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.
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 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 »
04/4/17 6:15 AM
Business Law, Real Estate, Tax | Comment (0) |
Tax Treatment Considerations When Selecting Your Entity
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.
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 »
03/7/17 7:17 AM
Business Law, Real Estate | Comment (0) |
What Types of Legal Entities are Available?
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.
- 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 »
02/21/17 6:00 AM
Business Law | Comment (0) |
Aging Account Receivables? A Few Tips to Help You Finally Get Paid
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 »
02/7/17 6:57 AM
Business Law, Real Estate | Comment (0) |
Do I Need a Legal Entity?
By Jeffrey R. Schmitt
For many individuals and businesses, being served with a lawsuit is an uncommon, or possibly even a once-in-a-lifetime, situation. Litigation can be stressful and being served with a lawsuit is often surprising as well. However, in all situations when you or your business is served with a lawsuit, there are three simple, basic steps to best preserve your rights and protect yourself from the outset.
- Make Some Quick Notes
Often, as a result of the frustration or surprise associated with being served with a lawsuit, most people don’t pay attention to the details of how they were served. These details can be very important. There are specific rules and procedures about proper service of lawsuits, depending on the type of lawsuit and the court.
Take a few minutes to jot down notes related to the service. Specifically, identify the date and time of service, the manner of service including whether a sheriff or process server handed you papers or if the lawsuit was received by first-class or certified mail, and the recipient of those papers. These may be important facts for your attorney to know in determining whether or not service was proper and if you should contest service as a result.
Also, don’t assume that service is improper without getting legal advice. In some instances, service by mail or serving papers on your 16 year old son or daughter when you are not home can be proper service. Continue reading »
02/6/17 8:14 AM
Business Law, Litigation, Other | Comment (0) |
What to Do When You Are Served with a Lawsuit
By A. Thomas DeWoskin
As most commercial attorneys in Missouri know, the previous Missouri statute governing receiverships, which was enacted in 1939 and consisted primarily of one sentence, provided very little guidance to attorneys, judges, or the parties involved. Missouri’s new receivership statute solves that problem. Effective August 28, 2016, and consisting of some 34 sections, the statute now provides guidance regarding the appointment of a receiver, the powers of a receiver, the rights and duties of the parties, and claim and distribution procedures.
A petition to appoint a receiver is now an independent cause of action. It does not need to be merely an “add on” request to some other claim the creditor has against the debtor. Receiverships can be instituted in order to dissolve an entity, enforce a lien, enforce a judgment, and other specific purposes, as well as any other situations in which the court may find a receivership appropriate.
Commencing a receivership is also a useful new way to resolve an ownership dispute or allow a majority shareholder to challenge a misbehaving management without destroying the business.
One of the most important improvements in Missouri’s receivership process is the requirement of notice to debtors. Continue reading »
01/9/17 1:26 PM
Bankruptcy, Business Law | Comments Off on Missouri Finally Has a New Statute Governing Receivers and Receiverships |
Missouri Finally Has a New Statute Governing Receivers and Receiverships
By Joseph R. Soraghan
The entrepreneurial press, indeed, even the popular press, is abuzz about regulation crowdfunding (i.e., investment crowdfunding), which became legal on May 16, 2016. And according to some advertisements (primarily by portals, the businesses which will provide the platforms for such crowdfunding), the fund-raising company does not need an attorney, although it would be “nice.” Rather, they say, or imply, small and large businesses with their portals can simply get on the internet to quickly fund their ideas and better the economy at the same time!
Do not believe either the buzz or the advertisements.
Regulation CF is Only a Small (Albeit Very Important) Part of the Applicable Law
Regulation crowdfunding (17 CFR Parts 200, et seq.)(“Reg. CF”) though it is a sea change from (some of) the rules governing entrepreneurial finance, it is not for everyone. Indeed, for most entrepreneurs it should be considered as a last resort only. (See, for example, “Regulation Crowdfunding; Is it Right for You?”, St. Louis Small Business Monthly, June 2016, p. 29.) Secondly, Reg. CF adds to the rules and required steps for legally raising capital , and thus creates even more of a need for the assistance of a lawyer.
