When Bad Guys Attack Small to Mid-Sized Businesses: 20 Data Protection Tips

Ruth Binger

By Ruth Binger



A cyber incident will happen to your company. It is not a matter of if, but when. Small businesses make an appealing target because hackers know they don’t spend as much on security as larger businesses and are not as careful.

According to a Towergate Insurance study, 82 percent of small business owners claim that they are not targets for attack because there is nothing worth stealing. However, employee personal data and health information and customer data are always worth stealing. Symantec reports that 43 percent of cyber-attacks worldwide in 2016 were against small businesses with less than 250 workers. In fact, cyber crooks try to rob bank accounts via wire transfers, steal customers’ personal identify information, file fraudulent tax returns, commit Medicare fraud, etc.

IBM estimates that nearly two-thirds of all cyber-attacks hit small to mid-sized businesses. More disturbing, the U.S. National Cyber Security Alliance estimates that about 60 percent of those hit are forced to close six months after an attack. A 2016 Poneman Institute Breach Report advises that the average price a small business has to pay after a cyber attack is about $690,000.

According to the 2017 Verizon Data Breach Investigations Report:

  • 75 percent of the breaches were perpetrated by outsiders (with 51 percent involving organized criminal groups) and the remaining involved internal actors.
  • 62 percent of the breaches involved hacking
  • 81 percent of breaches involving hacking leveraged stolen and/or weak passwords
  • Not surprising, malware installed via malicious email attachments was present in 50 percent of the breaches involving hacking
  • The victims of data breaches are:
    • Financial organizations (24 percent)
    • Health care organizations (15 percent)
    • Public sector entities (12 percent)
    • Retail and accommodations (15 percent)
  • One in 14 users are tricked into following a link or opening an attachment with 25 percent of the users making the same mistake twice

It’s all about the money: Perpetrators of data breaches steal and exploit sensitive data for financial gain. They are opportunistic, using phishing to poke for weak points to use as entry points. Phishing, the most common tool, involves collecting sensitive information like login credentials and credit card information through legitimate-looking but fraudulent websites. Ninety-five percent of phishing attacks led to a breach that was followed by the installation of some sort of malicious software (malware).

Small to mid-sized businesses can take preventive steps to minimize damage. Here are 20 tactics to employ to protect your data. Continue reading »

Observing Corporate Formalities

David A. Zobel

By David A. Zobel



Written by David A. Zobel  with contribution from Jeffrey R. Schmitt

Part 8 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

It is absolutely critical to keep in mind at all times that your limited liability company or corporation is not an alter ego or simply an extension of yourself. The entity’s bank account cannot be used as your personal bank account, you should not use the entity’s  money to cover personal debts, and, in general, your personal assets should not be relied on to continually cover your entity’s debts. This is true even if you are the sole member or shareholder. The entity is and must be treated as a separate “person” from yourself, with its own assets, activities, and representations.

Keeping that distance is often referred to as observing corporate formalities. Failing to do so can remove the very asset protections that your legal entity was designed to impart. Each business model is different and all necessary formalities cannot be listed for each company, but below are some general guidelines for observing the necessary formalities. Continue reading »

Operational Considerations – Purchasing Real Estate – Loan Documentation

David A. Zobel

By David A. Zobel



Written by David A. Zobel with contribution from James M. Heffner

Part 7 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be purchase the real estate you wish to lease (or invest in). The type of real estate which will be appropriate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this series of posts, we’re outlining several important issues when selecting a property to purchase: title insurance, indenture review, and ensuring appropriate loan documentation.

A Note on Loan Documentation

If you purchase your property with cash, you can skip over this section. However, if you are going to seek a loan from a traditional lender, you will want to make sure the loan is properly documented. This includes, to the extent possible, working with your lender to ensure the business entity (not the members/shareholders) is listed on the loan documents. Ideally, your entity will be listed as the borrower on the promissory note and the grantor of the deed of trust (mortgage) on the property to be acquired by your entity. This helps to distinguish the transaction as one of the business rather than that of the members and shareholders personally. Every lender is different and will have its own lending requirements.

As a side note, it is becoming increasingly common for real estate transactions to involve some form of tax credits as the credits can be critical in ensuring the economic success of a particular deal. The principles above concerning appropriate loan documentation are also applicable to seeking and securing tax credits.

