Friday, September 23, 2005

Why Incorporate Your Small Business?

Incorporation is an important step in the life of a business, but unfortunately the true value of incorporating a business is often not seen until the business faces a negative situation such as a lawsuit or bankruptcy.

A primary advantage of incorporation is the limited liability the corporate entity affords its shareholders (owners). Typically, shareholders are not personally liable for the debts and obligations of the corporation; thus, creditors will not come knocking at the door of a shareholder to pay debts of the corporation. Conversely, in a partnership or sole proprietorship the owner's personal assets may be used to pay debts of the business.

Other advantages of corporations include:

•Incorporating can help to establish credibility for new businesses with potential customers, employees, vendors, and partners.

•A corporation's life is not dependent upon its members. It possesses the feature of unlimited life. If an owner dies or wishes to sell his or her interest, the corporation will continue to exist and do business.

•Retirement funds and qualified retirement plans (like 401k) may be set up more easily with a corporation.

•Ownership of a standard or C corporation is easily transferable.

•Capital can be raised more easily through the sale of stock.

Corporations are not without disadvantages, however. The primary disadvantage to a corporation is double taxation. Profits of a corporation are taxed twice when the profits are distributed to shareholders as dividends. They are taxed first as income to the corporation, then as income to the shareholder. For example, if the corporation has $100,000 in profit, it would pay corporate income tax on that profit. If it distributes part of all of the profit to shareholders as dividends, the shareholders then pay individual income tax on the amount of their dividend distribution. All reasonable business expenses, such as salaries, are deductions against corporate income and can minimize the double tax. Further, the double tax can be eliminated by making the S corporation election with the Internal Revenue Service (IRS).

Other disadvantages of corporations include:

•There is a certain level of complexity and expense of forming a corporation, such as the necessity of filing formation documents with the state and paying the necessary state filing fees.

•Corporations have fairly extensive ongoing record keeping requirements.

•Corporations that transact business in states other than their state of formation may be required to qualify to transact business in those other states.

Both the limited liability company (LLC) and S corporation also provide the limited liability advantage to the owners/shareholders of the company, without the potential disadvantage of double taxation. These other business structures also have their own advantages and disadvantages. If limiting your personal liability is an important goal for you as you start or operate your business, it is a good idea to learn about all three structures when deciding what form your business should take.

About the Information Provider
:
John Leslie, a certified Quickbooks Pro Advisor, has 20 years of experience in the tax field. Mr. Leslie is a member of the Lakeside Chamber of Commerce, has been involved in the San Diego business community since 1986 and has lived in the area for over 40 years. His strong ties to the community have shaped the client-business philosophy for which IRSTAXHELP.COM is known.

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Wednesday, September 21, 2005

Bankruptcy Reform and Credit Counseling

Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, most of the provisions that impact consumers will apply to any bankruptcy filed on or after October 17, 2005. Under provisions of the new law, you must meet with a credit counselor in the six months prior to applying for bankruptcy if your debt consists of primarily consumer debts. And before debts are discharged, you must attend money management classes at your expense.

The Office the United States Trustee is required to approve and maintain a list of credit counseling agencies to comply with the new law. Credit counseling may be obtained in person, over the phone or via the Internet. In the Southern District of California, there are currently 3 approved credit counseling agencies:

GreenPath, Inc.
38505 Country Club Drive, Suite 210
Farmington Hills, MI
48331-3429
800-630-6718

In Person (not available in all judicial districts), and Telephonic Counseling

Money Management International Inc.
9009 West Loop South, 7th Floor
Houston, TX 77096-1719
877-918-2227

In Person (not available in all judicial districts), Telephonic and Internet Counseling

Springboard Nonprofit Consumer Credit Management Inc.
4351 Latham Street
Riverside, CA 92501
800-947-3752

In Person (not available in all judicial districts), Telephonic and Internet Counseling

Credit counseling is a mandatory requirement under the new laws. Debtors planning on filing for bankruptcy on or after October 17, 2005 should contact an authorized credit counseling agency in order to be eligible for a Chapter 7 discharge.

We are a bankruptcy and debt relief agency. We help people file for bankruptcy. This publication is NOT INTENDED TO SERVE AS A SUBSTITUTE FOR LEGAL ADVICE. Please consult with a licensed attorney if you require legal advice.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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Monday, September 19, 2005

Can I Keep My Car After Bankruptcy?

