Risk Management Archives - Benenati Law Firm, P.C.

Protecting The Business Owner

Craig Backus — Tue, 28 Apr 2020 21:45:12 +0000

Most business owners form an entity through which the business is operated. Any of the following may have been formed when the company was started: a corporation, a limited partnership, or a limited liability company (LLC). One of the reasons to form an entity is to protect you, the business owner, in your individual capacity, from any liabilities of the business.

However, even with the protection of an entity, an owner must remain diligent. In a recent New Hampshire case, the court ruled that an individual member (owner) of an LLC could be liable if the owner participated in the action that caused the harm, even if it was on behalf of the LLC. For example, if the owner had knowledge of lead paint and did not do anything to correct the problem, then the owner could be liable. But more importantly, the Court found that merely being a member (owner), without some other overt act, is not enough to make the member (owner) liable for the operations of the business in the entity.

It is important to note that protection provided by the entity may not be absolute and any owner should be aware of how their business is operated.

Disclaimer:

This information does not constitute the rendering of legal, accounting or other professional services by Pete Benenati or Benenati Law Firm, PC. This information is not intended to create or provide an attorney-client relationship. Although care is taken to present the material accurately, any implied or actual warranties as to any materials herein are hereby disclaimed along with any liability with respect thereto.

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Asset Protection

Craig Backus — Tue, 28 Apr 2020 21:43:43 +0000

In today’s economic environment, people have become more and more concerned about liabilities, asset protection, and securing their future. Many of our clients are concerned that market conditions could cause them to experience economic or financial turmoil that is not within their control. For example, one of my clients did not seem to have any significant financial issues and was paying all of their business’ bills on time. However, when their line of credit was suddenly cancelled due to economic conditions, the cancellation almost caused them to have to close their business. I have been receiving more calls about how to structure asset ownership and how to protect from things going wrong, whether it be lawsuits, debt obligations, or their customers failing to pay, causing them in turn not to be able to pay their bills. There are many methods to structure the ownership and investment of your assets, and the structure of your business, which will offer you greater protection and more security should everything in your life suddenly go wrong. .

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Should I Form a Company For My Business?

Craig Backus — Tue, 28 Apr 2020 21:30:31 +0000

How many times have you heard, “you need to incorporate! You need to form a limited partnership (LP) or a limited liability company (LLC). It offers asset protection, and protection from creditors and lawsuits. It gives you better tax planning opportunities.” All of those statements are valid, however, a lot of people don’t know why.

Putting an entity around your business basically creates a wall between the business and your personal assets; if something happens inside the entity, it won’t put your personal assets at risk. There are exceptions to this statement, but in general, that is the effect. There is some work you must do to maintain that protection. Specifically, you need to respect the entity. An entity is a separate legal person; thus, it must be treated as such. Therefore, if you want to pull money out, you need to document it, whether as a loan, compensation, or a distribution. If you want to put money into an entity, do it either as a loan or a contribution. If you’re borrowing cash for less than a year, traditionally, it is okay to do it as a journal entry on the books. If it is longer than a year, you need to document it with a promissory note. The IRS wants to see that documentation for income tax purposes. Do not pay your personal expenses out of company assets unless you are willing and able to justify it as a business expense and can document it properly, otherwise, claim it as a personal disbursement to yourself. With corporations, there are also requirements to maintain annual minutes.

None of these issues alone traditionally cause problems, however, if a person decides not to respect the entity, all of these problems seem to exist. Any entity you own should be operated like any other prudent business investment. Maintaining proper liability protection for the entity is always recommended and failure to do so could be classified as failure to respect the entity. If you fail to respect the entity, then the liability of the entity could reach your personal assets, and your creditor’s attorney will argue: “Your Honor, he doesn’t respect the entity, why should we be subject to it?” This is not an easy argument to win, however, no one wants to be in a position of being on the opposite end of that argument.

Basic rules:

Form an entity – the form of the entity (corporation, LP or LLC) will depend on the particular circumstances of your business.
Respect the entity
Protect the entity

Disclaimer:

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Online Accounts and Your Estate Plan

Craig Backus — Tue, 28 Apr 2020 21:27:30 +0000

You may be surprised to know that the provisions of your Will or Trust may not allow for control of your online accounts, such as Google, Facebook, Amazon, iTunes, etc. When you sign up for an online service, you accept the terms of the Agreement, which governs your use, even after your death. For example, a Company could terminate your account upon notice of your death and you may have a credit that could not be accessed. It is very important to plan for such accounts at your death. You should have a list of accounts, passwords and other pertinent information in a safe place with your other documents to enable the people you leave behind to manage your digital assets.

Remember, any account that has your financial information leaves you vulnerable to identity theft after death. Please remember to treat these accounts in the same way you would desire for any other asset to be managed after your death.

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Is Severance Considered Compensation?

Craig Backus — Tue, 28 Apr 2020 21:26:24 +0000

There has been some discussion regarding the designation of severance pay for tax purposes. Is it considered compensation? The Supreme Court of the United States is hearing a case to determine if a severance payment made to an employee upon termination of employment should be considered compensation subject to FICA and Medicare taxes. If found not to be compensation, then such payments are not subject to FICA and Medicare taxes and an employer is not obligated to withhold such taxes or pay the employer’s share of those taxes.

Further, any such taxes paid by an employee or an employer on previous severance payments would be subject to a claim for refund, which must be filed within three years of filing the applicable income tax return. For instance, a refund claim for taxes paid on severance received in 2010 (and included with the April 15, 2011 tax return) would need to be filed by April 15, 2014. If no ruling has been issued by the Supreme Court by April 15, 2014, a protective claim for a refund can be filed. Failure to do so would mean forfeiture of the claim no matter how the Court ultimately rules. Please contact the Benenati Law Firm or your CPA if you need more information.

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IRS Changes for Automatic Gratuities

Craig Backus — Tue, 28 Apr 2020 21:25:27 +0000

“Gratuity included” may be a thing of the past for many restaurants. It is a common practice for a restaurant to add an 18% gratuity for parties over 6 people. Starting in January 2014, these automatic gratuities will be treated as wages paid by the restaurant to the server and subject to payroll taxes. According to the IRS, service charges added to a bill or fixed by the employer that the customer must pay, and are then paid to the employee, will not constitute a tip but rather non-tip wages. A tip is something given without compulsion and in an amount determined by the customer. So, if the restaurant tab was $200.00 and the restaurant automatically adds 18% (or $36.00), then the $36.00 will be treated as wages and the restaurant owner must collect and pay FICA and Medicare.

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Identity Theft Plan

Craig Backus — Tue, 28 Apr 2020 21:24:23 +0000

Beginning June 1^st, 2010, a business that extends credit is required to develop a plan to identify and prevent identity theft. The Federal Trade Commission (FTC) is responsible for enforcement of this rule.

The requirement to develop a written plan applies to obvious institutions that extend credit, such as banks and credit card companies, but also to businesses that perform services then bill later, such as a law firm.

What does that mean? According to FTC, the written plan must provide how to identify signs of identity theft. As expected, each business is different and thus, the signs of identity theft can be different for each business. An obvious example is someone paying with a credit card and the identification provided appears fake. Your business is required to provide guidance on how to identify a fake ID. In reality, think about your business and write down what you would do to prevent theft and how you would deal with the situation if it occurs.

The written plan does not need to be filed with the FTC and, unless a complaint is filed with the FTC, there is little likelihood of being asked for one. However, because it is now required, not having an implemented plan on file could result in a fine.

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