, or pays back a debt in full. Recently, wage garnishment has become a popular option for individuals or businesses to collect on debts or outstanding obligations.  Wage garnishment is rarely a method of first resort, it is time-consuming and stressful, but often creditors are left with little option. Any human resources officer or treasurer will agree, they are never excited to receive papers from the local court regarding a wage garnishment on an employee. Though instructions almost always accompany orders for wage garnishment, it is smart business to have at least a basic understanding of wage garnishments and your duties as the employer. No business wants a minor annoyance to turn into a significant problem due to carelessness.   

  • What is Wage Garnishment? 

First step, as always, is to define wage garnishment. A wage garnishment occurs when a creditor attempts to petition a court to withdraw money directly from a debtor’s paycheck. There are many different types of garnishment but wage garnishment specifically targets the debtor’s income stream via direct deductions from their paychecks. Money is taken out based on a specific amount decreed by a court and a creditor receives this money bit by bit until the debt is repaid.   

Both Ohio and federal wage garnishment law limit the maximum amount that can be taken from a debtor’s paycheck, usually approximately 25% of the wages to be garnished. Also, depending on the date of filing and date a debt accrued, bankruptcy may release a debtor from their obligation to payback a debt. Further, Ohio law provides debtor exemption limits on money and property that are eligible to be garnished. But for employers whose employees are being pursued for a wage garnishment, there are procedures and rules they must follow when they receive official notice of a court proceeding to collect a debt because, at the end of the day, the employer is sending someone else’s hard-earned money to satisfy a debt this person cannot or does not want to pay.     

  • As an employer, what does wage garnishment entail? 

Initially, you will receive a packet of documents from the court. This is usually multiple copies of the affidavit, order, and notice of garnishment and answer of employer, multiple copies of the notice to the judgment debtor and request for hearing, and, usually, single copies of both the interim and final report and answer of garnishee. An employer has anywhere between five and seven business days from the receipt of the court documents to respond to the court, i.e. mail back the affidavit, order, and notice of garnishment and answer of employer respectively. One copy is returned to the court, one is kept for your records, and one goes to the employee. Instructions on how to respond will be on the paperwork and the party filing for garnishment is responsible in filling in certain important information, like the total amount of the debt and rate of interest. The employee subject to garnishment will also receive two copies of the notice to the judgment debtor and request for hearing forms.  

Employers are ordered to begin withholding wage on the first full pay period after the employer receives the garnishment. The amount of withholding is capped at 25% after all allowable deductions are taken out, but the precise amount to be withheld is on the employer to calculate correctly based upon the information provided in the garnishment documents. The garnishment will continue until the debt is paid in full or until a court order is received telling the business toc cease garnishment. Unfortunately, processing wage garnishments aren’t as simple as sending a check to the court. Particular paperwork and accounting must be filed at statutorily defined times, such as a copy of the Interim Report form within 30 days after the end of each employee pay period and Final Report form after the debt is paid in full. Consult with an experienced Cleveland business attorney if you have any questions about your responsibilities or obligations as an employer.  

  • How long must an employee’s wages be garnished?  

An employer must withhold funds until one of the following occurs: 1) the debt is paid in full, 2) the creditor terminates the garnishment, 3) a court appoints a trustee and halts the garnishment, 4) filing of a bankruptcy proceeding, 5) a garnishment of higher priority is received (however, if the higher priority garnishment does not take the maximum amount that can be withheld, the remainder should be used to satisfy the other garnishment.), 6) another garnishment is received from a different creditor and the old garnishment has been processed for a certain length of time as denoted in the local court rules, see an attorney if this circumstance arises.   

  • What if an employer refuses to process a wage garnishment?  

Processing wage garnishments are a pain for businesses and they are only entitled to deduct $3.00 per garnishment transaction. Naturally, the next question is, why do them at all? Well, the wage garnishment documents are essentially an order from the court and disregarding or ignoring them can open a business up to contempt of court proceedings. Contempt can result in fines, damages for attorney’s fees, and court costs, and, in the end, the contempt business will still be forced to process the wage garnishment. Thus, ignoring and failing to respond or process to wage garnishment is not a viable option, and since employers only have a few days to respond, complete and return mail the forms as soon as received. Every business attorney will say the same thing, you don’t have it like it, just do it.  

Note, simply firing the relevant employee is not an option either, an employer may not discharge an employee solely because of a garnishment by only one creditor within any one year. Even in the case of multiple and habitual wage garnishments, always consult an experienced Ohio business attorney before terminating an employee solely for this cause. 

