Category: Business

  • Trade Secret Protections for Small Businesses

    Trade Secret Protections for Small Businesses

    Business owners seeking to protect their proprietary information or invention have many different options. The most common method that people think of is patent protection. Depending on the complexity of the subject matter, patents can be expensive to draft, prosecute, and defend. Additionally, not all information that a business may find valuable will fall under the umbrella of patentable subject matter. Where can a business turn to protect their valuable information that is not protected by a patent?

    The simple answer is to turn to trade secret for protection. The same protections that have protected the iconic taste of Coca-Cola, Google’s proprietary search algorithm, McDonald’s Big Mac special sauce recipe, as well as WD-40’s secret formula can be put to use by your business to efficiently and effectively protect your business’ information.

    What is a Trade Secret?

    A trade secret can take several forms. For instance, a trade secret could be a formula, pattern, compilation of data, computer program, or device. Practically, with trade secret protections you can protect any information that is valuable to your business that you keep secret. In order to receive common law legal protections for a trade secret, the information must meet a few requirements.

    Trade Secret Requirements

    First, the information must actually be economically valuable. That is, what you are seeking to protect must convey some kind of economic benefit to the holder. For example, a curated client list satisfies this requirement because the list is valuable to a competitor in the field. Think of this as the secret sauce.

    Second, the information must be secret. This requirement is a bit confusing because secret here means not widely known by the public. You do not need to keep the information you wish to protect as a trade secret absolutely secret. Your business’ managers and employees are free to possess and use the secret knowledge for the benefit of the business. The secrecy requirement is closely tied to the economically valuable requirement. If your competitors and the public are generally unaware of the information then it is likely valuable to your business.

    Third, the holder of the information must have taken some kind of precautions to keep the information secret. You can satisfy this requirement, for example, through non-disclosure or confidentiality agreements that prevent employees from sharing your valuable, secret information.

    What is Trade Secret Misappropriation?

    Trade secret misappropriation is legalese that simply means that some bad actor stole your business’ valuable information and either used it or disclosed it in a way that harmed your business. There are a few requirements to meet in order to assert a claim of trade secret misappropriation in state court.

    Information is a Trade Secret

    First, the holder of the trade secret must prove that the information met the requirements for a trade secret. Business-owners often overlook this initial step. You or your business’ conduct prior to the trade secret theft could potentially be detrimental to your ability to recover for the trade secret theft. For example, if your business does not have a confidentiality agreement in place with your employees, vendors, or potential business partners then the courts may find that your business did not do enough to protect your trade secret.

    Trade Secret Acquired Through Confidential Relationship

    Second, trade secret misappropriation requires that the bad actor acquired the trade secret information as a result of a confidential relationship with the holder of the trade secret. For example, if you hired an employee who signed a non-disclosure agreement and then upon leaving your business that employee spread confidential information protected by the non-disclosure agreement, you or your business could potentially pursue that employee for trade secret misappropriation. However, if you disclose the information outside of that confidential relationship, it is likely not actionable (think of an inventor or entrepreneur’s elevator pitch).

    Here, it is important to note what trade secret misappropriation does not cover reverse engineering. Reverse engineering of a trade secret is not trade secret misappropriation. This is the big trade-off associated with trade secret protection. Unlike patent protection, trade secret protection does not prevent use of the secret information. Instead, trade secret protection only prevents a bad actor bound by some kind of agreement from violating that agreement. Trade secret provides another cause of action to help to protect the internal workings of your business that set you apart from your competitors.

    Unauthorized Use or Disclosure

    Third, trade secret misappropriation requires that the bad actor has either made unauthorized use of the trade secret information or has disclosed the secret information. For example, this requirement would be satisfied if a disgruntled ex-employee of Coca-Cola who signed a non-disclosure agreement shared Coca-Cola’s secret formula on the internet.

    Potential Remedies for Trade Secret Misappropriation?

    Remedies for trade secret misappropriation fall generally into the two buckets. First, pursuing trade secret misappropriation as a cause of action allows the court to enter injunctive relief. If a disgruntled ex-employee is sharing your company’s secrets online on social media, a court can order that ex-employee to stop spreading your business’ trade secrets. A judge can enter this order early in litigation before any arguments on the merits of the case have begun. This is a time and cost-effective way to protect your business’ trade secrets.

