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Which Choice of Business Entity is Best for You?

Author: Diane Tiveron


December 22nd, 2014

There are essentially four types of entity choices for businesses: sole proprietorship, partnership, limited liability company (LLC), and corporation.

There are advantages and disadvantages to each.

The sole proprietorship simply means that there is one owner.  An owner may file an assumed name or business certificate allowing them to do business as “Joe’s Hot Dogs” or “Sally’s Car Rental” but essentially the business is identified and intertwined with the individual.  All of the income belongs to the individual and if the business incurs a debt it becomes the personal debt of the owner.

The corporate format allows an individual or a number of individuals to form an entity which has a separate legal identity and separate tax identity.  This form of doing business provides a liability shield and is important for individuals who have a significant amount of personal assets that would be vulnerable to business difficulties or lawsuits.

A sole proprietorship provides complete flexibility.  Since it is the individual that is at the core of the business, that individual can make decisions and focus on whatever he or she would like in an instant.  However, this complete flexibility comes with a cost.  If the business incurs debt or if it gets sued then this becomes the personal obligation of the individual owner and that person’s assets may be available to deal with these issues.

LLC’s are, for purposes of this discussion, essentially the same as corporations.  They provide limited liability and ease of ownership for a number of individuals.  Both the LLC and the corporation, depending on the circumstances, can engage in elections which allow for the income or loss of the particular business to be reported on an individual’s personal tax return.  This provides the benefit of lower tax rates.

A partnership is used by more than one individual but is not often recommended.  The reasoning is that, on a very basic level, an individual in a partnership is responsible for the actions of the other partners.  This makes the partnership format the least desirable.

You should always speak with someone (an attorney or an accountant) before developing the particular entity to operate your business.  These discussions can help you understand what is best for your particular needs.

Employer Shared Responsibility Provision in the Affordable Care Act



December 17th, 2014

Under the Affordable Care Act, federal government, state government, insurers, employers and individuals are all given roles to improve the availability, quality and affordability of health insurance coverage in the United States.  Applicable Large Employers (ALEs) must adhere to the employer shared responsibility provision, known as the “employer mandate.”  Small businesses that have fewer than 50 workers are exempt from the employer responsibility provisions. As of January 1, 2015, employers with 100 or more full-time employees are ALEs and must offer minimum essential coverage to those employees and their dependants to age 26, or pay a penalty tax.  Beginning in January of 2016, the employee requirement is reduced to 50.  In addition, the coverage offered must be affordable and provide minimum value of coverage to full-time employees and their dependants to age 26.  Employers must offer the coverage to 70% of their full-time employees in 2015 and 95% in 2016 and beyond.

A full-time employee is an individual employed 30 or more hours per week on average.  Employers will determine yearly whether they will be considered an ALE by using the values from the prior year.  For example, an ALE determination for 2015 is based on 2014 employee numbers.  Coverage must be offered to employees and their dependants, and there is no requirement for spouses of employees to be offered coverage.

Minimum Essential Coverage

Minimum essential coverage is defined as most employer-sponsored coverage, including self-insured plans, or health coverage provided by the government.  Coverage that only provides limited benefits is not minimum essential coverage.  For example, Medicaid providing only family planning services, or coverage consisting solely of excepted benefits like worker’s compensation, is not minimum essential coverage.

Affordability

The coverage is considered affordable when the employee’s share of the premium for the employer provided coverage for a single plan is less than 9.5% of that employee’s annual household income.  Because employers will not know their employees’ household incomes, three affordability safe harbors can be used to determine affordability.  If the employer meets the requirements of any of the following three safe harbors, the offer of coverage is considered affordable.

  1. Form W-2 wages – share of premium is less than 9.5% of employee’s W-2 wages
  2. Rate of pay – share of premium is less than 9.5% of employee’s monthly wages (lowest hourly rate multiplied by 130 hours per month)
  3. Federal poverty line – share of premium is less than 9.5% of the Federal Poverty Level for a single individual

Minimum Value

The coverage provides minimum value if it pays at least 60 percent of the total allowed cost of health care benefits provided to eligible plan participants.  The Department of Health and Human Services and the IRS created a minimum value calculator to determine minimum value.  An employer could also engage an actuary to determine this value.

Penalties

There are two prongs to the penalties associated with not complying with the employer mandate.

  • In 2015 if the employer fails to offer coverage to 70% (95% in 2016 and going forward) of their full-time employees and their dependants, and at least one full-time employee obtains Exchange coverage and receives a subsidy, the penalty is equal:
    1. $2,000 x the number of full-time employees minus 80 (minus 30 in 2016 and going forward).
  • In 2015, if the employer fails to offer compliant coverage to 70% (95% in 2016 and going forward) of their full-time employees and their dependants, and at least one full-time employee obtains Exchange coverage and receives a subsidy the penalty equals the lesser of:
    1. $3,000 x the number of full-time employees receiving coverage from the Exchange and receiving a subsidy, or
    2. $2,000 x the number of full-time employees minus 80 (minus 30 in 2016 and going forward).