 

Business Attorney Baron Law

The Difference Between Business As Usual And Bankruptcy. Here Are Two Ohio Laws That All Business Owners Must Know!

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Every business and every business owner should be aware if and how the Consumer Sales Protection Act (“CSPA”) and/or the Home Solicitation Sales Act (“HSSA”) effects their business. On the first day of law school, every new law student learns that ignorance of the law is no defense. The same applies to business owners. In the context of CSPA or HSSA violations, being unaware of the law, which in turn leads to noncompliance of the law, can open you up to thousands of dollars in damages, discretionary rescission of expensive contracts, and ruin your hard-earned professional reputation. The CSPA and HSSA are lengthy statutes which cover a multitude of business and scenarios and, as such, require an experienced hand to walk you through all the wrinkles and hurdles. If your personal knowledge of these statutes is lacking, never hesitate to contact an experienced Cleveland business attorney. A little forethought now, can save you a whole lot later.    

  • What is the CSPA and HSSA? 

The Ohio CSPA is located under Chapter 1345 of the Ohio Revised code. In a nutshell, the CSPA prohibits “suppliers” from committing unfair or deceptive acts or practices in connection with a “consumer transaction.” Naturally who is and is not a “supplier” and what is or is not a “consumer transaction” under the CSPA are pivotal first points of analysis. Further, the CSPA does not stand alone. The CSPA works in conjunction with Ohio’s HSSA. Again, to simplify everything, the CSPA is a list of things considered unfair or deceptive acts or practices and denotes potential avenues for redress of legal grievances for harmed customers. On top of the CSPA, the HSSA also provides an additional list of things considered unfair or deceptive acts or practices and denotes potential avenues for redress of legal grievances for harmed customers but with slightly different triggering circumstances, i.e. the existence of a home solicitation sale, hence the name, and different recovery options for customers.  

  • Why should business owners care about the CSPA and HSSA? 

Many businesses and industries are subject to the laws and requirements of the CSPA and HSSA without even knowing it. Thus, these businesses are running around selling services and completing jobs all the while exposing themselves to massive amounts of potential liability. Remember, ignorance of the law is no defense and all it takes is one persnickety consumer to ruin your whole fiscal year and eat all your profits through litigation.   

In the context of home improvement, residential contractors, HVAC, roofers, electricians, landscapers, concrete work, repairs companies, and other home sale situations, to name only few, if a company has committed an unfair and deceptive trade practice, a consumer often has 1) the right to cancel the agreement, 2) receive a full refund, and 3) depending on the circumstances may not even have to return any materials or pay for any labor already performed.  

The CSPA includes a non-exclusive list of specific acts and practices that are conclusively “unfair and deceptive” and therefore violate Ohio law. The CSPA, via the HSSA, also includes specific “home solicitation sale” remedies, one of which includes a statutory right to a three-day right to cancel period when the contract is signed at the consumer’s residence. Every seller must notify the buyer of his or her right to cancel the sale and provide the buyer with a “Notice of Cancellation” form that the buyer can use to cancel the sale, both the notice and the form to cancel have specific statutory requirements. If the supplier fails to include notice and proper language regarding this 3-day right in the contract or use the proper forms, consumers are entitled to cancel their agreement whenever they wish because the 3-day timer never started. Courts have said in these situations that the right to cancel never expired, even many years after the job was done. Only following the law by delivering proper documents does a supplier start the clock. In turn, this allows homeowners to bring a claim for a refund or to get out of paying money owed on a contract well after the two-year statute of limitations under the CSPA has run out. 

  • Recent changes in the CSPA and HSSA. 

As previously stated, the CSPA and HSSA together represent a list of unfair and deceptive trade practices which often triggers liability for the offending company. Ohio Senate Bill 227, which became effective on April 6, 2017, added a new practice to this list that is conclusively violative, as in if you do it, legally there is no discussion over whether it was “unfair and deceptive” under the CSPA, it just is. This new violation is: 

“[T]he failure of a supplier to obtain or maintain any registration, license, bond, or insurance required by state law or local ordinance for the supplier to engage in the supplier’s trade or profession is an unfair or deceptive act or practice.” 

In short, under current Ohio law, even the most careful and observant supplier can violate the CSPA/HSSA by failing to timely renew any registration, license, bond, or insurance that the supplier is required to maintain under state or local law. As such, ignorance can no longer be the standard operating procedure for services such as HVAC, electrical, plumbing or refrigeration work, and other suppliers of home services. Further, for businesses who use outside contractors or other temporary workers, the risk is even more severe. Now you must be sure not only are you and your employees bonded and licensed, but any contractors have the proper paper work as well, even though technically, they are not your employees. Often courts find the burden is on the business to make due diligence and ensure compliance, responsibility must fall somewhere, and it sure isn’t going to fall on the consumer. 

