Tag: LLC

  • 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.

  • 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 Limited Liability Company (LLC)?

    What is a Limited Liability Company (LLC)?

    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 Limited Liability Company (LLC)?”

    A limited liability company is a hybrid between a corporation and a partnership. It is a popular business model due to its dual nature.

    Advantages of a Limited Liability Company:

    • Low start up costs.
    • The owners generally are immune from personal liability for the conduct of the business, with some rare exceptions (i.e. fraud).
    • The owners’ personal assets are generally protected from claims against the business.
    • Owners can be added or removed easily.
    • Owners can sell equity in the company to raise money.
    • Some states allow the owners flexibility to decide whether they would like business income taxed personally (“pass through taxation”) or on behalf of the business itself (corporate level).
    • A potential tax benefit of the LLC is the ability to use profits and losses of the business to offset other personal income.
    • Forming or Registering an LLC in New York State is very quick and easy with a knowledgeable business attorney.

    Disadvantages of a Limited Liability Company (LLC):

    • There are certain accounting rules that must be followed, such as not commingling business funds and the owner’s personal funds.
    • There are certain rules that owners or managers of the business must follow when signing contracts.
    • The owners and managers must follow the LLC’s operating agreement when conducting business.
    • Unlike a sole proprietorship, many states do charge a filing fee, and a nominal biannual registration fee.
    • Formal organization papers must be filed with the Secretary of State.

    A Limited Liability Company is a great way for entrepreneurs to get their business started. If you are interested in starting a business, check out our Business Formation page or consult with a knowledgeable business attorney to review 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 Sole Proprietorship?

    What is a Sole Proprietorship?

    Businesses are omnipresent in American everyday life. When forming your own business, though, there are four main types to consider, each with their own pros and cons. A sole proprietorship, partnership, corporation, and LLC (limited liability company) all have their own unique aspects that may make them helpful or less helpful to you. For this post, we will answer “What is a Sole Proprietorship?”

    Advantages of a Sole Proprietorship:

    A sole proprietorship is a business owned by a singular owner who has complete control over the whole business. This is useful because:

    • There are generally no costs to set up.
    • The finances of the business are kept as the owner’s finances.
    • It is simple to own and operate, as there are no conflicting interests within the business.
    • There is no double taxation for business income (however, the owner must still pay normal sales and employee-related taxes).
    • The proprietorship is legally indistinguishable from the owner, and thus there is generally no paperwork to set up a proprietorship.
    • If a proprietorship becomes too large for an owner to handle, it can be converted into a partnership, corporation, or LLC, while keeping the same name, staff, and funds.

    Disadvantages of a Sole Proprietorship:

    However, there are disadvantages, especially in case of lawsuits. These include:

    • The owner is personally liable for the actions of the business.
    • There is no personal immunity from lawsuits.
    • Personal assets are at risk in the event of an adverse judgement.
    • If there is a business accident, because business funds are indistinguishable from personal funds, an unlimited amount of personal funds are legally attachable to repair damages.
    • The conversion of a sole proprietorship to a corporation or LLC can be a time consuming process as it requires the separation of business funds from personal funds, which requires meticulous accounting of the owner’s finances.
    • It is impossible to sell parts of the business to make money, as there is legally no separate business entity.

    These are just a few things to consider before operating as a sole proprietor. You should consult with a knowledgeable business attorney before starting your business. To speak with one of our business attorneys, please call (716) 853-1111 for a free consultation, or simply leave a comment below!