Posts in: October

Quirky LLC Issues in Many States: Don’t Make A Rookie Mistake

October 27, 2015 Asset Protection, Business planning Comments Off on Quirky LLC Issues in Many States: Don’t Make A Rookie Mistake

The Limited Liability Company (“LLC”) has become the de facto business entity of choice for many small business owners and real estate investors. While it can be easy to set up an LLC on-line, it is very difficult to PROPERLY set up an LLC on-line given the fact that not every LLC is the same and that each state has different requirements and restrictions that need to be taken into account. Here’s just a short list of some quirky LLC issues that could apply in your state.

  1. California Franchise Tax – An $800 minimum fee/tax on your LLC due each year whether the LLC makes money or not. This applies to your California LLC and any other LLC doing business in California. Now, don’t think doing business in California means what you think it does because if you own a LLC in Arizona and you live in California and call your Arizona property manager while in California you have just done business in California. Send in $800 to the Great State of California.
  2. Arizona Publication Requirement – After you establish an LLC in Arizona, you are required to post a notice in a newspaper in Arizona that meets circulation guidelines letting everyone who still reads the notice section in the paper know that an LLC was formed and providing the name. For more on the AZ publication requirement, click here.
  3. Tennessee Franchise and Excise Tax and the FONCE Exemption – Tennessee has a franchise tax that will apply to your LLC that is based on the net-worth of your LLC. There is a common exception to this tax called the “FONCE” (Family Owned Non-Corporate Entity) exemption that will apply if the LLC is owned by family members and has passive income. For more on the FONCE Exemption, read Mark’s article here.
  4. Nevada State Business License – Yes, that’s right, a state business license is now required in Nevada for LLCs. Business licenses generally are required at the City or local level and run  $20 to $100. The Nevada business license is required of LLCs and is $500 annually. Yes, they have a budget deficit in Nevada. For more on the Nevada Business license, click here.
  5. California Statement of Information – The California Statement of Information needs to be filed within 90 days after your LLC is established. This is in addition to and after your Articles of Organization are filed. For more information on the California Statement of Information, click here.
  6. New York Publication Requirement – An LLC in New York must publish its name and details in a newspaper in the county of the principal place of business the LLC. While Arizona and a few other states have similar requirements, only New York papers can charge you $500 or more for this.
  7. Texas Franchise Tax Form Filing and Information Report – Texas has a franchise tax that applies to gross income in an LLC. The good news is that Texas has an exemption such that no tax is due if the revenue is passive and below $1,080,000 for the year.  Make sure you file Texas Franchise Tax No Tax Due Information Report Each Year though or your entity will become delinquent.

This list could go on and on but I just wanted to highlight the complexity and nuance that you need to be aware of when establishing a new LLC for your business or investments. Keep in mind, an LLC may not be the best entity for your situation, however, once you know that an LLC is optimal for your situation for tax and asset protection purposes it is critical that it is set up properly so that you don’t end up being delinquent, dissolved, and subject to fines and penalties. Working with an experienced lawyer can help you determine the right entity for your situation and can set it up properly while advising you of the state nuances that may be involved in your situation.

Non-Compete Clauses and their Enforceability

October 26, 2015 Litigation, Small Business Comments Off on Non-Compete Clauses and their Enforceability

One of the most exciting aspects of being an entrepreneur is taking an idea and transforming it into a successful, thriving enterprise.  Unfortunately, sometimes in their haste and excitement to develop and monetize the idea, entrepreneurs may overlook necessary steps to protect their own creation.

Prudent Business owners often seek to protect their products, services, secrets, clients or techniques from being used by their competitors, or even worse, one of their own partners or employees who decides to leave the business.  As such, a business owner may enter into a non-competition or non-solicitation agreements with their partners or employees to restrict the ability of the partner or employee from directly competing with the business and/or taking clients away from the business when they decide to leave.

The degree to which a non-compete or non-solicitation agreement would be enforced by a court against a departing employee or partner varies depending on which state’s laws will be used to interpret the agreement.  However, the general rule derived from English Common Law was to hold these types of agreements unenforceable as an unreasonable restraint on trade since the presumption is that everyone has a right to make a living.

However, courts are more likely to uphold and enforce a non-competition agreement if it is limited in time and scope to what is necessary to protect the legitimate interests of the business.  On the one hand, if the agreement is overly broad in time or scope, for example, an employment agreement which provides that upon leaving the Company, Joe Employee agrees not to engage in any similar lines of work anywhere in the state for a period of ten (10) years would likely be unenforceable in many states as an unreasonable restraint on a person’s right to make a living.   On the other hand, if a business has developed a confidential client list over a period of time which it identifies as its intellectual property, courts may very well enforce an agreement that prohibits a departing employee from using information from that confidential client list.

Drafting a non-competition agreement that will likely pass muster with the court will require an analysis of how such agreements are viewed in the particular state(s) where business is conducted as well whether the agreement truly serves a legitimate business purposes and is narrowly tailored to serve those ends, or whether it unduly restrict an individual’s right to earn a living.  Nevertheless, if your business utilizes any information or asset which it wishes to protect, having the right agreement in writing is a must!

If you have questions regarding  non-solicitation or non-compete agreements or would like assistance with preparing such agreements, please contact one of the attorneys of KKOS and we can advise you on strategies to protect your valuable business.