Can I keep my car after I file for Chapter 7 bankruptcy?

The ability of a Chapter 7 debtor to keep a vehicle after bankruptcy depends on several factors, including how much the vehicle is worth, how much you owe on the vehicle and how far behind you are on the payments at the time you file for bankruptcy.

In California, you could simply keep the vehicle and continue to make the payments so long as you maintain adequate insurance and are not past due at the time you file your bankruptcy. Recent changes in the bankruptcy make it unclear if this option will still be available for bankruptcies filed on or after October 17, 2005.

Under certain circumstances, you might need to enter into a reaffirmation agreement with the lender. In other cases, you can purchase the vehicle outright from the lender at the fair market value rather than the balance owed.

What is a reaffirmation agreement?

A reaffirmation is an agreement by a Chapter 7 debtor to continue paying a dischargeable debt after the bankruptcy, usually for the purpose of keeping collateral or mortgaged property that would otherwise be subject to repossession. Some lenders might even be willing to give a Chapter 7 debtor a break on the interest rate or the monthly payments.

Lenders will often be motivated to enter into a reaffirmation agreement because they can get more money than if the lender were to repossess the car and sell it. Debtors can benefit if they need to keep the vehicle for transportation.

What is a redemption?

Under the prior version of the Section 722 of the Bankruptcy Code, a debtor was be able to force the lender to sell them the vehicle for the fair market value even if the debtor owes more than the vehicle is worth. For bankruptcies filed on or after October 17, 2005, the debtor must pay the full amount of lien to redeem the vehicle. The problem is most debtors who file bankruptcy do not have ready cash [or a rich relative] to pay the fair market value in one lump sum. There are companies who provide redemption financing. The interest rates can be high, but a redemption loan might allow the debtor to reduced the monthly vehicle payments.

There are a number of companies that offer Section 722 redemption financing such as 722redemption.com and Fresh Start Loan Corporation. If you are considering obtaining financing for a redemption, you should investigate the terms before filing for bankruptcy to make sure that you meet the qualifications for a loan.

Each bankruptcy is different, so the decision whether to keep or return a vehicle must be made on a case-by-case basis. The decision should not be taken only lightly and only after consultation with a qualified bankruptcy attorney. We are a bankruptcy and debt relief agency. We help people file for bankruptcy.

This publication is NOT INTENDED TO SERVE AS A SUBSTITUTE FOR LEGAL ADVICE. Please consult with a licensed attorney if you require legal advice.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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Wednesday, September 14, 2005

Business Continuity Planning & Disaster Recovery Planning

Every business and organization can experience a serious incident which can prevent it from continuing normal operations. This this can happen any day at any time. The potential causes are many and varied: flood, explosion, computer malfunction, accident, grievous act... the list is endless.

I found an informative website by a company called Disaster Recover World that helps businesses address and plan for emergencies. Any organization must take the implementation disaster recovery plan seriously. The time to plan for disaster is before it occurs and a serious incident can of course occur at any time.

COMMITMENT

The leaders of any organization set the tone for the corporate culture and they must demonstrate a clear commitment to establishing and maintaining an effective disaster recovery planning process. All management and staff should be informed that a disaster recovery plan is required in order to ensure that essential functions of the organization are able to continue in the event of serious adverse circumstances.

THE PLANNING

Having obtained the full backing of the organization, the person or team developing the plan needs to prepare carefully. A good start is to create a list of all necessary documents and information. Where this includes documents containing sensitive information, care must be taken to ensure that confidentiality is not compromised.

DETERMINE KEY BUSINESS AREAS

The disaster recovery plan should include a descriptive list of the organization's major business areas. This list should rank the areas in order of importance to the overall organization. Each item should include a brief description of the business processes and main dependencies on systems, communications, personnel, and information / data.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified disaster planning help. Please contact us at (619) 448-2129 or e-mail us for a consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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Monday, September 12, 2005

Financial Analysis Report Services

Do you own a business? Would you like to be more successful? You can be!

Most business owners equate greater success with higher sales. However, if the business is not run efficiently, greater sales volume could do more harm than good. It could trigger substantially higher costs, production/service shortfalls, and customer dissatisfaction. As a result, the company may actually be worse off than before the increase in sales took place.