Furthermore, albeit a more minor change, Senate Bill 227 also updates the Notice of Cancellation requirements under the HSSA to include fax or e-mail options, which the supplier must provide. In turn, the customer/buyer can now cancel the sale by delivering the Notice of Cancellation “in person or manually” or by “facsimile transmission or electronic mail” to the seller. As such, even a minor oversight such as not including fax or e-mail cancellations options on standard forms can open up a world of litigation pain on an unknowing business. 

A law without consequences is a paper tiger. You may ask yourself, who cares if technically my business engages in unfair or deceptive acts or practices. Well, for CSPA and HSSA violations, often customers are entitled to triple damages and attorney’s fees, good for them, bad for business owners. No stretch of the imagination to see a couple of CSPA/HSSA lawsuits can kill a profitable business real quick. Notice, under Ohio law it doesn’t matter if failure of compliance was willful or inadvertent, the only thing that matters is did you break the law. This is why it is important to maintain a good and ongoing relationship with a local Cleveland business attorney. Often the legal requirements for local business are buried deep within local ordinances and administrative code. Remember, what you don’t know can hurt you and, just like everything else with a business, it is on owners to stay current, but most especially, compliant with any recent changes in Ohio law.  

 

Cleveland Ohio Business Attorney

If I Have A Dispute With My Employer Or My Employee, Do I Have To Go To Court?

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Baron Law, LLC is your trusted law firm for business owners and entrepreneurs. Don’t wait until it’s too late to consult/hire a business attorney for your legal issues.

Litigation is an expensive and time-consuming process, but sometimes it a necessary one. Some disputes escalate too quickly, involve issues too complex, or concern such vast amounts of money or resources that resolution through the courts is the only realistic option. That said, most of us won’t be involved with extensive litigation regularly but even relatively simple matters, after lawyers and judges are involved, can balloon into runaway trains of expense and stress. That is why alternative dispute resolution options are becoming more popular both in business and personal transactions. Mediation and arbitration are ways to resolve disputes amicably but also save costs, save time, and save business relationships. Any business owner who uses lawsuits as the primary means to solve grievances will find profits quickly fall and business prospects dry up. A local Cleveland business attorney can tell you how install arbitration and/or mediation procedures into employment, business, and contractor agreements so if problems ever do arise, more options will be available to you to resolve the dispute.

I) Mediation

What is Mediation?

Mediation is a confidential and non-binding dispute resolution process often used as an alternative to lengthy and expensive lawsuits.

Per the Uniform Mediation Act Section 2(1), mediation is a process in which a mediator facilitates communication and negotiations between parties to assist them in reaching a voluntary agreement regarding their dispute.

Per O.R.C. § 2710.07, mediation is confidential and whatever transpires at mediations isn’t disclosed publicly. Further, statements made at mediation are not admissible as evidence. See Ohio Evidence Rule 408. Statements during mediation are not admissible evidence because public policy is better served if the parties can speak openly and honestly during mediation. Thousands of man hours and millions of dollars are saved by steering disputes out of the court system and resolving them through mediation.

At the conclusion of a successful mediation, mediation agreements are entered into by parties to further solidify and confirm confidentiality and set out the terms of the amicable resolution. Your business attorney can draft one up when the time comes.

Why to Mediate:

Ultimately, it is cheaper and faster to resolve a dispute with mediation than going to court. Further, mediation preserves personal and professional relationships. Litigation and legal complaints are the nuclear option which effectively destroys trust and relationships. Furthermore, you have greater control over the outcome of mediation, unlike litigation. With litigation, the trier of fact, either a judge or jury, decides the case.

With mediation, you have input over the final resolution of the matter, greater availability of creative solutions (non-monetary), can reduce legal expenses and loss of business opportunities and profits. Additionally, privacy is often a major benefit of mediation, legal decisions are publicly accessible and litigation involves more people naturally. Thus, more people means greater likelihood of embarrassing information getting out.

Further, mediation is designed to overcome barriers to communication such as difficult opposing party and difficult opposing counsel. It is much harder for these parties to be stubborn and unrealistic to a licensed mediator, such mediators won’t put up with any horseplay or unconscionable negotiation tactics and are highly motivated to seek and facilitate a quick resolution.

When is the best time to mediate?

At the outset/before a dispute – it may be more successful to “nip it in the bud” because it takes place before the knives of litigation come out, hurting feelings and entrenching conflicting positions.

