Do you own a business, or, are you thinking of starting one? If so, great!
We can help with business incorporation to avoid pitfalls.
You probably know that doing business comes with risk and tax consequences. The good news is, our lawyers get you incorporated and guide you to avoid issues… affordably, because our experienced lawyers “get” this stage of your business (relatively young).
Lowering Risks
Let’s look at the risks of owning a business, absent incorporation. Your business, which is really an extension of yourself, exposes you, personally, to be sued for:
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Injuries to people involved with your business, including everything from fall-type injuries on your premises, to you or an employee hitting someone with a company car, to people getting ill from using your product or service.
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Breach of contract, for you (or your business’) failure to pay alleged debts related to purchase orders, overhead, rent, contracts or agreements with other businesses, or other expenses.
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Regulatory penalties, for violation of consumer protection or other laws.
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Liability for your partner’s conduct, because if you have a partner, each of you is personally liable for the other’s conduct and decisions, until you incorporate. Each of you have “joint and several” liability for the business and the conduct of its agents and employee.
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Liability for your employee’s conduct. A business has vicarious liability for the negligence of its employees in the scope of their employment. It may not matter if you label your employee an “independent contractor”; the courts will look at how much control your company exhibited over the employee and disregard the “independent” title, such that you are liable for everything the employee does for the company.
Until you incorporate your business, everything our company does can put you — and your personal assets (your home, car, laptop, clothing, furniture, investments, savings account, and more) — at risk.
Corporate Shield
Incorporating your business is an important tool to avoid most kinds of liability. Once you incorporate (through an LLC or S-Corp or other entity), your business becomes its own, separate, legal entity, which can make decisions, hold assets, and enter into agreement, separate and apart from yourself, which is key.
Importantly, once your business is incorporated, any person having a contract with — or claim against — your entity, must proceed only against the entity, alone, and not you personally (leaving you free and clear!) absent special circumstances described below.
Protecting Your Assets
Incorporating your business can make it extremely difficult for a creditor of your company to go after you, personally. This is called “piercing the corporate veil,” click here. However, this can be exceeding difficult to do, as our corporate litigation and breach of contract lawyers know.
The appellate courts in Pennsylvania have written: “[w]e note at the outset that there is a strong presumption in Pennsylvania against piercing the corporate veil,” Lumax Industries, Inc. v. Aultman, 669 A. 2d 893 (Pa Supreme Court 1995), citing Wedner v. Unemployment Board, 449 Pa. 460, 464, 296 A.2d 792, 794 (1972).
After all, the main purpose of incorporating is to create a separate legal entity. Thus, our appellate courts frown upon piercing the corporate veil. That said, there are three main ways to pierce the corporate veil, each requiring evidence and proof:
1. Undercapitalization. This is where your entity takes on substantially more risk than it can afford. For example, if your company avoids buying any insurance or having any assets on hand, to pay business expenses as they come due, and your company engages substantial economic risk, you may have a problem.
The easy way around this is so simply carry at least some insurance — such as business interruption insurance, and/or have some assets (or a line of credit on hand) to show that your business had at least tried to to capitalize sufficiently to pay its debts in the ordinary course of business.
2. Alter Ego. The second way to pierce the corporate veil is to show that your entity is nothing more than a sham, meaning, there is no real distinction between your personal dealings and your “business.”
For example, let’s say you have a corporation, but you use its bank account as your own personal account, on a regular basis, for your own personal, daily expenses, such as:
– clothing (not for work)
– food (outside of work)
– your home utilities or cable television (not for your home office), or
– attendance of sporting events unrelated to work.
At some point, a court can find that your “business” is really no different from you, such that you can be personally liable for your “business” debt.
3. Participation. Where you, personally, have engaged in conduct that has wronged someone. In other words, incorporating you business does not absolve you from your own misfeasance.
Let’s say, for example, you engage in fraud such that you, personally, made a false statement to someone to entice him to give you (or your business) money that you never intended to return or use for any legitimate purpose. Simply incorporating your business does not allow you to get away with misfeasance, such as fraud or defamation.
The same goes for your own personal negligence. Let’s say you hit someone with business vehicle. Your business can be liable, if the accident occurred in the scope of your employment, but you can also be held liable, personally, since you were a negligent driver.
The easy way around this is, make sure you have adequate insurance to cover your negligence, whether its personal or business related, and avoid doing malfeasance type conduct (intentional acts, such as fraud, which are not covered by insurance).
Tax Advantages
As mentioned, incorporating your business can create certain tax advantages, though many of those have been reduced by the 2017 federal tax reforms. Talk to our lawyers about how best to take advantage of incorporating your business for tax advantages.
Other Advantages
Incorporating your business also allows you to structure your organization to see fit.
There are many choices and option for how best to structure your business, as our lawyers can explain in person or over the phone.
Selecting Your Entity
You have many options, depending on your particular goals.
Limited Liability Company – This is often called an “LLC”; it is by far the most common type of small business entity. This is because it provides very little administration coupled with great flexibility.
Corporation (Inc.) (or a C-corp or S-Corp) – Though involving more formalities and administration, these provide significant advantages. Click here.
We can walk you through all of these options, such as:
Non-Profit Corporation,
Limited Partnership (LP) click here,
Limited Liability Partnerships (LLP),
Professional Limited Liability Company (PLLC), and Professional Corporation (PC).
What We Do
For a low flat fee, we:
1. Meet with you face to face or over the phone, to and discuss your business strategy.
2. Walk you through entity selection based on your individual needs.
3. Help you with corporate naming to avoid issues. For example, we conduct a search (in both Pennsylvania and the U.S. Patent and Trademark Office) to determine whether someone is already using the corporate name you envision, and help you with coming up with a new name, if needed.
4. Prepare your formation document to be filed with the Department of State, which officially creates your business entity.
5. Obtain federal registration and get your EIN number.
6. Get your organized. We make sure you have a plan to obey certain corporate formalities to avoid the problem described above, where a creditor maintains that your business is simply your alter ego. This is very easy to do.
7. Provide key legal documents. We will create all legal documents you need, customized to your business, such as your employee manual, operating agreement, contracts with vendors, or your buyout agreement if you are buying into a business or folding a business into your current one.
8. Protecting Your Trade Secrets. We educate you about how to draft documents protect your business. We can discuss non-compete agreements and covenants. For example, we’ll cover the FTC’s proposed ban on non-competes. We’ll go over tools to protect your business’s trade secrets, regardless.
9. Provide practical advice. This is often most important. We help you form key connections to advance your business, in the areas of capitalization, accounting, banking, marketing, and more. For example, you might consider having your employees sign a non-compete. Only – changes are coming. The FTC is going to ban non-competes. Click here. Still, there may be other ways to protect your ideas, investment, and trade secrets.
9. Providing advice for the future. Your business may be around for a very long time. You may want to protect its reputation. A claim can exist for trade disparagement — against those who harm your branding. Ask us any question you like, during the consultation.
Overall, we help you form key connections to advance your business, in the areas of capitalization, accounting, banking, marketing, and more.
Our Pittsburgh lawyers are here to help.
