Tag: Small Business

  • 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 are the Elements of a Contract?

    What are the Elements of a Contract?

    Many people enter into contracts on a daily basis without realizing that they are in a legally binding agreement. To help the average person understand when they have a valid contract, we have set forth the elements of a contract below.

    There are four elements of a contract, in order to have a valid contract, all four must be present:

    1. Offer

    This is the first step towards a contract. One party makes an offer to perform a service, sell a product, trade, or conduct some other business venture. An offer is valid so long as it is serious (i.e. not said in jest), and has not been revoked by the offeror (i.e. “I hereby withdraw my offer”).

    2.Acceptance

    The party to whom the offer was made must now agree to the terms of the original offer. Any conditional acceptance or inclusion of additional terms is called a counter-offer. A counter-offer is in effect a rejection of the original offer, and it starts the contract formation process all over again. Just like for an offer, an acceptance must also be serious.

    3.Consideration

    Contracts are not binding unless something of value is exchanged. Consideration can be in the form of money, a promise to perform an act or refrain from acting, or it can be for some other item of value. The element of consideration is the whole purpose for entering into a contract. For the element of consideration, both parties must have some obligation under the contract; for example, one party pays and the other party performs.

    4.Capacity

    Each party must reasonably assume that the other party has both the legal right and the ability to fulfill their end of a contract. They must also be able to fully comprehend at the time of agreement what their obligations will be. For example, an intoxicated person (with some exceptions) or a minor (with some exceptions) lack the capacity to enter into an agreement because they do not fully understand the obligations that they are undertaking.

    The elements of a contract set forth above are applicable for both oral and written contracts. However, certain types of contracts are required by law to be in written form.

    Despite the technical legal enforceability of certain oral contracts, for practical purposes, parties should memorialize their contracts in writing. This will help avoid confusion, misunderstanding, and will aid with enforcement in the event of a breach. To determine whether or not your contract needs to be in writing, or if you need to draft a contract, you should consult with a knowledgeable contract attorney.

    Having an experienced contract attorney help prepare your agreement is the best way to protect your interests. For more information, or to have your agreement drafted or reviewed, 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.