After partial discovery – may be beneficial to mediate after some discovery because both parties have incurred attorney fees and discovery expenses and, at this point, both parties have a deeper understanding of the relative strength and weaknesses of both sides. Furthermore, the costs incurred so far puts in it perspective for both parties the cost of protracted fighting.

After full discovery, but before trial – at this point it is basically the last chance to mediate before a lengthy, and correspondingly expensive, courtroom battle occurs. Furthermore, this is the last chance for the parties to resolve the dispute themselves before it is handed over to a trier of fact, and who knows what they’ll do. Remember, OJ went to jail for robbery, not murder.

Who attends a mediation?

A person with authority to make binding decisions, for both parties, often a designated agent or attorney. Additionally, others with knowledge of dispute or who are instrumental for final decision, often this means spouses and/or business partners.

II). Arbitration

What is Arbitration?

Arbitration is a contractual agreement to submit disputes to a third-party neutral for a binding decision. See O.R.C. § 2711. Arbitration occupies the middle ground between mediation and full-blown lawsuit.

Why Arbitrate?

Arbitration is an alternative dispute resolution available when a final and binding resolution is needed as quickly and cheaply as possible. The decision of an arbitrator or an arbitration panel is binding and enforceable at law. Lawsuits may be used to enforce the decision if the losing party does not comply. In such a lawsuit, an arbitration decision can be very persuasive evidence to possess. Further, noncompliance to a binding arbitration decision often makes this party liable for the costs of enforcing the decision, that is they have to pay the attorney fees of the innocent party to sue them.

Arbitration is often more beneficial in the business context where the financial stakes are higher. Many businesses operate within the confines of a delicate web of supply and distribution where even a relatively minor and short-term disruption can cause significant damage to on-going operations. Further, in our current age of social media, public perception is more critical than ever before. Thus, embarrassing or unpopular information regarding how a company does business getting out can do more damage and cost more money than the underlying dispute.

Important to note, however, arbitration cannot used to settle disputes concerning ownership or real estate. See O.R.C. § 2711.01(B)(1). However, a local Cleveland area attorney can easily add arbitration provisions to trusts, and such trusts can be funded with real estate. As such, arbitration is available in a widely variety if contexts if an experienced Ohio attorney is used.

An Ohio business attorney is in the best position to advise on the most effective alternative dispute resolution process for you and your situation. We’ve all heard the stories of business owners or owners and customers suing one another over relatively minor sums of money, then at the end of the long lawsuit, the attorney fees dwarf the amount of money that was originally fought over by the parties. Smart and precise use of alternative dispute resolution procedures can save your business thousands of dollars not only for one business deal gone bad, but many times over during the life of your business.

For information on arbitration, mediation, or any other business law matter, contact the attorneys at Baron Law LLC. The author of this blog, Mike Benjamin, can be reached at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Mike can also be reached at mike@baronlawcleveland.com.

About the author: Mike E. Benjamin, Esq.

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.

Disclaimer:

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.

Baron Law LLC Cleveland Ohio

I’m Thinking Of Incorporating My Business, What Is An S Corporation?

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Are you thinking of incorporating your business? Have you considered becoming an “S Corporation” instead. Cleveland Business Attorney Baron Law LLC offers you the following information to consider before making the choice. What are the advantages of becoming an “S Corp”?

Nowadays many businesses are taking advantage of incorporation to protect themselves and their owners. A common question is which type of business structure is best. Should I create an LLC, C-Corp, or S-Corp? Sole-Proprietorship? Partnership?

As with many legal and economic questions, the answer isn’t black and white. The reason there are so many options when forming your business is because every business venture is different and possesses different opportunities and issues. That is why a good business attorney is invaluable. Ultimately, knowing which type of business entity to create is best found out through experience, and a good Ohio business attorney will have the necessary experience to help you make the best decision. For this discussion, though, S-Corporations are the focus. “S-Corps” have been steadily rising in popularity in recent years and many small business owners are wondering if and how using this type of incorporation is right for them.

What is an S corporation?

An S corporation is a pro-profit corporate structure that elected to be taxed under Subsection S of the Internal Revenue Code. Such election subjects the corporation to “pass-through” taxation while still retaining many of the benefits of “regular” incorporation.

The first primary distinguishing characteristic of an S-Corp is the pass-through taxation. That is corporate income, losses, deduction, and credits pass through the corporation to its shareholders for federal tax purposes. Thus, the shareholders report the profits and losses of the S-Corp, which is proportionally assigned to each shareholder’s ownership interest, on their individual tax returns and are taxed at individual income tax rates. This effectively avoids the double taxation that regular C-Corporations are subject to.