    Second, juries have been extremely sympathetic to businesses harmed by trade secret misappropriation. Juries have awarded huge awards in the past. For example, in a case recently heard in a Texas state court involving a Quicken Loans company allegedly stealing the trade secrets of a Silicon Valley real estate start-up, a jury awarded the start-up over $706 million dollars to compensate the start-up for the theft of its trade secrets.

    Trade secret protection is a valuable option for businesses seeking to protect the inner workings of their businesses.

    For more information, or to speak with an attorney about protecting your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

     

  • You Will Have to Start Paying Online Sales Tax (in 2018)

    You Will Have to Start Paying Online Sales Tax (in 2018)

    In the near future, you may be paying more for goods that you buy online. On June 21, 2018, the Supreme Court delivered its decision in South Dakota v. Wayfair. The Court’s decision will likely impact the way you shop – both online and in brick-and-mortar shops.

    In a previous blog post, we reported that the Supreme Court agreed to hear a case concerning the validity of state legislation permitting the state to tax an out-of-state retailer’s sales in the state. That blog post can be read here. This post is an update to the previous post and will address the Court’s decision in Wayfair.

    Supreme Court Precedent

    The Supreme Court previously held that a state could tax a retailer’s sales only if the retailer had a physical presence within the state. An out-of-state retailer with no physical presence (e.g., warehouse, brick-and-mortar store) could not be taxed by the state. The Court viewed taxing an out-of-state retailer as a violation of the Dormant Commerce Clause.

    Times have changed since the Court last visited this issue in 1992. The Court in 1992 could not have foreseen the explosive growth of online, out-of-state retailers. Nor could the Court have forseen the impact those retailers would have on the sales tax revenue of the States.

    Lost Tax Revenue in the Age of Online Sales

    With the ever-rising popularity of online retailers, states have lost out on substantial sales tax revenue. It has been estimated that states have been unable to collect between $8 and $33 billion in sales tax revenue every year due to out-of-state retailer’s effective sales tax-free status.

    The South Dakota legislature realized how much tax revenue was being lost by permitting out-of-state online retailers to do business in the state without paying any sales tax. South Dakota passed state legislation which obliged out-of-state retailers to collect the same taxes that brick-and-mortar retailers collected. In short, South Dakota sought to even the playing field for brick-and-mortar retailers and collect additional tax revenue.

    Given the Supreme Court’s previous decisions explicitly preventing legislation like the legislation passed in South Dakota, a constitutional clash was unavoidable.

    Court’s Decision

    At issue in Wayfair is whether or not a state can require an out-of-state seller to collect state sales tax on the goods sold in a particular state. Specifically, the out-of-state sellers in this particular case are popular online retailers Wayfair, Overstock.com, and Newegg.

    The Court held, by a 5-4 majority, that the previously decided Supreme Court cases were incorrect. There was no basis for the Court to require a physical presence in a state in order for a state to collect sales tax on sales made in the state. In overruling previous Supreme Court precedent, the Court has paved the way for the States to pass legislation to collect sales tax on online sales made to customers in the State – much like South Dakota has done.

    In essence, the Court reasoned that the “physical presence rule” did not age well. While the rule may have worked well in the late 1900s when out-of-state sales consisted of mail-ordered crockery from Sears Roebuck catalogs and vacuums bought from door-to-door Kirby salesmen, the rule does more harm than good in the age of the internet. The physical presence rule harmed both brick-and-mortar retailers as well as states that relied on sales tax revenue to carry out their governmental functions.

    Dissent

    Four of the nine Justices of the Supreme Court disagreed with the Court’s holding. The basis for the disagreement stems from the nature of the Commerce Clause. The dissenting Justices believe that the decision as to whether states can tax out-of-state retailers should fall to Congress.

    After all, the Constitution gives Congress the power to regulate interstate commerce. Further, the dissent argues the majority has failed to take account of the impact of the decision on small businesses. Suddenly, small online retailers shipping to customers in different states will be faced with over 10,000 jurisdictions. Each of these jurisdictions levies taxes in different ways.

