Practice Guide to Starting a Business in the

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Practice Guide to Starting a Business in the U.S. : 

Practice Guide to Starting a Business in the U.S. American Advantage Law GroupInc. ATTORNEYS AND COUNSELORS AT LAW

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DISCLAIMER This is an informational seminar only. American Advantage Law Group, Inc. does not make any warranty regarding the up to date information provided. AALG does not render any opinion regarding any specific case. This presentation does not establish any client-attorney relationship. If you have any questions regarding your case, we strongly recommend you seek an attorney’s advice.

The Basics of Business : 

The Basics of Business Sole Proprietorship One person doing business Most simple form No organizational expenses No extra tax forms or reports The owner has complete control Taxes are personal and not corporate No double taxation No continuation of business after death of owner Business affairs easily mixed with personal affairs Owner has burden of making all decisions and needing all skills necessary to running the business

The Basics of Business : 

The Basics of Business General Partnership Two or more people carrying on business together and sharing profits and losses Partners combine expertise and assets Liability is spread among partners Business can be continued after the death of a partner if bought out by a surviving partner Each partner is liable for the acts of other partners within the scope of the business Even if left in the business, profits are taxable All parties share control, the death of a partner may dissolve the business It is often difficult to get rid of a problem partner

The Basics of Business : 

The Basics of Business Corporation Artificial legal person that carries on business through its directors and officers for its shareholders Legal person carries on business in its own name and shareholders are not personally liable for its actions Types S corporation All profits are taxed to shareholders, rather than the corporation Pays no federal or state tax Profit is reported on owners’ tax returns C Corporation Pays income tax on its profits When dividends are paid to shareholders, taxed twice: once as a corporate tax, once as a tax on shareholders Professional corporation Corporation formed by a professional such as a doctor or accountant Special tax rules Nonprofit corporation Usually used for organizations like churches or condominium associations Some types of business may be set up as nonprofit corporations with careful planning Cannot pay dividends but can pay its officers and employees a fair salary

The Basics of Business : 

The Basics of Business Other Attributes of Corporations include: Shareholders having no personal liability for corporate debts and lawsuits, and officers usually having no personal liability for corporate acts Existence of corporation may be perpetual Tax advantages exist that are allowed only to corporations Capital may be raised by selling stock Easy to transfer ownership upon death Although shareholders theoretically avoid personally liability for borrowed money, owners may be asked, as a practical matter, to personally guarantee obligations of the corporation until it has sufficient assets to satisfy creditors Significant start up costs Certain formalities are required including annual meetings, separate bank accounts, and tax forms Unless S corporation, must pay federal income tax separate from tax paid by owners, and must pay California income tax

The Basics of Business : 

The Basics of Business Limited Partnership General partners have control and personal liability Limited partners only put up money Liabilty is limited to what they paid for hteir share of partnerhsip Capital can be contributed by limited partners who have no control over business or liability for its debts High start up costs Extensive partnership agreement is necessary to clarify personal liability for partnership debts and acts A Corporation must serve as a general partner Limited partnerships do not avoid personal liability for anyone who takes an active role in managing business

The Basics of Business : 

The Basics of Business Limited Liability Company (LLC) Liked limited partnership without general partners Owners are called members Has characteristics of both corporation and partnership May be treated as either a Partnership or a corporation for both federal and state tax purposes For California, it will be treated as a partnership if it lacks two or more of the following: Limited Liability of members Continuity of life (continues without a change in owners after death of member) Free transferability of interest Centralized management Certain professions are prohibited from forming LLC Offers members limited liability of corporate shareholders and tax advantages of partnership More tax benefits and flexibility than S corporation Different classes of ownership and unlimited number of members allowed Higher start-up costs than a corporation Governing documents are complex and not well established

The Basics of Business : 

The Basics of Business Limited Liability Partnership (LLP) Specialized type of partnership for accountants, attorneys, and architects Like a general partnership, but with limited liability Does not allow the limiting of liability for negligence in professional functions Start-up costs and annual fees are higher than for corporation

Tax Implications : 