The second distinguishing characteristic of an S-Corp is the relative difficulty in formation. That is, compared to making an LLC or a C-Corp, the IRS/Secretary of State is much more stringent with the formal requirements of an S-Corp. Consequently, the initial satisfaction of these requirements and the continuing obligations inherent in remaining S-Corp eligible means more paperwork and corporate legwork is needed compared to other corporate forms. Ensuring these requirements are met, every year, is a major reason why Ohio business attorneys are retained. Finding out during tax season that your business was in violation of the IRS code and was subject to a completely different tax structure may leave a company insolvent or unknowingly operating at a loss for the fiscal year. Not exactly a fun conversation to have with shareholders.

What are the requirements of an S corporation?

Per the Internal Revenue Service, to qualify for S corporation status you must first file for “regular” corporate status then elect to become an S-Corp by submitting IRS Form 2553, Election by a Small Business Corporation. In order to file IRS Form 2553, a corporation must observe the following formalities:

The business must be a domestic corporation or a domestic entity eligible to elect to be treated as one.

The business cannot have more than 100 shareholders. (Note, spouses and members of the same family, respectively, are treated as one shareholder.)

The business must only be comprised of allowable shareholders. Only permittable individuals, trusts, and estates under the IRS code. Partnerships, non-resident alien shareholders, and other corporations are not allowed.

The business must only have one class of stock. Generally, a corporation is treated as having only one class of stock if all outstanding shares of the corporation’s stock confer identical rights to distribution and liquidation proceeds.

Each shareholder consents to the S-Corp election and manifests such consent in writing.

The business is not an ineligible corporation for S-Corp election, that is certain financial institutions, insurance companies, possessions corporations, or domestic international sales corporations.

Furthermore, S-Corps must also observe more stringent internal corporate formalities. This proves to the IRS that the S-Corp election, and its accompanying advantages, are being used for legitimate business purposes and not to the detriment of the public or for ill-gain. The logic is if shareholders are willing to follow the rules in regard to corporate management, then probably the business isn’t stealing or hurting people. Some of the required formalities for S-Corporations include: adopting corporate bylaws, issuing stock to shareholders, holding an initial director and shareholder meeting, holding the same meeting at least once a year, and recording and storing meeting minutes within corporate records. An experienced business attorney can draft a comprehensive business plan to follow and assist in its implementation.

What are the benefits of an S corporation?

Asset Protection

All corporations, like LLCs, C-Corps, and S-Corps, provide their owners/shareholders with limited liability protection. Limited liability means that the owners or shareholders personal assets are protected from claims of the creditors of the business. This includes claims that also arise from contract disputes and litigation, either the cost of defending or prosecuting litigation or via adverse judgments against the business. Without this shield, which comes from filing and choosing to operate a business via a corporate form, debts of the business attach to the individuals running the business. In light of this big personal risk, most people would choose not to operate a business. This is why a Cleveland business attorney is so important, these attorneys ensure that the required corporate formalities are followed so the limited liability shield is recognized by the courts and creditors and can protect you.

Pass-Through Taxation

As previously mentioned, S-Corps are classified as pass-through business entities. As such, they avoid double taxation that C-Corps are subject to. Double taxation occurs when dividend income is taxed at both the corporate level, when the business receives the profits, and at the shareholder level, when the shareholder receives their proportionate share of the business dividends. Instead of the IRS getting two bites, with S-Corps they only get one. Further, additional corporate benefits such as business income, tax deductions, losses, and certain credits also can pass through the S-Corp to the shareholders.

Deciding to incorporate and choosing which type of corporate structure to operate as are big decisions. The particular type of corporate form you go with fundamentally affects how you will run and manage your business. A business attorney is in the best position to advise and assist in making the best decision. Regardless of how you incorporate, any comprehensive corporate formation will include, at minimum, an operating agreement, certificates of membership, articles of incorporation, EIN number, subscription agreement, recommendations, and appropriate filing fee. For existing and soon-to-be corporations alike, make sure you have all these documents, failure to do so could cost you thousands of dollars down the line.

You don’t have to be rich to protect what you’ve spent a lifetime trying to build. To find out whether a trust is right for your family, take the one-minute questionnaire at www.DoIneedaTrust.com. There are a number of different trusts available and the choices are infinite. With every scenario, careful consideration of every trust planning strategy should be considered for the maximum asset protection and tax savings. For more information, you can contact Mike Benjamin of Baron Law LLC at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Mike can also be reached at mike@baronlawcleveland.com.

About the author: Mike E. Benjamin, Esq.

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.

Disclaimer:

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.