That is, the only (albeit very important) change in the law is that now certain “general solicitation” is allowed to promote certain types offerings of securities. But not all general solicitation is allowed. (For example, much information which could be promulgated other than on the platform of a portal such as by newspaper or television is still illegal.)
Virtually all other regulations, statutes, laws – and judicial lore – applicable to raising capital prior to Reg. CF remain applicable and will be applied by securities regulators – and by attorneys for investors who lose money in their crowdfunded investments. The securities regulators, which have authority to prosecute suspicious offerings, have been opposed to and wary of investment crowdfunding since it was required by the JOBS Act in 2012, including Missouri (see, for example, “Kander Issues Investor Alert on Crowdfunding.”)
With the exception of allowing (limited) general solicitation, all the law (and the lore of the regulators and courts which developed since the Securities Act of 1933) still applies to all offerings, including crowdfunded offerings. So do the complicated rules and methods. For example: Continue reading »
12/15/16 8:34 AM
Business Law, Crowdfunding, Emerging Business, Securities Law | Comments Off on Investment Crowdfunding Requires an Attorney — with Long Securities Law Experience |
Investment Crowdfunding Requires an Attorney — with Long Securities Law Experience
By Brian C. Zaldivar
A federal district court in Texas has delayed the enforcement of the Department of Labor’s changes in overtime regulations.
In May 2016, the Department of Labor published a final rule that has caused a fury of scrambling amongst employers, in both the public and private sectors, to review their employee’s salary levels and exempt statuses. This final rule relates back to the Fair Labor Standards Act (“FLSA” or the “Act”), enacted in 1938, which set minimum wages and provided for overtime pay for hours worked above 40 in a week. Section 213(a)(1) of the Act, however, exempted overtime provisions for any employee employed in a bona fide executive, administrative, or professional capacity. This is known today as the “EAP” or “white collar” exemption. The Act also gave the Department of Labor regulatory authority to “define and delimit” those exemptions.
The current regulations concerning the white collar exempt status, promulgated in 2004, required an employee to meet three criteria. First, an employee must be paid on a salary basis (the “salary-basis test”). Second, an employee must be paid at least the minimum salary level established by the regulations (the “salary-level test”). And third, an employee must perform executive, administrative, or professional duties (the “duties test”). See “It’s Almost Time: DOL Overtime Exemption Rules Effective Dec. 1, 2016” for more information on the current regulations.
The final rule, previously scheduled to be enforced December 1, 2016, revamped the white-collar exemption by increasing the salary-level test from $23,660 to $47,476. Any employee earning less than the new amount, but still paid on a salary basis and meeting the duties test, would be entitled to overtime pay at one and one-half times the employee’s regular rate of pay for all hours worked above 40 in a week.
Employers had a few options to become compliment with the final rule and avoid paying overtime, most popular were: Continue reading »
12/2/16 10:40 AM
Business Law, Employment Law | Comments Off on Uncertainty Regarding the Department of Labor’s Salary and Overtime Regulations |
Uncertainty Regarding the Department of Labor’s Salary and Overtime Regulations
By A. Thomas DeWoskin
Restaurants fail for a variety of reasons, from failure to watch costs to failure to develop the right menu to a nearby construction project eliminating most of your on-street parking. If you followed the tips in my previous article, you should have some money to rely on going forward.
If your financial problems are operational or managerial, one of the things you can do at this late stage is to hire a consultant to help you tweak your menu, streamline your operations, or take any of a number of additional steps to bring you back to profitability. This is the time to be humble, rather than arrogant – ask for help! You should also consult with a bankruptcy lawyer at this point. That does not mean you are necessarily going to file bankruptcy, but an attorney knowledgeable in this area can tell you what to expect if different scenarios unfold. Unanswered ‘end-game’ questions will add to your stress and divert you from your primary mission of saving your restaurant. You can learn a lot of useful information for not a lot of money, and gain some peace of mind as well.
A bankruptcy attorney also can help with your current problems. For instance, the attorney can negotiate with the landlord, either to reduce the rent or give back some space. He can negotiate with your lender and your suppliers to negotiate better terms, or a temporary break in your monthly payments. Continue reading »
09/19/16 6:00 AM
Bankruptcy, Business Law, Restaurants & Entertainment | Comments Off on Your Restaurant is Failing – Now What? |
Your Restaurant is Failing – Now What?