Reporting

Beginning in 2016, ALEs are required to file information returns with the IRS and give statements to employees to report information about offers of health coverage for calendar year 2015.

If you have any questions about the above material please contact HoganWillig, Attorneys at Law at (716) 636-7600 or visit www.hoganwillig.com.  HoganWillig’s main office is located at 2410 North Forest Road in Amherst, New York with additional offices in Lockport, Lancaster and Buffalo.

Protecting Your Business’s Name

Author: Leonard London


December 11th, 2014

Many people believe that simply by incorporating a corporation or forming a limited liability company they will be entitled to exclusive use of the name.  This is not the case and another Corporation or LLC can be formed with a similar name as long as it is distinguished. A geographical limitation will often suffice. For example the Secretary of State would probably approve Rochester Acme Corporation even though Acme Corporation had been previously filed.

If your name is used in connection with goods or services the corporate or LLC name provides no protection against others using the name. For maximum protection a trademark or service mark registration should be obtained. If your goods and services are sold exclusively in New York you are eligible to apply for a New York registration which will offer protection against other New York users and establish your date of first usage. If your goods and services are sold in interstate or international commerce, including sales to Canada, you would be entitled to register your mark with the United States Trademark Office and that will provide additional protection.

Happy New Year! Begin 2015 With These Small Business Legal Resolutions

Author: Hogan Willig


December 9th, 2014

It is that time of the year again-when we reflect on the year that was and look forward to new beginnings.  We also resolve to be better people: help others, exercise more, eat better, stress less, save more are all popular.  But what about your business?

Focus on the big picture–Many small business owners focus all their attention on the day to day operations of the business and neglect the bigger picture.  It is important to set aside time every so often and plan for the future. Have a plan, create a growth strategy, implement a social marketing campaign.  Focusing some of your attention on the future will help you better prepare your business.  Because that distant day will be here before you know it.

File all your legal documents–If you are like many small business owners you have great intentions of filing legal documents. If you have been thinking of trade marking your name or logo make 2015 the year to do it.  Did you form an LLC in New York but never completed the publication requirement? Do so now.  Are you a sole proprietor? Now is the time for you to formalize your business entity.

Review your business insurance policies—If your policy is more than two years old now is a good time to review it.  Ensure the policy adequately covers your current needs.  Has the business expanded to another location? Did you introduce a new product? Did you hire new employees? Keeping your policy up to date with your business will ensure that you are protected should you need to use the policy.

Warmest thoughts and best wishes for a happy, healthy and prosperous New Year!!!

What’s In A Name? The distinction between separate and marital property



December 5th, 2014

Absent a prenuptial agreement to the contrary, everything accumulated during a marriage, with the exception of gifts from third parties, inheritances and personal injury awards, are considered marital property; title is not controlling.   This includes all income from employment received during the marriage.  Therefore, placing these monies into an account in your individual name will result in that account being considered marital property in the event of dissolution of the marriage.

This is a common misconception. Although many people know that inheritances or gifts received from third parties are considered marital property, a common mistake that people make is placing those funds into a “marital account”.  For example, during the marriage, the wife receives an inheritance of $20,000 from her father’s estate.  She places the funds into her individual savings account, which she has funded in the past with a small portion of her income, to pay for small items, including gifts for her Husband. Thereafter, she continues to fund and withdraw from the account in the same manner as she had throughout the marriage.   Unfortunately for the wife, in the event of termination of the marriage, her husband will have a strong argument that the $20,000 inheritance should be treated as marital property.  This is for two reasons: she placed the money into a “marital account” and she also continued to fund the account with marital monies.  When separate property is “commingled” with marital property, it can lose its separate property character and generally, will be considered marital property in the event of a divorce.

Therefore in the event that one party receives an inheritance or gift from a third-party or receives a personal injury award, that spouse should open and deposit the funds into a new account. Thereafter, no additional funds should be deposited into that account. Otherwise that separate property could lose its separate character.

Similarly, in the event that either spouse enters the marriage with premarital and therefore, separate property assets and a prenuptial agreement has not been executed, the titled spouse should take similar steps to protect those separate, premarital assets.  Keeping the assets in their individual name and not “comingling” them with marital assets or marital funds will help protect their separate character.

Another important distinction is that, while gifts from third parties received during the marriage will be considered separate property, gifts from the other spouse received during the marriage are considered marital property.   For example, if the wife purchases a new car for her Husband for his birthday using monies she received and set aside from her income and places the vehicle in the husband’s name, that vehicle will be considered marital property subject to equitable distribution.