Baron Law LLC

Garnishment: Exceptions

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Because of the recent upturn in the housing market, it has never been a better time to purchase property for the purpose of renting it out. Not only do new homeowners receive an appreciable asset but, if they are willing to take on increased risk and responsibility, they can make steady income through tenant payments. […]

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Baron Law Cleveland Ohio

DBA What Does It Stand For And Does My Business Need One?

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Cleveland, Ohio, business law firm, Baron Law LLC, Cleveland, Ohio, answers questions on what a DBA (aka “Doing Business As”) is and should you set your business up in this manner. For more comprehensive information contact Baron Law Cleveland to schedule an appointment to discuss the different ways you could set up your business and what would be most beneficial to you. 

I recently sat down with an immigrant from Africa who said one of the amazing things about America is that anyone can run a business doing anything. We likely take it for granted that the industrious and entrepreneurial here can chase their dreams while in other places such freedom to pursue economic endeavors is lacking. This freedom to create and operate your own business, however, is not the wild west. With freedom comes the opportunity for malicious or incompetent business practices, just ask anyone unfortunate enough to employ a shady auto mechanic, landscaper, or financial planner. That’s why to protect the public, lay down some semblance of order, and make ways to address misconduct and grievances, Ohio law has rules on how businesses can be run. These rules are partially why starting up a business is such a complex process with a lot of moving pieces and paperwork. Thus, retaining an experienced Ohio business attorney will ensure the proper foundation is set so your business can succeed and grow.

DBAs, i.e. doing business as, sometimes referred to as Fictitious Business Names or Assumed Business Names, are a product of consumer protection laws. Naturally, with the ability of anyone to make a business and also operate under a business name, often people don’t know who they are actually working with or who they hired. The potential for confusion and pseudo-anonymity with small businesses leads to risks for consumers. Namely, the inability to pursue legal remedies for misconduct simply because they don’t know the identity of who to complain about or who is ultimately liable. This is why Ohio law incentivizes the use of DBAs and business registration for small business and punishes those who don’t

Trade name v. Fictious Name

In the legal world minor details often have big outcomes regarding procedure, responsibility, and liability. Whether you’re operating under a trade name or fictitious name can make a big difference. Under Ohio law a trade name means a name used in business or trade to designate the business of the use and to which the use asserts a right to exclusive use. You file with the Ohio Secretary of State to reserve your trade name so no other business can use it or claim it as their own.

Fictitious names, on the other hand, means a name used in business or trade that is fictitious and that the user has not registered or is not entitled to register as a trade name. These are not required to be distinguishable from the records of any other previously registered name and provide no protection or ownership of the name. Facially, the differences between trade and fictitious names appear simple, but the consequences for not having either can be dire for business owners. Talk with a local Cleveland area business attorney to find out the how and why about the different methods of business registration.

Operating without a trade or fictitious name

In Ohio no person doing business under a trade name or fictitious name shall commence or maintain an action in the trade name or fictitious name in any court in this state or on account of any contracts made or transactions had in the trade name or fictitious name until it has first complied with Ohio law. See O.R.C. § 1329.10 (B). What this means for those operating without filing a DBA or a trade name is that these business owners are prevented from suing or counter-suing in the name of their business until the filing requirements are satisfied.

In the real world this means those operating without registered names can’t sue on delinquent debts, can’t sue over contracts entered into on behalf of the business, and can’t raise counterclaims in defense if the business is ever a defendant in a legal proceeding. This is the carrot and stick of Ohio law. If you prefer to operate without a registered business name, leading to potential customer confusion and greater chance for misconduct, than you aren’t allowed to fully exercise the legal rights of your business. Granted, though registration compliance allows retroactive enforcement of business rights, the time wasted recognizing, fixing, then filing upon newly reinstated rights can be crippling within a litigation context. Time wasted properly filing a DBA or trade name can mean the passing of a statute of limitations, missing a discovery cut-off, and/or the relinquishment of affirmative defenses. This is why finding and working with an Ohio business attorney when you’re starting a business or facing significant business growth is so important. I hear it time and time again from small business owners, “I wish someone would have told me that.”

How to file a trade, fictitious name, or DBA

The filings are relatively straightforward. You can use the forms provided on the Ohio Secretary of State’s website and file a trade name registration or report the use of a fictitious name. DBA’s, however, are not filings recognized by the Ohio Secretary of State. The use of trade names or reporting of fictitious names are similar to how DBA’s operate and largely accomplish the same purpose.