The first step in preparing your business to be more successful is vital to lay a proper foundation. The best way to lay that foundation is by understanding where your company’s strengths and weaknesses lie, making sure your income and assets are being used as effectively as possible, and by increasing your efficiency and productivity.

To do that, every business owner must have a clear understanding of their financial situation. Could your assets be used more efficiently? Are your bill collection efforts helping or hurting the business? Do you have too much or too little inventory or cash? How do you compare to your competition? Are you on the right track? These are all important questions that business owners must answer in order to be successful.

A thorough analysis of your company’s income statement and balance sheet can give you answers to those questions, and at the same time uncover problem areas before they have major impact on your business. The analysis should start by evaluating your company's liquidity, efficiency, operating, financing, and profitability ratios compared to industry norms. A three year trend analysis is also important to help you identify the direction your company is heading. Finally, the analysis should offer discussion ideas for improvement of financial ratios that rank below the norm.

As a result, you will be able to make better decisions, give your company a substantial edge over the competition, and increase profitability. You will have laid the foundation to become more efficient and take advantage of growth opportunities.

Doing things right always pays off, and when your business is at stake, nothing could be more crucial. Contact StarPoint Financial today if you like to start on the road to becoming more successful.

James Demeaux, President
StarPoint Financial, Inc.
Phone: 858-610-8171

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Friday, September 09, 2005

California Mechanic's Lien Tips

California contractors and material suppliers have a powerful tool to collect money when a property owner or general contractor fails to fails to pay bills in a timely fashion: a mechanic's lien. Because the law the allows liens to be filed, there are strict procedures to be followed to protect property owners from invalid liens. Here are some tipes to help contractors protect lien rights:

1. A Preliminary 20-Day Notice (Private Work) must be served to all legal parties on a project (Customer, Owner, General Contractor, Lender) within 20 days after first furnishing construction related labor, services, equipment or materials. Each day after the 20th day, you lose a portion of your financial interest in the financial value of construction related labor, services, equipment or materials your company provided for the project. A Preliminary Notice may be given out at a later point in time, but your financial recovery for a Mechanic's Lien, if filed, can only be for the 20 day period prior to the Preliminary Notice being filed.


2. A Notice and Claim of Lien (Mechanic's Lien) can be recorded at any time upon completion of a project. It is recorded at the County Recorders Office in the county where a project you provided construction related labor, services, equipment or materials. If the Owner has recorded a Notice of Completion or a Notice of Cessation, you have 60 days to file a Notice and Claim of Lien (Mechanic's Lien) with the County Recorders Office (General Contractor) and 30 days for all other Subcontractors. If a Notice of Completion or a Notice Of Cessation has not been recorded by the Owner, you have 90 days after completion of the entire project to file a Notice and Claim of Lien (Mechanic's Lien) with the County Recorders Office.

3. A Notice and Claim of Lien (Mechanic’s Lien) cannot be filed for projects that are City, County, State or Federal related, often called public works projects.

4. A party who supplies materials to another supplier does not have Mechanic’s Lien rights in California.

5. The completion of the entire construction project is considered the starting date for the Mechanic’s Lien filing period.

6. An unlicensed contractor can not use the Mechanic’s Lien process in California if the work required a contractor's license. If the value of the contract is $500 or more, including labor and materials, then the work usually requires a license issued by the Contractor's State License Board.

7. A Complaint to Foreclose a Mechanic’s Lien (legal perfection of a Lien) must generally be filed within 90 days unless the lien claimant grants a properly recorded extension of credit to the property owner. The lien's effetive period is extended until 90 days after the credit expires, but o more than one year after the completion of the work of improvement.

8. The Conditional Waiver and Release Upon Progress Payment can be requested by the legal parties on a project who have been served a Preliminary 20-day Notice through a promise to make a partial payment for furnishing construction related labor, services, equipment or materials.

9. The Unconditional Waiver and Release Upon Progress Payment can be requested by the legal parties on a project who have been served a Preliminary 20-day Notice for a received partial payment for furnishing construction related labor, services, equipment or materials.