    What to Expect as a Consumer

    If you shop on Amazon, nothing will change. Amazon has already been voluntarily collecting sales tax on online purchases. However, if you shop at a retailer like Wayfair, Overstock.com, or Newegg expect to pay more for your purchases.

  • What is a Corporation?

    What is a Corporation?

    There are many different ways in which a business can be formed. When forming your own business, though, there are four main types to consider, each with their own pros and cons. For this post, we will answer “What is a Corporation?”

    A corporation is the most easily recognizable

    Advantages of a Corporation:

    • Limited Liability for shareholders. Personal assets are protected (with some rare exceptions, i.e. fraud).
    • Easily raise capital through the sale of stock. (You can also create multiple levels of ownership, as well as non-voting ownership).
    • Transferring ownership is simple.
    • Potential Tax Advantages. (Deductibility of employee health benefits, exception from certain individual taxes).
    • Perpetual duration or unlimited life.

    Disadvantages of a Corporation:

    • Double taxation. (Profits are taxed first at the corporate level, then again at the personal level when that income is distributed to owners).
    • Cannot elect to be treated as an individual for the purposes of taxation.
    • Corporate Formation and Franchise fees required to be paid to the state.
    • Required Corporate Formalities. (Meeting and record keeping requirements are strict).

    A Corporation is an effective tool for business to expand, obtain larger investment, and take the business to the next level . Before forming a corporation, you should consult with a knowledgeable business attorney to go over the rules and requirements that you must follow in order to protect yourself. To speak with one of our business attorneys, please call (716) 853-1111 for a free consultation, or simply leave a comment below!

  • What is a Merger Clause in a Contract?

    What is a Merger Clause in a Contract?

    If you have read our previous post regarding whether verbal agreements are enforceable , you know to be wary of any oral or side agreements that are not embodied in a final written document. Merger Clauses, very common in contracts, take it a step further. An example of a typical Merger Clause is:

    The terms of this Agreement are intended by the Parties to be the final expression of their agreement, and supersede all prior understandings and agreements, whether written or oral.

    The effect of such a provision is to merge all prior agreements and understandings into this one, single, document. This means, quite literally, if it is not written in the contract, it is not part of your agreement. Period. If something is missing, or if you require some sort of verbal clarification with respect to the meaning or practical effect of contract language, get it in writing. Verbal clarifications are not binding on the other party in the presence of a Merger Clause, and are most likely unenforceable.

    You can usually identify a Merger Clause because the section heading will be titled something along the lines of Entire Agreement, Complete Agreement, Whole Agreement, Integration Clause, or more simply, Merger Clause. Be aware, these clauses are often confined to the fine print or boiler-plate section of the agreement. This can imply that the clause is standard and/or is not that important to read.

    Generally, there is little to fear from a Merger Clause contained within a well-drafted contract. If the contract has sufficient detail, contains the entire understanding of the parties, lacks ambiguity, and does not require any additional clarification, it should not be a problem.

    However, when a non-attorney drafts the contract, and the other party does not have an attorney review it, Merger Clauses can mean big problems. In the event of a dispute with respect to the interpretation of the agreement, the Merger Clause prevents either party from presenting evidence beyond the literal language of the contract. This means no emails, text messages, telephone calls, or handshake agreements can be used to interpret (or reinterpret) the plain language of the agreement.

    Issues with respect to Merger Clauses most commonly arise in the context of service contracts, where the scope of work to be performed is not defined clearly enough. Both parties believe that they have reached a common understanding of the task to be performed. However, normal people (i.e. non-lawyers), read the language of a contract and usually see what they believe the agreement to be. They are not trained to issue-spot like Attorneys. Attorneys review a contract and identify potential problems (i.e. lack of sufficient detail about the scope of work) and craft solutions for their clients.

    Merger Clauses, when done properly, allow the parties to have their entire agreement embodied in a single document. Such clauses incentivize the parties to be specific ahead of time, which avoids problems in the future. Having professional assistance when preparing a contract is the best way to protect yourself. That is why it is important to consult with a contract attorney before drafting or signing an agreement containing a Merger Clause.