Tax Implications Sole Proprietor Must report profits and expenses on Schedule C attached to form 1040 and pay taxes on all of net income of business Each quarter, For ES-1040 must be filed with a payment of ¼ of the income tax and social security to be due for the year Partnership Files a reutrn shoing income and expenses but pays not tax Each partner is give a copy of a form showing their share of profits and losses on Schedule E of Form 1040 Each quarter, For ES-1040 must be filed with a payment of ¼ of the income tax and social security to be due for the year

Tax Implications : 

Tax Implications C Corporation Separate taxpayer and pays tax on profits after deducing all expenses, including officers’ salary Dividends are paid after taxes Shareholders pay a tax a second time when receiving dividends S Corporation Has option of being taxed like a partnership If form 2553 is filed by a corporation and accepted by the IRS, only need to file informational tax return listing profits and expenses, and each shareholder will be taxed on a proportional share of profits S-status requires filing for 1120S and distributing Fork K-1 to each shareholder LLCs and LLPs are allowed to elect to be taxed as a partnership or a corporation

Tax Implications : 

Tax Implications Corporation, partnership, or proprietorship with employees must obtain Employer Identification number by filing Form SS-4 to open bank accounts for business Each employee must fill out W-4 Form to calculate amount of federal taxes to be deducted and obtain Social Security Number Paying deposited employee withholding tax, Social Security and Medicare tax, and Federal Unemployment tax can be done using Form 940 and 941 Must make a deposit at end of every month with greater than $100 in withholding At end of each year, must issue W-2 Form to each employee Business personal property is reappraised annually Taxable tangible property includes machines and equipment, furniture and tools California’s state income tax for corporations is 8.84% with a minimum alternative tax of $800

Start-Up Procedures : 

Start-Up Procedures Sole Proprietorship All accounts, property, and licenses are taken in the name of the owner Partnership Written agreement should be prepared to spell out rights and obligations of parties May be registered with the Secretary of State for $70 fee Corporation Articles of incorporation must be filed with Secretary of State with $100 in filing fees and %300-800 in prepaid taxes Organizational meeting is held where officers elected, stock issued, other formalities complied with Licenses and accounts titled in name of corporation

Start-Up Procedures : 

Start-Up Procedures Limited Partnership Written limited partnership agreement must be registered with secretary of State Law governing duties of partnership and rights of limited partners is complex Limited Liability Corporation Articles of Organization filed with Secretary of State Licenses and accounts take in name of company Members must enter into operating agreement Limited Liability Partnership Registration must be filed with Secretary of State and describes Name of partnership Address of its principal office Name and address for agent of service of process on LLP in California Brief statement of business in which partnership engages Any other matters partnership determines to include That the partnership is registering as an LLP Fees, Forms and other Info: http://www.ss.ca.gov

Business Names : 

Business Names Cannot trademark name of business, but can trademark name used for goods and services If same, essentially protects the company name Check to see if a trademark is already registered: http://www.uspto.gov Anyone who has been using trademarked name before registration cannot be stopped For federal registration: For when trademark has already been used or when business has intention to use trademark For trademark to be entitled for federal registration, use of trademark must be in interstate or international commerce Federal fee is $335 Intent-to-use application requires payment of $100 after actual use

Business Names : 

Business Names For Registration in California Filing fee of $70 Before trademark can be registered in CA, name must be used in the state For goods: must be used on the goods themselves, not just the packaging For services: must be used in sale or advertising AND use must be in action transaction with a customer Registration protects trademark on one class of goods If used on more than one class of goods, separate registrations needed Registration is good for 10 years Must be renewed 6 months prior to expiration for fee of $30 per class of goods

Business Names : 