Lee Chen is an associate attorney at the Irvine, California office of Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) and helps clients daily around the country with common contract issues relating to their businesses, investments, and real estate. He can be reached at lee@kkoslawyers.com or by phone at (888) 801-0010.

What can Cinderella teach us about Estate Planning?

October 13, 2015 Estate Planning, Uncategorized Comments Off on What can Cinderella teach us about Estate Planning?

“Once upon a time in a faraway land, there was a tiny kingdom – peaceful, prosperous, and rich in romance and tradition. Here in a stately chateau, there lived a widowed gentleman and his little daughter, Cinderella. Although he was a kind and devoted father, and gave his beloved child every luxury and comfort, still he felt she needed a mother’s care. And so he married again, choosing for his second wife a woman of good family with two daughters just Cinderella’s age, by name, Anastasia and Drizella. It was upon the untimely death of this good man, however, that the stepmother’s true nature was revealed. Cold, cruel, and bitterly jealous of Cinderella’s charm and beauty, she was grimly determined to forward the interests of her own two awkward daughters. Thus, as time went by, the chateau fell into disrepair, for the family fortunes were squandered upon the vain and selfish stepsisters while Cinderella was abused, humiliated, and finally forced to become a servant in her own house.” (Opening Narration from Cinderella (1950).

Most people don’t know this, but at its very core, Cinderella is a story about the failure of one man (Cinderella’s Dad – let’s call him Mr. Cinderella) to adequately plan for what would happen when he died. There are no available records concerning Mr. Cinderella’s estate plan, but based on how things turned out (with Cinderella “forced to become a slave in her own house”), my best guess is that he followed the most popular estate planning method in America today – i.e. DOING NOTHING!!! I am also presuming that the laws of the tiny kingdom awarded all of Mr. Cinderella’s assets to his surviving spouse (The Wicked Stepmother) and defaulted to the Stepmother also being named as Cinderella’s legal guardian. Thus, the luxurious and comfortable life Mr. Cinderella had built for his daughter was permitted to be squandered on his step-daughters, while Cinderella was forced to cook, clean, and eventually come to believe that talking mice were her best friends in the whole world.

Believe it or not, my purpose here is not to throw dirt on Mr. Cinderella’s grave. I’m sure he was actually a great guy. My purpose is to help us learn from his mistakes so that we don’t repeat them. So, what can we learn from Mr. Cinderella’s failure to plan? There is so much to choose from, but I want to draw out four main points:

  1. Planning Can Be Your Friend – Cinderella’s Dad should have taken the time to establish and own his assets in the name of a revocable living trust. That trust could have named Cinderella as one of, or perhaps the sole beneficiary, and given express instructions to use the trust assets for Cinderella’s benefit until she reached a certain age (perhaps 25 or 30), at which point she would have inherited the assets outright. Maybe she still could have married Prince Charming, but her judgment in doing so would have been unclouded by her need to escape the slave-like conditions imposed by her Wicked Stepmother.
  2. Lock It In – Maybe we should give Mr. Cinderella a break. It’s certainly possible that he had a trust, and that he named Cinderella as one of the beneficiaries. However, in blended families (like Cinderella’s) where a trust has been established, it can be a really good idea to make that trust go irrevocable upon the death of the first spouse. This makes it so that the surviving spouse cannot make changes to the trust (and most importantly to the beneficiaries). As such, an evil stepmother (or stepfather) will then be unable to disinherit the children of the deceased spouse.
  3. Be Careful Who You Leave In Charge. Apparently, Mr. Cinderella was a nice man who was not the best judge of character. He married the Wicked Stepmother and either left her in charge of his estate or failed to take steps so that she wouldn’t be appointed to be charge of his estate. The decision about who to name as the guardian of your minor children, or your personal representative or successor trustee is vitally important, especially in a blended family or in any situation where that person is given a great deal of discretion or latitude in deciding how to raise children or deal with assets. In terms of dealing with assets, it can be preferable to craft your estate plan so that the successor trustee has little or no discretion about what to do with them. The bottom line is that you need to take these decisions very seriously.
  4. Safety In Numbers. Mr. Cinderella’s plan (or lack thereof) appears to have left the Wicked Stepmother solely in charge of everything. If he had any inkling of the Wicked Stepmother’s wicked tendencies, he could have named a trusted third-party (maybe someone from his family or from the family of Cinderella’s previously deceased mother), to serve as co-trustee of the trust and co-executor of his estate. When there are two people in these positions, both of them have to sign for the trust or the estate to take any action. This person could have acted as a vital check on the Wicked Stepmother’s obviously evil intentions towards Cinderella.

While it is certainly an extreme case, the story of Cinderella demonstrates what can go wrong if you fail to adequately plan for what will happen when (not if) you die. Don’t procrastinate!  Get your Estate Plan done today.  It can last you many many years with minimal costs to maintain or update.

Jarom Bergeson is an associate attorney with Kyler Kohler Ostermiller, and Sorensen, LLP (“KKOS Lawyers”) in its Cedar City, Utah office and has extensive experience in helping client register their trademark and protecting their brand identity. He can be reached at jarom@kkoslawyers.com or by phone at (888) 801-0010.