    For more information, or to speak with an attorney about drafting or reviewing your contract, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • 5 Things to Remember When Selling Your Business

    5 Things to Remember When Selling Your Business

    Today’s strong economy and recent tax overhaul may have you considering selling your business while prices are high. With a less restrictive tax code in place, the asking price for businesses could increase even more. Selling a business can be fraught with challenges, so it is important to have a plan to ensure that your sale goes smoothly and does not leave you with seller’s remorse.

    Here are five things to remember before you sell your business:

    1. Have Your Corporate Documents Ready. Before you will be able to close a deal, the parties will participate in the due diligence process. The due-diligence process is where the purchaser, the purchaser’s attorneys, and the purchaser’s accountants review the company’s assets, liabilities and overall financial health before completing the sale. For the most part, you will be able to anticipate what documents the purchaser will ask to review. If you have those documents organized and ready, it will make the due diligence process proceed faster and more smoothly. Standard due diligence documents to have ready are:
    • Corporate Formation Documents (Certificate of Incorporation, Articles of Organization, Bylaws, Operating Agreement, Certificate of Good Standing)
    • Financial Statements (Bank Statements, Payroll Records, Tax Returns)
    • Customer Records
    • Employee Contracts
    • Third-Party Contracts (Contracts with your Vendors and Customers, Equipment leases, Licensing Agreements)
    • Asset Contracts (Real Estate Purchase Contracts, Property Leases)
    1. Purchasers Want Real Value. Purchasers will not pay for what you believe the company is worth. You must be able to demonstrate to them not only the company’s sales, but also its profits. If that is difficult for you, maybe now is not the right time to sell. Biding your time may allow you to generate a better sales record and, thus, a higher purchase price. Having your corporate documents ready before you begin negotiations will give a better idea if you are financially ready to sell.
    2. Be Patient. Finding the right purchaser for your business may take time. Jumping at the first offer could mean leaving money on the table. For this reason, you may want to consider hiring a broker to help generate more interest and more offers.
    3. Consider Your Role Post-Sale. How will you generate an income after the sale closes? Will the sale proceeds be enough to sustain you? Can the business sustain itself without you? Depending on the nature of the business, you and the purchaser may decide that it is best to keep you involved after the ownership change. The business may be in an industry where the personal relationships you have developed will be critical to its future success. Perhaps you have unique skills and capabilities that the business will need in order to be successful. Often a purchaser will make a sale contingent on locking-up a key member of the organization for several years after the sale. Consider what arrangement works best for you.
    4. Have an Attorney Review the Contract. The final contract is the most important piece of the whole deal. Having the contract reviewed by an attorney is the best way to protect yourself from the dreaded fine print . Your attorney can help you identify any traps, provide you with valuable advice, and help you negotiate the best deal possible. Entrepreneurs tend to believe that they can do it all on their own, mostly because early on they had to. When it comes to selling the business, however, the drafting and review of the contract is best left to the professionals.

    For more information, or to speak with an attorney about how to sell your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • The Clarence Lifestyle Center: 7 Things to Consider before Signing a Commercial Lease.

    The Clarence Lifestyle Center: 7 Things to Consider before Signing a Commercial Lease.

    You might have heard that the Eastern Hills Mall in Clarence is considering the possibility of undergoing a significant renovation. As development in Western New York continues to surge, the Mall, a 20th Century concept, is positioned to either adapt with the times, or be a relic of the past. This blog post will explore several important things to consider if you are interested in signing a commercial lease.

    Recently, the Clarence Town Board created a Lifestyle Zoning Code, seeking to create an overlay district of both commercial and residential activity. Although no zoning changes have been made to the Eastern Hills Mall property, a zoning change, if approved, would allow development of a modern center for living and commerce with smaller, more upscale retail stores, more walkability, and the possibility for residential living spaces to be developed. Considering that the health of dated Malls in Western New York is not strong, and that Clarence is actively trying to manage the commercial feasibility of the mall, there is great potential for business growth at the new center and even the areas surrounding the property.