The devil is always in the details. Small business owners know the struggles of being pulled in a thousand directions at once and operating with a full schedule every work day. The last thing you need on your plate is dealing with complex legal issues that could have been, and should have been, addressed when your business was being created. A few filings and minor filing fees afford your business a lot more legal protection than most people realize. Hopefully, your business runs without a hitch and you never have to lean on these protections. For those business owners not so lucky, however, the legal protections which come from filing properly and being compliant with Ohio law can mean the difference between business longevity and filing for bankruptcy.

About the author: Mike E. Benjamin, Esq.

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.

Disclaimer:

The information contained herein is general in nature, is provided for informational and educational purposes only, and should not be construed as legal or tax advice. The author nor Baron Law LLC cannot and does not guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable in a given situation may impact the applicability, accuracy, or completeness of the preceding information. Further, federal and state laws and regulations are complex and subject to change. Changes in such laws often have material impact on estate planning and tax forecasts. As such, the author and Baron Law LLC make no warranties regarding the herein information or any results arising from its use. Furthermore, the author and Baron Law LLC disclaim any liability arising out of your use of, or any financial position taken in reliance on, such information. As always consult an attorney regarding your specific legal or tax situation.


Baron Law Cleveland Business Attorney

How Do Businesses Collect a Debt?

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Cleveland, Ohio, business law firm, Baron Law LLC, Cleveland, Ohio, answers questions on the laws which need to be followed when attempting to collect a debt.  For more comprehensive information contact Baron Law Cleveland to schedule an appointment if you have found yourself in a situation where you are unable to collect a debt.

Unfortunately, people don’t pay their bills on time, sometimes not at all. This is just a reality of business. Tenants fail to pay rent, purchasers don’t pay in full, and business associates don’t uphold their end of the bargain. Naturally, the human reaction is to immediately go after wrongful parties and get what you’re owed. In reality, however, debt collection is not a simple and straight forward process. That is why third-party collectors are often used. However, over the many decades and centuries of business, whether a legitimate debt was owed or not, these collectors went too far in attempting to right a wrong.  In response, nowadays there are rules and regulations governing debt collection practices to prevent misconduct. As such, cavalier or aggressive debt collection practices can, ironically, make a legitimate debtor liable for more than the debt they are trying to collect on. This is why contacting the services of a local Cleveland area business attorney is so critical. A single lawsuit over debt collection misconduct can ruin a quarter, but longtime or routine debt collection misconduct can lead to bankruptcy via litigation.   

  1. What laws apply when I’m trying to collect a debt? 

The three main laws that every third-party debt collector should be aware of when collecting debts is 1) the Fair Debt Collection Practices Act, 2) the Ohio Fair Debt Collection Practices Act, and 3) the Consumers Sales Practices Act.   

  • FDCPA – this federal law limits the behavior and methods of third-party debt collectors who are trying to collect a debt for another, whether a real person or otherwise. Within are rules regarding timing, method, and form of contact, causes of action for misconduct, and duties of specialized debt collection personnel.  

 

  • OFDCPA – This Act primarily concerns the legal conventions and guidelines that must be observed when a debt is assigned for collection by another, i.e. a third-party creditor. The Ohio FDCPA adds additional safeguards to the Federal FDCPA in order to ensure assignees of debts are legitimate businesses with legitimate credit claims.   

 

  • CSPA – this law primarily provides causes of action for deceptive trade practices, of which debt collection is regularly a context. Various Ohio courts have said that various violations of the FDCPA constitute a violation of the CSPA in that the purpose of both acts is to prohibit both unfair and deceptive acts and any violation of the FDCPA is necessarily an unfair and deceptive act or practice in violation of the CSPA. 

 

What are the things I can’t do when collecting a debt? 

Simply, a third-party debt collector cannot engage in deceptive trade practices. What is a deceptive trade practice is a much litigated issue. However, the particulars of what conduct constitutes a deceptive trade practice are too numerous to go over here, but a local Ohio business attorney will be more than happy to fill you in on the details and makes sure you’re not violating State and/or Federal law.  

The short answer though, in the context of debt collection, is that a deceptive trade practice is an activity by an individual or business that is meant to mislead or lure a debtor into paying a debt that isn’t owed, paying more than is owed, attempting to collect in an aggressive, harassing, offensive manner or failing to follow proper form when communicating with a debtor. Within the FDCPA, OFDCPA, and CSPA, there are sections which explicitly state that a violation or one or more provisions of the law is conclusively a deceptive trade practice thus justifying damages.  

How much lability could I be facing for improper debt collection?  

Just under the FDCPA alone, any debt collector who fails to comply with any provision of this law with respect to any person is liable to such person in an amount equal to the sum of 

(1) any actual damage sustained by such person as a result of such failure; 

 (2) additional damages up to $1,000; and/or 

 (3) reasonable attorney’s fees if the court finds them justified. 