New York is an equitable distribution state, which means that, in the event of a termination of the marriage, assets will be distributed equitably and not necessarily equally. For instance, the titled spouse of a business or a degree acquired during the marriage will generally be entitled to retain more than 50% of the overall value of that asset. The non titled spouse’s direct and indirect efforts as they relate to those assets will determine the non titled spouse’s interest during equitable distribution.

No one enters into a marriage with the intention of ending it and hopefully, most couples feel the same way for many years into their marriage.  However, everyone must recognize that people, things and people can change.  Therefore, understanding the law and your rights is important in the event that things do.

Commencement of Divorce Action



December 3rd, 2014

In New York State, an action for divorce is started by filing a summons and complaint in the office of the county in which either party resides.  The summons and complaint seek to alter the marital status of the parties and to have the Court determine appropriate ancillary relief, such as custody of and access to children, support for children, support for a spouse and the equitable distribution of property and debt.

The date on which a summons/complaint is filed (referred to as the “commencement date”) is important in New York because it establishes the earliest date from which a future order of support may be made retroactive.  It also provides the official end date of the accumulation of marital assets and marital debt.  Generally speaking, the date that an action for divorce is commenced is the date that is used to establish the value of marital property, such as the balance in a deferred asset like a retirement account.  Future contributions to the retirement account made by a participating spouse and/or his/her employer after the date of commencement are the separate property of that participating spouse and are not factored into a division of that account.

There are certain exceptions to the use of the commencement date as the valuation date of a marital asset, and the Court may, use a different valuation date such as the date of trial where appropriate.

New York state is an equitable distribution state which means that property and debt is divided fairly between the parties, not necessarily equally.  In shorter term marriages, a division of the marital estate may more closely coincide with each party’s income to the total income of the couple.  In longer term marriages, a division of the majority of marital assets will be equal between the parties.  This is particularly true when conventional assets, like bank accounts and investment accounts are divided.

However, when non-conventional assets are divided, like the value of a business created during the marriage, Courts are more likely to award the party who owns and operates the business with a larger share than 50% share of the asset.

One of the most fundamental tasks which a party in a divorce action will accomplish is the creation of a sworn statement of net worth, which identifies his/her sources of income, customary expenses, assets both marital and separate (meaning not created by marital efforts, like a gift from someone other than the spouse) in nature and debt obligations.  This document (coupled with underlying documentation) is the basis for the division of the marital estate and the awarding of support, if appropriate.

Once all of the information is gathered, then the parties through counsel can have meaningful discussions as to a resolution of the issues.  It is not uncommon for attorneys to rely upon additional  mechanisms for gathering information, such as the use of subpoenas, examinations before trial and the like.  The goal is the same – to put a party in a position where he or she feels that they have all of the information necessary to enter into a voluntary and knowing agreement; or, in the alternative, to advance their position at trial before a trial judge.

One of the most frequently asked questions is “how long will this take?”   And the answer is closely connected to how quickly all of the information can be gathered and digested and how quickly are the parties able to reconcile their positions.  When, for whatever reason, an issue cannot be resolved by the parties, a trial date will be set and a trier of fact (judge or court attorney/referee) will make a determination based upon the evidence and the law.

The Gray Divorce A New Marital Trend

Author: Robin Friedman


December 1st, 2014

The house is much too quiet.  The last child has been dropped off at college and now you are finally free.  Free to indulge in all the things you were putting off as part of your job as a full time parent.  The laundry is now drastically reduced.  The refrigerator doesn’t need to be replenished nearly as often as before.  And you get your spouse all to yourself.

On the ride home from dropping your child at school, the car is quiet from lack of conversation.  Maybe you told yourself that emotions were too raw, this alone time with your spouse too new.  But maybe you just couldn’t think of anything to say.

Gray divorces have become a trend among marital issues.  The divorce rate among people 50 and older has doubled in the last twenty years.  So many couple have woken up in their empty nests with the realization that their children have been both the buffers and the glue that has preserved a longstanding marriage that no longer serves either spouse.

It might be that two people who have raised a family together find, when they are finally alone, that they have little in common anymore.  It could be with healthy lifestyles, people can look forward to long and fulfilling lives after fifty and are committed to living out those lives free from  an unsatisfying marriage.

Perhaps the focus on raising the children has been a way to deny the issues in the marriage. Once you are alone in the house, there is no mistaking that the prospect of spending your golden years in a lifeless marriage seems like a poor decision.

The gray divorce is something quite new to this generation. If parents did not divorce in their early years, then they just stayed together whether they were happy or not.   Laws protecting the financial well being of both spouses and easy access to information over the Internet have made possible what many had never considered before. Freedom when the children have left the nest.  And freedom from a marriage you have outgrown.

If this sounds familiar, or if you have questions or want more information about a gray divorce for yourself, a parent, or someone you know, please call the family law attorneys at HoganWillig at 636-7600.

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We Practice Law for Your Peace of Mind