    If the Mall underwent such a drastic change, it may provide a fertile ground for investment considering the prime location of the property and the buzz a new mixed-use retail and residential space would generate. Regardless of the location, there are certain things to consider before signing a commercial lease.

    1. Term Length:

    Most commercial developers prefer to lock in tenants to long-term leases. This enables developers to more easily recoup the costs of their investment. Hiring brokers, advertising the space, as well as any time the space is unoccupied, all cost the developer money. Further, a substantial overhaul of existing commercial space may be facilitated through debt financing (i.e. bank loans). This means that due to financial constraints (i.e. loan payments), property owners that recently renovate their space are unlikely to accommodate shorter lease terms for seasonal or start-up businesses.

    1. Rent Increases:

    It is important to review the lease carefully to understand how your rent can be increased. Most lease agreements will have stated rent levels for each year of the lease. Some commercial leases may tie rent increases to inflation, which changes from year to year, but generally has hovered around 2% in recent years.

    Many lease agreements also require tenants to shoulder the costs of improvements made to the overall property. For example, the property owner’s cost to repairs to HVAC systems, elevators, parking, interior structures, or even real estate tax increases may be passed on to the tenants.

    1. Breach, Default, & Legal Action:

    While no new business wants to think about it, it is important to familiarize yourself with the termination and breach sections of your lease agreement. Lease agreements may limit your ability to terminate the lease, go to court, seek damages, or may even require you to bear the property owner’s legal costs in the event of a dispute. As the property owner drafts most lease agreements, they slant heavily in their favor. First time lessees should beware.

    1. Tenant Improvements to the Space:

    Owners of older commercial spaces will likely be more permissive in allowing tenants to renovate or modify the space to improve its overall commercial attractiveness. They are also more willing to negotiate temporary rent abatement in exchange for the tenant bearing the costs of improvement. The catch here is that any improvements must remain after the expiration of the lease. New commercial spaces are different. The property owner may be less willing to offer rent abatement, and may not allow modification of the space. Make sure to be aware of these restrictions before signing, and evaluate how they affect your business.

    1. Know Your Competition:

    This Clarence Lifestyle Center will likely have a strong demand for a fitness/workout facility, an upscale health food store, and an entertainment complex for residents or shoppers. If you are in the business of providing any of these services or products, you may want to negotiate a clause with the property owner that restricts other tenants from providing similar services.

    1. Hours and Logistics:

    Consider the hours of operation for the mall or commercial space. Malls typically require tenants to maintain the same business hours, or greatly limit their flexibility to change hours or days of operation. You should consider how these restrictions might affect your operating costs.

    You should also consider the amount of parking available. Does your business experience an even flow of customer traffic? Or does it experience periods of high volume and low volume? If the commercial space does not have adequate parking to accommodate your customers, your business will likely suffer. You may wish to consider negotiating designated reserved parking with the property owner.

    1. Hidden Fees:

    Check if the lease requires the tenant to pay for business essentials such as high-speed internet connectivity, property maintenance, or property taxes. These fees will add up and affect your bottom line.

    Having an attorney review your commercial lease agreement is the best way to protect your interests.For more information, or to have your lease agreement drafted or reviewed, pleasecontact our officefor a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensedattorney for any legal questions you may have.

  • 5 Steps to Buying an LLC

    5 Steps to Buying an LLC

    With the arrival of the new year come new year’s resolutions.

    Is this the year to satisfy that entrepreneurial desire to run your own business? But what if you don’t feel like starting from scratch?

    Purchasing an existing business can present less risk and provide more immediate returns than purchasing a start-up. And, now that tax reform has been signed into law, pass-through entities such as limited liability companies will receive more-favorable tax treatment and could make for especially attractive acquisition targets.

    Here are five steps a prospective purchaser of an LLC should consider before beginning the process.

    1. Identify a suitable LLC for purchase

    Things to consider are how will the acquisition be financed, who will operate the LLC after the purchase, how will such an acquisition affect your personal finances, and what is the long-term viability of the company after the purchase?

    After you have identified such an LLC, you will need to make contact with the owner(s) and determine whether they are interested in selling. If they are receptive, it is time to turn your attention to the details.