Business Names Best way to ensure no conflicts with other business is to make up name Unless business is done in legal name of owner, must register name used as a fictitious name If using owner’s legal name in a way that implies other may also be involved in business, must also register Registration required for corporation operating under a name different from the corporate name Fictitious Business Name Statement must be obtained from and filed with clerk of county in which business principally operates within 50 days after beginning business operations Within 30 days of filing, must publicize Fictitious Business Name Statement 4 weeks in a row in a local newspaper, with each of 4 days of publications at least 5 days apart, not counting days of publication Cannot use words or abbreviations suggesting business is a form other than what it is Corporate name must contain: Incorporated, corporation, Inc. or Corp. May not be same or similar to name of another corporation Check: http://www.ss.ca.gov If name is approved by Secretary of State but is so similar to another corporation so as to cause consumer confusion, lawsuit might ensue

Business Financing : 

Business Financing Complex federal and state regulations must be complied with in order to sell stock in business Securities legally exist when person provides money to someone with expectation of gaining a profit through efforts of that person Can apply to any situation where someone buys stock in or makes loan to business Laws require disclosure of risks involved and sometimes registration of securities with government Some exceptions, such as for small amounts of money and limited numbers of investors Penalties for violations of securities laws are severe, including triple damages and prison terms

Business Locations : 

Business Locations Be sure everything the business plans on doing is allowed by zoning of property Zoning laws are regulations that control the use of property and buildings Also regulate business signs, along with sign laws and property restrictions In some shopping centers, existing tenants have guarantees that other tenants will not compete Important to note who will be responsible for American with Disabilities Act compliance if remodeling necessities providing reasonable accommodations for disabled persons Consider availability of renewal clause of leasing Try to avoid personal guarantee on rent payment, or to negotiate a short period of time for personal guarantee Especially important t for difficult to rent single-purpose buildings Watch for escalator clauses in the lease, which provides for periodic rent increases sometimes based on complex formulas Duty to open clauses require shops to be open certain hours Consider whether able to afford staff or have religious objections to operating hours Right to assign or sublease can be very valuable if every selling the business If cannot negotiate, may want to incorporate so stock may be sold and thereby ensure control When buying a site, consider keeping ownership out of business so if business gets into financial trouble, creditors cannot go after the building Buildings are commonly owned personally by owner or by trust unrelated to the business

Occupational Licenses : 

Occupational Licenses May need city or county occupational license or both If working in multiple cities, may need license from each city by time of beginning job in each particular city If preparing or serving food on premises, must meet local health department regulations Many professions require special state licenses Some type of license is required for almost every business

Before Opening a Business : 

Before Opening a Business Obtain or prepare contracts or policies to be used If you do not spell out the rights and obligations vis-à-vis a customer, you may end up in court Having a form contract drawn up by a lawyer is the best way to ensure effectiveness Obtain insurance coverage Workers’ compensation insurance is required for every employer in the state State compensation insurance fund: http://www.scrif.com Liability insurance is not required by law except for LLPs Coverage for injuries on premises and caused by employees Coverage for injuries caused by products or services (more expensive) Umbrella policies cover business owners from personal liability claims up to a certain amount ($1-5 million) and is usually reasonably priced Most homeowners and tenants insurance policies do not cover business activities If own equipment or have dedicated portion of home exclusively to business, homeowner’s insurance will not likely cover

Before Opening a Business : 

Before Opening a Business Hiring and firing For small businesses, employees can be fired at any time If an employee is fired, he may be entitled to unemployment compensation Drug testing can only be required of applications who have been offered job conditioned on passed drug test To avoid misunderstandings, use an employment agreement Can usually obtain the same benefits by putting company policies in an employee manual Salary and other compensation Hours of employment Any probationary period That employee cannot sign any contracts binding the employer That employee agrees to arbitration rather than filing a lawsuit California minimum wage is $8.00 per hour for most employees Overtime laws provide for overtime pay of 1.5 times regular hourly pay for hours over 8 worked in a 27-hr period or 40 worked in a 7 day period If hiring someone who will be working extra hours and is willing to forgo overtime pay, can form a contract saying employee’s normal pay would be less if overtime were being paid California law requires meal periods and breaks for hourly employees which may be waived by mutual consent if total workday is less than 6 hrs

Before Opening a Business : 