10. If Mechanic's Lien amount is paid in full, you have an obligation as the party filing a Notice and Claim of Lien (Mechanic's Lien) to issue a Release of Lien that can then be recorded at the County Recorder's Office in the county where the project is you provided construction related labor, services, equipment or materials.

The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. Please contact us at (619) 448-2129 or email us for a consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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Monday, September 05, 2005

Before An Emergency

Althought this article is a little out of the ordinary for a law office blog, personal data protection and a business succession plans are vital to small business owners in a time of catastrophe. I have a accumulated a number of suggestions for personal disaster preparedness. A later article will address business succession plans in times of disaster.

Steps to Building A Personal Emergency Plan

Before you begin, take a few moments to consider the possible emergency situations or potential disasters you could face. These are situations and events that could impact you, your family or your neighborhood or community. Talk to your family members to get their views and assistance in building an action plan you and your family can follow to help reduce the possible effects of any emergency or disaster. You may want to consider helping your neighbours do the same, especially those who are elderly or disabled.

The following steps will help you develop a personal or family emergency plan:

1. CREATE AN EMERGENCY COMMUNICATIONS PLAN

Choose an out-of-town contact whom your family or household will call or e-mail to check in with should an emergency occur. Choose someone who lives far enough away that the individual is unlikely to be directly affected by the same event, and be sure to tell that person that he or she is your designated contact. Make a list of your designated contact's telephone numbers (home, work, cellular or pager) and e-mail addresses for everyone in the family or household. Make sure everyone, including the designated contact, has a copy of this list. If you have children, provide the emergency contact numbers to your children's schools. Provide this same information to your workplace.

You should limit telephone use and keep conversations short during an emergency to help free-up lines for those that need help. Your family should be advised that if telephones are not working, they need to be patient and try again later or they can try to e-mail a message. People overload the telephone lines when emergencies happen but e-mail can sometimes get through.

2. ESTABLISH A MEETING PLACE


Having a predetermined meeting place away from your home will save time and minimize confusion should your home be affected or if your neighborhood or community is evacuated. You may even want to make arrangements to stay with a family member or friend in case of an emergency.

Be sure to include arrangements for any pets in these plans, since pets are not permitted in shelters and some hotels will not accept them.

3. ASSEMBLE AN EMERGENCY SUPPLIES KIT

If you are asked to evacuate your home or to seal yourself inside for a period of time (more about "sheltering-in-place" later in this brochure), having some essential supplies on hand will make you and your family more comfortable.

Prepare an emergency supplies kit in an easy-to carry container such as a duffel bag or small plastic trash can and store it in an easily accessible location, such as a closet shelf on the main floor. Aim to have an emergency supplies kit that will keep you and your family self-sufficient in your home for at least three days. You probably have most of the items for the kit handy.

The kit should include the following items:

  • "Special needs" items for any member of your household (infant formula or items for people with disabilities or older people);
  • First aid supplies (bandages, adhesive tape, antibiotic ointment, antiseptic towelettes, assorted safety pins, cleansing agent or soap, cold pack, eyewash solution, cotton swabs, disposable gloves and face shield, gauze pads, hydrogen peroxide, lip balm, and prescription medications);
  • A change of clothing for each household member (footwear as well);
  • Candles and matches or lighter;
  • A sleeping bag or bedroll for each member;
  • Flashlight and batteries;
  • Battery-powered radio or television and extra batteries;
  • Duct tape;
  • Non-perishable food (this should be replaced every year);
  • Bottled water;
  • Whistle;
  • Playing cards or games;
  • Toilet paper and other personal care supplies;
  • Basic tools (hammer, pliers/wrench, screwdriver set, assortment of fasteners, work gloves);
  • Extra car and house keys; and
  • Some cash/traveller's cheques and copies of important family documents (birth certificates, passports and licenses).
  • Copies of essential documents—such as powers of attorney, birth and marriage certificates, insurance policies, life insurance beneficiary designations and a copy of your will—should also be kept in a safe location outside your home. Keeping these in a safe deposit box or the home of a friend or family member who lives out of town is a good idea.

4. LEARN ABOUT YOUR COMMUNITY EMERGENCY PLANS, ARRANGEMENTS AND AUTHORITIES

In virtually every emergency situation, you will need to know who to call and what you might be asked to do.