    2. Establish the framework of the deal

    Are you going to be buying the entire LLC or just a portion of equity (known as “units” instead of “stock”)? The parties, either directly or through their attorneys, will come to an understanding of the key terms of the deal and reduce those terms to writing.

    This document is called a “term sheet” or “memorandum of understanding,” and the parties’ attorneys will use it to draft the purchase agreement. Items that are commonly found within a term sheet include:

    • The purchase price
    • The structure of the deal: buying only the assets of the LLC vs. buying a portion of equity
    • The length and extent of the due-diligence period
    • The timing and method of payment for the purchase price: cash at closing vs. debt financing vs. a mix of cash and debt
    • The closing date
    • Voting rights post-closing
    • Additional miscellaneous contractual provisions, such as a non-compete agreement for the seller
    • Confidentiality, such that all disclosures made between the parties remain confidential regardless of whether the deal is consummated

    To read the full article, originally published in The Business Journal, please click here.

  • Will You Have To Start Paying Online Sales Tax in 2018?

    Will You Have To Start Paying Online Sales Tax in 2018?

    That is the question that the Supreme Court last week agreed to consider in a case (South Dakota v. Wayfair, Inc., et al) that will have national implications for online retailers as well as brick and mortar businesses.
    The Supreme Court had previously held that states could only tax a merchant’s sales if that business had a physical presence within the state. A physical presence could mean a warehouse, a distribution center, or an office. This previous line of cases, decided between 1967 and 1992, generally involved mail-order sales in the pre-internet era.

    Since then, online sales have proliferated and are consuming an ever-increasing share of total retail sales. This has negatively affected both state finances and brick and mortar businesses. States rely on consumption taxes, like sales tax, to help fund government operations. With more online sales, that means less tax money. Brick and Mortar businesses are hit twice as hard. First, they pay to have products shipped to a physical location within the state which raises prices (consumers usually pay for shipping separately in online sales), and second, because brick and mortar businesses have that physical presence, they have to charge their customers sales tax. However, consumers love it because they are saving money.

    Which brings us to South Dakota.

    South Dakota estimated its tax loss related to online sales at upwards of $50 million dollars per year. In response, South Dakota passed a lawin 2016 that required online merchants to collect and remit sales taxes to the state. The state then sued to enforce the law by naming online merchants such as Overstock.com and Newegg.com as defendants. The result of the state’s action was to produce a test case for the Supreme Court to potentially overturn its previous decisions.

    The test case garnered enough attention that 35 other states joined in asking the Supreme Court to hear the appeal and potentially, overturn the rule. In addition to New York, the other states are: Alabama, Arkansas, California, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont, Washington, Wisconsin, and Wyoming.The Court granted Certiorari to the State’s petition last week. You can read the Petition here.

    South Dakota Petition

    Brick and Mortar retailers have also joined in urging the Court to hear the case. The National Retail Federation, the Retail Litigation Center, and the American Bookseller Association have all filed separate Amicus Curie briefs in support of South Dakota’s efforts.

    Supporters of the 2016 law argue that the retail environment has changed so dramatically since the 1992 decision, that the rules set forth over 25 years ago need updating for the modern era. While few people would disagree with that premise, one of the original problems facing mail-order retailers in 1992 has not changed; there are thousands of individual sales tax jurisdictions, each with their own set of unique laws.

    States and retailers will need to determine which sales tax laws should apply to the transaction. Should it be the billing address of the purchaser or the shipping address? What if an in-state purchaser has the product shipped to a different state? Where does the transaction actually occur?

    Should the Supreme Court decide to overturn its prior decisions, it will add further uncertainty to the tax climate in the aftermath of the recent federal tax reform law.

     

  • 3 Reasons Sole Proprietors Should Avoid DBAs

    3 Reasons Sole Proprietors Should Avoid DBAs

    New York State Business Law Section 130 prohibits anyone from doing business under a name other than his or her own unless an Assumed Name Certificate (more commonly referred to as a DBA) is filed. For example, if John Smith would like to sell seeds under the name “Johnny’s Apple Seeds”, he would have to file a DBA certificate before he could start selling. Sole proprietors, LLCs, and corporations can all use a DBA to conduct business. However, for the purposes of this post, we will focus more on sole proprietors.