Personal Guarantees and the Lender Exception to Asset Protection

When you seek a loan in the name of your company, the lender may still request the principals of the acquiring entity to personally guarantee the loan. This will be more likely the case with new entities, entities without other assets, and where the debt to equity ratio of the loan to property value is high. A personal guaranty of the principals helps assure the lender that if the company fails to pay the promissory note, the lender can still seek repayment from the individual(s) that caused the company to get the loan. Continue reading »

Operational Considerations – Purchasing Real Estate – Indenture Review

David A. Zobel

By David A. Zobel



Written by David A. Zobel  with contribution from Jeffrey R. Schmitt

Part 6 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be purchase the real estate you wish to lease (or invest in). The type of real estate which will be appropriate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this series of posts, we’re outlining several important issues to consider when purchasing a property: title insurance, indenture review, and ensuring appropriate loan documentation.

Indenture Review

Most title searches will disclose that the property you are purchasing is subject to certain local rules and agreements between neighbors. The terms used for these neighbor agreements will vary depending on the nature of the property. Condominiums are subject to declarations and by-laws while houses are typically subject to neighborhood or subdivision indentures. (For simplicity, we’ll refer to all of these agreements as indentures.) Continue reading »

Operational Considerations – Purchasing Real Estate – Title Insurance

David A. Zobel

By David A. Zobel



Part 5 of a 12-part series by David A. Zobel on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Once you’ve established your legal entity, the next step will be to purchase the real estate you wish to lease (or invest in). The appropriate type of real estate for your business will vary depending on a number of factors, including your location, level of investment, and potential tenant base. Not surprisingly, thorough research, inspections, and planning are critical to ensuring success. In this and the next two posts in this series, we’ll outline several important issues at this juncture: title insurance, indenture review, and ensuring appropriate loan documentation.

Title Insurance

When you purchase real estate you may be purchasing more (and maybe less) than the land and improvements you actually see. The land is likely encumbered by third parties who may have rights (possibly superior to your rights) to your land which could restrict your use and ownership in various ways. Encumbrances can be minor, such as a minimum set-back restrictions simply preventing owners from building up to a property line, but others can be more severe, such as utility or access easements, and even unreleased mortgages and liens – requiring the purchaser to pay up or lose the property. Continue reading »

Your Entity’s Governing Documents

David A. Zobel

By David A. Zobel



Authored by David A. Zobel with contribution from Michael J. McKitrick

Part 4 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Simply put, every company should have an agreed-upon, written set of rules identifying how the company is to be run and by whom. The names for these sets of rules vary depending upon the type of entity you have, e.g. operating agreements, partnership agreements, and shareholder agreements, but they are generally known as the company’s governing documents.

Common issues described and controlled by these governing documents include:

  • Ownership structure of the company including the source and amount of owner contributions)
  • Capital contributions and division of profits and losses
  • Roles and restrictions of the owners in managing the company
  • Decision-making process for the company including notice and voting procedures
  • How and where the company’s books and records will be kept
  • Policy regarding transfer of owner interests
  • Dispute resolution
  • Wind up and dissolution of the company

Additionally, if certain owners make special agreements with the company, including arrangements for the company to use an owner’s vehicles, tools, or other personal property, the nature and scope of those arrangements should be stated in a written, signed agreement. This helps avoid confusion as to the extent of company assets and observance of corporate formalities. Continue reading »

Tax Treatment Considerations When Selecting Your Entity

David A. Zobel

By David A. Zobel



Authored by David A. Zobel with contribution from Patrick J. Murphy

Part 3 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

With tax season upon us, we thought it particularly appropriate to outline the basics of how the entities outlined in Part Two are generally taxed on their profits and losses.

Limited Partnerships

Income, expenses, and losses of limited partnerships pass through the entity to the partners and are reported on their respective individual tax returns according to their proportionate interest in the partnership. The partnership pays no income tax itself, but is required to file an annual informational tax return.

Corporations

Corporations that have not made an election to be taxed under subchapter S of the Internal Revenue Code, on the other hand, do not have such “pass through” status and are required to pay their own taxes on profits. As such, they are required to file their own tax returns separately from their shareholders. Because of this additional layer of tax, shareholders end up being taxed twice on income – once initially on the corporation’s profit and then again when dividends are distributed.

Limited Liability Companies

Limited liability companies are not taxed themselves and profits and losses pass through to their members. Members report profits and losses on their individual returns in the same manner as the limited partnerships above. Although the limited liability company itself is not taxed, it is still required to file an informational return. Continue reading »

What Types of Legal Entities are Available?