Contact your local community offices to learn about their emergency plans. Find out where emergency shelters are located and whether there are designated emergency routes.
Identify the closest emergency services offices (fire, police, ambulance, gas and electrical utilities, public works), record the telephone numbers and post them near the telephone.
If you live in an apartment building or residence, they should have an emergency plan.
Your workplace may also have an emergency plan.
Determine what your role is in the plan, what to do if an alarm sounds and how to safely evacuate the building.

5. CHECK ON THE EMERGENCY PLAN OF CHILDREN'S SCHOOL OR DAY-CARE CENTER

You need to know if your children will be kept at school until you or a designated adult can pick them up or whether they will be sent home on their own.

Be sure that the school has updated information about how to reach parents and responsible caregivers to arrange for pick up. Keep in mind that during times of emergency the school telephones may be overwhelmed with calls.

Find out ahead of time what type of authorization the school requires to release a child to a designate should you not be able to collect your child yourself.

6. LEARN SOME BASIC FIRST AID TECHNIQUES

Knowing some basic first aid is another useful preparedness measure. In an emergency, remember that you should always tend to your own well being first. First aid training will help you to help yourself and those around you, and help you assist injured people evacuate a building as required.

7. IF LIVING IN A HIGH-RISE BUILDING

Know the evacuation plan for your building and what to do in the event of an alarm. This means understanding the various levels of alarm in your building and the proper response for each.

Know the location of each exit stairwell on your floor, and identify them as primary (closest) and secondary exits.

Keep the corridors and aisles leading to these exits free and clear of obstruction and never use the elevator to evacuate a high-rise during an alarm.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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Sunday, September 04, 2005

Comparing C and S Corporations

One of the biggest choices a small business owner can make is the choice of business entity. For most people the choice comes down two a choice between and LLC and a corporation. Tax benefits often make forming a corporation the better choice. When forming a corporation, the client still must choose between a C Corporation and an S Corporation. This article will discuss some of the differences and similarities.

Similarities:

  • By default, all new corporations are C Corporations when initially forms. An S Corporation is simply a C Corporation that files IRS form 2553 to elect to become an S Corporation.
  • They both are separate legal entities that are created by filing Articles of Incorporation with the Secretary of State. The offer the same personal asset protection. The shareholders are generally not personally responsible for the debts and liabilities of the corporation.
  • Both types of corporations must follow they same formalities. Each They must hold annual meetings of shareholders and directors each year and meeting minutes must be kept with the corporate records.

Differences

  • The S Corporation is a pass-through tax entity – this means that the income or loss generated by the business is reflected on the personal income tax return of the owners. A Corporation is a separately taxable entity. The profits and losses are taxed directly to the corporation. This can lead to double taxation on dividends that are paid out of corporate profits to the owners.
  • The ownership of an S Corporation is restricted; however, the C Corporation does not possess these same limitations.
  • The C Corporation can have an unlimited number of shareholders while a subchapter S Corporation is restricted to no more than 100 shareholders.
  • Non-US residents can be owners of a C Corporation while an S Corporation may not have non-US residents as shareholders.
  • S Corporations cannot be owned by C Corporations, other S Corporations, many trusts, LLCs, or partnerships. C corporations are not subject to these restrictions.
  • The S Corporation must make a timely election of S Corporation status. The IRS instructions indicate this form must be completed and filed at any time before the 16th day of the 3rd month of the tax year the election is to take effect or at any time during the tax year preceding the tax year it is to take effect. An election made no later than 2 months and 15 days after the beginning of a tax year that is less than 2½ months long is treated as timely made for that tax year. An election made after the 15th day of the 3rd month but before the end of the tax year generally is effective for the next tax year. However, an election made after the 15th day of the 3rd month will be accepted as timely filed if the corporation can show that the failure to file on time was due to reasonable cause.

Your legal counsel should work with the client's tax adviser to the determine whether or not to make Subchapter S election. The information provided in this article is general information only and is not intended as legal advice. DO NOT use this information as a substitute for obtaining qualified legal advice or other professional help. Please contact us at (619) 448-2129 or e-mail us for a consultation.

About the Author: Carl H. Starrett II has been a licensed attorney since 1993 and is a member in good standing with the California State Bar and the San Diego County Bar Association. Mr. Starrett practices in the areas of bankruptcy, business litigation, construction, corporate planning and debt collection.

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