    DBA Assumed Name
    Sample DBA (Assumed Name) Certificate

    What information is contained within a DBA?
    In New York, a DBA certificate must contain 1. the name of the business, 2. the address of the business, 3. the name and signature (notarized) of the individual (or partners), and 4. the individual’s (or partners’) personal address. Click left to see a sample certificate.

    What is the cost and where to file a DBA?
    For a sole proprietor filing in a single county, the fee is between $25-35 depending on the county. The fee for filing in Erie County is $35. For corporations filing a DBA certificate with the Secretary of State, the filing fee is $25 plus an additional $25 for each county that the corporation will operate in outside of New York City. If the corporation wishes to operate in a county within New York City, the filing fee is $25 plus an additional $100 for each New York City county(Bronx, Kings, New York, Queens, and Richmond Counties). There are no county fees for LLCs.

    A certificate may be filed either with the Secretary of State or with the Clerk’s Office for the county in which the business will be operating. Now that we know what is needed to file a DBA certificate, we will discuss 3 Reasons Sole Proprietors Should Avoid DBAs.

    3 Reasons Sole Proprietors Should Avoid DBAs:

    #1 – Personal Liability

    Sole proprietors often fail to realize that a DBA certificate does not confer protection from personal liability. Despite doing business under a different name, the proprietor remains personally liable for the debts and conduct of the business. If the proprietor’s business is sued for any reason, whether it be for breach of contract or a personal injury, their house, car, bank account, and other personal property are at risk. This means that the proprietor’s personal assets could be used to satisfy a judgment or claim. Personal liability is by far the greatest danger to sole proprietors using a DBA.

    #2 – No Rights to Business Name

    Filing a DBA certificate does not provide a sole proprietor with exclusive rights to the business name. Even if they have been operating for several years under the DBA name, another business can register their LLC or corporation using that same name, and will be able to conduct business statewide.

    #3 – Geographic Restrictions

    As discussed earlier, sole proprietors utilizing a DBA filed with the county are geographically restricted from doing business outside that county. Having to refile in county after county can be time consuming and expensive. That is why many do not bother to refile. What should be obvious by now is that if a sole proprietor wishes to conduct business under a different name, they are much better off registering as an LLC or corporation. This will provide personal asset protection, confer business name rights, and are free to operate statewide.

    To learn more, or to discuss filing for your own LLC or corporation, please contact us for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • What is a Business Registration Certificate?

    What is a Business Registration Certificate?

    Preparing and filing a business registration certificate is the first step towards starting a business. Each business entity requires a different “certificate”. For this post, we will focus on the two most popular types of business entities in New York, a corporation and a limited liability company (LLC) (What is a LLC?).

    Generally speaking, a business registration certificate is what allows the state to identify and recognize your business as a separate legal entity. Upon the successful completion of the filing process, the state will confer the legal benefits of registration on your business. So what type of information is contained within the certificate?

    Business Registration Certificate – Corporations

    Corporations file a “Certificate of Incorporation” with the Secretary of State. On this certificate, you will need to provide the following:

    1. The name of the corporation,
    2. The purpose of the corporation,
    3. The number of shares of the corporation,
    4. The business address,
    5. The county of the business.

    Business Registration Certificate – LLCs

    LLCs file “Articles of Organization” with the Secretary of State. Despite the name, the information is nearly the same as a Certificate of Incorporation. For the Articles of Organization, you will need to provide the following:

    1. The name of the LLC,
    2. The business address,
    3. The county of the business.

    For both business registration certificates, you will need to provide the name and address of the individual(s) filing the paperwork. The “Incorporator” files on behalf of a corporation. The “Organizer” files on behalf of a LLC.

    Lastly, you will also need to submit the New York State filing fee, which varies by entity and changes periodically. However, filing the certificate and paying the fee are not the only steps to registration. We will cover those additional steps in a future post.

    For more information about the preparation and filing of business registration certificates, including our Flat Fee pricing for business formation, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.