David A. Zobel

By David A. Zobel



Authored by David A. Zobel with contribution from Patrick J. Murphy

Part 2 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

Several types of legal entities are available to operate your real estate venture. The entity type most appropriate for your business will vary depending on factors such as the number of owners, desired tax treatment, and management preference. Below we’ll outline several of the more commonly utilized types of entities available: limited partnerships, corporations, and limited liability companies.

Limited Partnerships

One commonly used entity is the limited partnership (LP). To explain how a limited partnership operates, it is first necessary to describe what constitutes a regular or general partnership.

A general partnership is typically defined as a business where two or more people share ownership and management. This type of partnership does not require a special filing with the Secretary of State and is generally presumed when two individuals go into business together. In a general partnership, each partner is expected to contribute to the business and management decisions are made together by the partners. Profits and losses are split equally between the partners in the absence of a written agreement. General partnerships do not have personal liability protections — each partner is personally liable for the debts and liabilities of the business.

An LP alters a general partnership in management and liability. LPs have a general partner and a number of limited partners. Management of the LP is vested in the general partner, who remains personally liable for all debt and liabilities of the business. The limited partners do not manage the day-to-day affairs of the company, but their liability is typically capped at the amount of their investment in the partnership. This entity type can be useful when silent investors are present. LPs can only be created through filings with the Secretary of State. Continue reading »

Aging Account Receivables? A Few Tips to Help You Finally Get Paid

David A. Zobel

By David A. Zobel



If you are in the business of selling something, whether it is materials, labor, services, or all of the above, chances are at some point your company will run into a situation where one or more of your customers fails to pay a bill.

Depending on industry custom or specific arrangement with a customer, an invoice may go unpaid for 30 or 60 days without much concern. However, when an invoice goes unpaid more than 90 or 120 days without agreement or explanation, the likelihood of payment of that invoice steadily decreases with time.

Aging account receivables result from a whole host of reasons. There are also varying responses to the problem. Here are a few tips to help address aging account receivables and hopefully help you get paid.

  1. Don’t Procrastinate – Deal with the Problem

One of the most common responses I’ve seen to aging account receivables is for the client to simply ignore the problem – even during the client’s own financial hardships. This will not fix the problem and will only make it worse. From a legal perspective, keep in mind that the remedies available to you for collection are governed by deadlines and time limits – some of which, like mechanics lien rights, can expire just a few months after your last delivery or work for the customer.

Acting quickly on unpaid invoices will help ensure you are able to take advantage of all available rights under the law or your agreement. From a practical perspective, you will also want to keep in mind the old saying “Out of sight, out of mind.” Keeping an invoice or statement in front of your customer will help keep the issue current and also convey to the customer you are committed to seeking payment. Continue reading »

Do I Need a Legal Entity?

David A. Zobel

By David A. Zobel



Part 1 of a 12-part series on Legal Considerations for Your Missouri Leasing Business: What You Should Consider Now, Later, and Throughout the Process

A common statement we’ve heard from folks considering getting into real estate leasing (or investing for that matter) is that they need or want “a LLC,” but far fewer seem to know exactly why. While there are certainly other valid reasons for choosing to operate your business through a legal entity, the primary basis for using one is asset protection.

Consider this: If you buy stock and the price plummets to zero, you’re typically out only the cost of your investment. Real estate investment, on the other hand, operates differently and may not necessarily end at zero or the cost of your investment, but can extend beyond to reach your personal home, bank account, and day-to-day finances. Proper use of a legal entity can help insulate you from that risk and ensure a bad investment does not turn into your financial ruin. The following scenarios help exemplify the importance of using a legal entity:

Scenario 1: Direct or Individual Ownership and Operation

John takes $50,000 from his savings and buys a condo in his personal name. He then enters into a lease with Bob, as landlord and tenant respectively, in his personal name. Within the first month of the tenancy, Bob falls down the stairs and is injured (ideally John would have insurance in place to cover such an incident, but let’s assume he doesn’t in this example). Bob racks up $75,000 in medical bills. Bob believes his injuries resulted from a defective condition at the condo and sues John, his landlord and owner of the condo, personally. Bob wins and obtains a judgment against John, personally, in the amount of $75,000. John refuses to pay the judgment and Bob begins collection efforts against John. Continue reading »