Despite the challenging economic times we are experiencing, it is encouraging to receive inquiries regarding how to set up Not-For-Profit (NFP) corporate entities in New York for providing scholarships to students. In response to the interest we have received on this issue, what follows is a basic idea of what is involved in getting a corporate NFP underway for this worthwhile purpose.

The first step entails choosing a business name that is legally available and meets the legal naming requirements. The Certificate of Incorporation is then prepared and filed with the Department of New York State Division of Corporations ($75 filing fee applies). An Employer Identification Number (tax ID number for the corporation) must then be applied for with the IRS. Corporate bylaws are created which set forth the rules and procedures for running the NFP corporation. Additionally, an initial Board of Directors consisting of a minimum of three individuals over eighteen years of age (there are some exceptions to this age requirement) is selected or recruited. It is not necessary that the board members reside in New York State to serve on the board.

Subsequent to the formation of the NFP corporation, an organizational meeting would then be called to officially appoint the organization’s directors and corporate officers, adopt the corporate bylaws, establish the corporation’s budget for the fiscal year, and designate a bank for the corporation. Establishment of a Corporate Records Book containing meeting minutes and pertinent corporate documents is also necessary.

The NFP corporation must also register with the Office of the Attorney General of New York State, and with the New York State Tax Department for state business tax purposes.

Once these steps have been completed, application for federal tax exemptions is then made by filing an IRS Exemption Organization Determination Letter Request (IRS filing fees for this range from $400 to $850), and by filing an Application for Recognition of Exemption under IRS §501(c)(3), Form 1023. However, there is no requirement to file under §501(c)(3) to obtain federal tax exemption status if an organization has gross receipts in each taxable year of normally not more than $5,000. In such case, filing under §501(c)(3) may still be advisable to receive an IRS Determination Letter recognizing its tax exempt status for its records. Such filing must generally be made within 27 months after the date of incorporation.

Filing for a §501(c)(3) tax exempt status is somewhat involved. Among other things, the federal government requires submittal of the following information from organizations that are planning to award scholarships:

Criteria used for selecting recipients, e.g., academic performance or financial need, including the rules of eligibility;

• How and by whom the recipients are or will be selected;
• A copy of the scholarship application form and any literature describing the scholarship program;
• How the award will be administered;
• Description of how the scholarship will be paid;
• Where the scholarship funding will come from.

Once a federal tax exemption is obtained, New York State requires filing of its Form ST-119.2 to achieve state and local tax exemptions for a NFP corporation. Subsequent to obtaining a tax exempt status from the federal and local governments, there will of course be on-going obligations for the newly formed NFP corporation, such as annual meetings and administrative activities, including the filing of annual tax returns.

Hopefully, this provides you with an idea of the steps involved in this process. Should you wish to discuss any of this information, please give us a call.

Tags: certificate of incorporation, nfp corporation, not-for-profit, scholarships, tax exempt

From April 9th, 2011 onward, employers must comply with significant new procedural obligations under New York State’s recent Wage Theft Prevention Act. The first major change is the requirement of employers to provide every employment with written notification of information such as rates of pay, allowances, the regular payday, the employer’s full name and physical address, overtime rates, etc. This information must be provided both at the time of hire and annually. Furthermore, these notifications must be in writing (not transmitted electronically), they must be provided in English as well as the employee’s primary language, employers must receive written acknowledgement that the notification was received, both the notice and acknowledgement must be preserved for six years, and employees must be notified of any changes to the information at least seven days prior.

Another component of the Act makes it mandatory (more…)

Tags: wage theft prevention act

At the end of 2010, Governor Patterson signed a new bill into law which set realistic limits on the current levels of exemption values which will reflect today’s values and households and bring New York State into accord with other states exemption statutes. This law will be a welcome face lift to the current Debtor Creditor statutes and the Civil Practice Law and Rules! (more…)

Tags: bankruptcy protection, personal property exemption, real property exemption

Hiring is good news for your business.  It is growing and more help is needed.  However, should you hire a new employee or an independent contractor?  Consider the pros and cons of hiring an employee or an independent contractor:

Pros of Hiring An Independent Contractor

·        Reduced Costs:  Payroll, benefits, and other overhead are reduced.  Such reduction in overhead can mean less pressure to bring in new business revenue to cover the costs of the added labor.

·        No Health Benefits:  Deserving of specific mention is the huge burden on small businesses is the ever increasing costs of employee health benefits.

·        Use as Needed:  Independent contractors may agree to work inconsistent numbers of hours based on your small business’s changing needs.

·        Specific Expertise:  Your small business can select someone who already has the specific expertise that you require for a particular project.

Pros of Hiring An Employee

·        Flexibility: Employees can be much more flexible in different areas and as changes in tasks require. 

·        Single Minded Loyalty: An employee is likely to have a much stronger loyalty, which can mean more productivity as well as a long term investment in the growth of the business.

·        Knowledge of Business:  There is greater knowledge of your small business as a whole and see it in operation on a consistent basis.

Cons of Hiring An Employee

·        Burden of Payroll:  The burden of having to make payroll often means that your ability to count on your own paycheck is less consistent.

·        Additional Overhead:  In addition to the costs of employee benefits and payroll often comes the need for bigger space and more equipment.

·        Management Role:  As your small business grows in size, there comes with it the burden of training and supervising employees.  This can divert your attention from the business operations.

·        Legal Issues:  Your small business becomes exposed to worker-related lawsuits. There are many laws that must be addressed and complied with.

Cons of Hiring An Independent Contractor

·        Loss of Control:  Part of what makes a contractor independent is their ability to choose the projects they take and how they perform them.  Contractors may have outside projects and less commitment than an employee.

·        Rates Can Vary:  An independent contractor may charge different rates based on varying projects.  This unpredictability can may it difficult to ascertain the cost of a prospective project. 

·        Harsh Penalties for Misclassification:  If you make an error in classifying an employee as an independent contractor, you can be held liable for many penalties, including with respect to employment taxes, interest charges, and penalties. 

Given the severe costs of misclassifying an employee as an independent contractor, the rules should be carefully reviewed with an attorney prior to hiring. 

Visit our Corporate & Business Law Department at www.hoganwillig.com.

Make sure you know the rules.

The old adage “get it in writing” is critical when it comes to commissioned sales employees. In fact, the New York Labor Law provides that you must have a detailed written agreement that is signed by both the employer and the commissioned sales employee.

How detailed must the written agreement be? At a minimum, the written agreement must include:

(more…)

Tags: commissioned employee, commissioned sales, department of labor, labor law

Your customer list is the very heart and soul of your business. Should it fall into the hands of a competitor, your business could suffer a loss of some or its entire customer base. This can jeopardize the success if not the very survival of your business. However, there are specific steps that businesses can take to help prevent the disclosure of its customer list.

When courts look at whether your customer list should be protected, it is a determination of whether it qualifies as a “trade secret.” (more…)

Tags: competitive advantage, customer base, customer list, customers, non-disclosure agreement, trade secret

It is becoming very common for contracts to contain a clause stating that “Any and all disputes arising under this contract will be settled by arbitration.” Arbitration is simply an agreement between parties that their disputes will be settled through arbitration rather than in court. Arbitration is favored by federal and state courts as a form of “Alternative Dispute Resolution” (ADR) and is one of the fastest growing means of settling disputes. The dispute is submitted to a private, non-judicial person who often has practical knowledge of the matter in dispute.

Arbitration has many similarities to a court case, but there are also some significant differences. (more…)

Tags: ADR, alternative dispute resolution, arbitration, dispute