 

How do I make sure I’m not breaking the law when trying to collect?  

State and federal law must be followed to the letter when attempting in collect on a third-party debt. An Ohio business attorney can create a compliant debt collection program, complete with compliant forms and communications, to ensure any legitimate debt isn’t consumed by legal damages.  

There are, however, some standard methods to remain compliant under state and federal law. 

  • Mini Miranda Notice – the law requires that any debt collector inform a debtor in the initial communication that “this communication is from a debtor collector. This is an attempt to collect a debt and any information obtained will be used for that purpose.” This is commonly called the mini-Miranda and puts the debtor on notice of who they are speaking with and why. If the first communication with the debtor is oral, this notice must be given orally and included in the first written communication. Regardless of who initiates communication, this notice must be given.

 

  • Debt Validation Notice – every third-party collector must within 5 days of the initial communication send the debtor written notice containing the following:  

1) the amount of the debt,  

2) name of creditor that’s owed the debt,  

3) statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector, 

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector, and 

 (5) a statement that, upon the consumer’s written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.  

 The purpose of this notice is to inform debtor of important rights, timing deadlines, and authenticity of the debt being pursued.  

 It is never fun for either the debtor, creditor, or collector to pursue an outstanding debt. Feelings get hurt, lives are disrupted, and valuable business resources and time is wasted. Therefore, it is wise to ensure that state and federal laws are not being broken on top of all that. Throwing potential litigation in with the contentious profession of debt collection begs for trouble.  As such, wise debt collectors retain the counsel and guidance of experienced business attorneys to enable them to focus on recovering debts, not worrying about compliance with government rules and regulations.  

 You don’t have to be rich to protect what you’ve spent a lifetime trying to build. To find out whether a trust is right for your family, take the one-minute questionnaire at www.DoIneedaTrust.com. There are a number of different trusts available and the choices are infinite. With every scenario, careful consideration of every trust planning strategy should be considered for the maximum asset protection and tax savings. For more information, you can contact Mike Benjamin of Baron Law LLC at 216-573-3723. Baron Law LLC is a Cleveland, Ohio area law firm focusing on estate planning and elder law. Mike can also be reached at mike@baronlawcleveland.com.  

Helping You And Your Loved Ones Plan For The Future

About the author: Mike E. Benjamin, Esq.  

Mike is a contracted attorney at Baron Law LLC who specializes in civil litigation, estate planning, and probate law. He is a member of the Westshore Bar Association, the Ohio State Bar Association, the Cleveland Metropolitan Bar Association, and the Federal Bar Association for the Northern District of Ohio. He can be reached at mike@baronlawcleveland.com.   

 

Cleveland, Ohio Attorney

What is Business Succession?

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Whether you’re planning for retirement or the life of your business after your death, it’s imperative to develop a business succession plan to sooner rather than later.   There is no “one plan fits all” when it comes to developing a succession plan for your business.  And given that the economy is constantly changing, it isn’t surprising small business owners focus their energies on business survival, future growth, and even remaining active in business after retirement.

Business succession is about three things (1) Estate planning; (2) Retirement; and (3) Risk Management.

Estate Planning

Your estate plan should be incorporated into your business succession plan.  What will happen to your company assets after you die?  Who will run your business?  If you want to provide for your family using your business assets, you should consider at the very least having a last will and testament.  Carefully drafting your will allows you to select desired beneficiaries, elect an executor, and transfer your assets through probate.  Your family will be going through a difficult time.  Setting up a last will and testament in advance helps your family during that difficult time.

Retirement

When thinking about retirement, it’s important to consider your options when selling your business.  Will you sell with a lump sum, installments, mix, employee buy-out, or merger?  There are numerous options when planning for your retirement and taking advantage of the business you built.  Thus, business succession is about planning for your exit strategy.  To learn more about your options, visit this article.

Risk Management

Business succession is about limiting your risk.  If you have partners within your company, you should be aware of the risks involved.  For example, if your partner gets divorced, their spouse is entitled to the partner’s share in the business through the divorce proceedings.  If your partner dies, you can now be partners with their spouse or estate.  One option to avoid this potential risk is to create a buy-sell agreement through a cross purchase agreement or entity purchase agreement.

Business succession is an important idea that every business owner should consider.  Contact your Cleveland, Ohio business succession and estate planning attorney for more information on how to set up your plan.  You may also consider contacting Cleveland, Ohio law firm Baron Law LLC at 216-573-3723.