Before Opening a Business Prepare to accept payment Failure to keep accurate accounting for cash transactions may lead to serious penalities under money laundering laws, which include huge fines and imprisonment Not required to accept checks It is forbidden under California law to require customers to provide a credit as a condition for acceptance of a check or recording a credit card number But one may require production of a reasonable forms of ID other than a credit card, such as a drivers’ license; request a purchaser to voluntarily display a credit card, provide that only info recorded is type of card, issuer of car and expiration; record a credit card number as a condition for cashing a check being used solely to receive cash back; Record a credit card number in lieu of requiring a deposit to secure payment in event of default, loss, damage, or other occurrence

Before Opening a Business : 

Before Opening a Business Prepare to accept payment Payee of a check passed on insufficient funds can collect services charge of not more than $25 on first check massed and not more than $35 on each subsequent check Payee can send certified letter to person who passed check demanding payment for amount of check, service charge, and cost of certified mailing If payment is not made within 30 days from date of written mailing, payee may collect 3 times amount of check subject to minimum of $100 and maximum of $1,500 If not providing a full refund or exchange policy for at least 7 days after purchase, must clearly display policy

Before Opening a Business : 

Before Opening a Business Research and comply with federal regulations Discrimination laws prohibit discrimination based on race, sex, pregnancy, color, religion, national original, age, or disability California law also prohibits discrimination based on sexual orientation Most only apply to employer with 15 or more employees for 20 weeks per year Equal Pay Act applies to employers with 2 or more employees and requires women to be paid same as men in same type of job Employer may refuse to hire or may fire an employee whose physical, mental, or medical condition renders that person unable to perform essential job duties or would endanger health and safety of others, even with reasonable accommodations Nearly any sexual comments or references in the workplace is outlawed as sexual harassment Distribute a written policy against all kinds of sexual harassment to all employees Encourage employees to report all incidents of sexual harassment Insure there is no retaliation against those who complain

Before Opening a Business : 

Before Opening a Business Research and comply with federal regulations Stiff penalties are imposed on any business that hires aliens who are not eligible to work Must verify identity and employment eligibility of anyone hired $250- 2,000 for first offense Up to $10,000 for third offense Hiring people “off the books” can result in civil fines, loss of insurance coverage, and criminal penalties Occupational Safety and Health Administration places duty on employer to keep workplace free from recognized hazards likely to cause death or serious bodily injury to workers Regulations not as cumbersome for businesses with 10 or fewer employees If more employees, must keep “Log 200” of illnesses injuries, and exposures to hazardous substances

Before Opening a Business : 

Before Opening a Business Advertisement Under California law, it is permissible to advertise almost anything as long as it is truthful, fully informing the public of the nature of the product/service, and informs the public about risks or costs involved It is forbidden to make an false representations of goods/services to the public Passing of goods and services as those of another Misrepresenting the source of sponsorship, approval, or certification by another Misrepresentation of affiliation, connection, or association with or certification by another Using decpetive representations or designations of geographic origin of products Representing goods as having qualities they do not

Before Opening a Business : 

Before Opening a Business Prepare pricing, weights, and labeling Unit pricing required by labeling products by price per ounce, pound, gallon, or 100 square feet, or 100 count Packaged commodities must be labeled with what and how much is in each package Label may not use an qualifying words or phrases in conjunction of statement of net quantity or qualify any unit of weight, measure, or county by any term that tends to exaggerate amount No container may be constructed or filled as to facilitated perception of deception or fraud

American Advantage Law GroupInc.ATTORNEYS AND COUNSELORS AT LAW : 

American Advantage Law GroupInc.ATTORNEYS AND COUNSELORS AT LAW American Advantage Law Group is a leading international law firm committed to assisting international companies to successfully establish themselves in the United States. We specialize in representing clients in complex legal matters involving civil, criminal, divorce, patent, copyright, trademark, business transactions, corporate formation, China trade, and litigation. We can provide assistance in: Corporate Immigration Trademark & Registration Employment Matters Banking & Financing Supply Chain and Outsourcing Corporate Record Management Contact us for more information about our services: www.Americanadvantagelawgroup.com (949) 863-1888 3848 Campus Dr. #206 Newport Beach, CA 92660

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