Small Business Attorney

Business Succession Planning In The Internet Age

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This articles was originally published in Forbes. By: Doug Bend Many business owners build their businesses hoping that they will continue to generate income for their heirs after they pass away. However, businesses often die or lose significant value when the owner dies.  When strategizing how to make sure your business continues to thrive, it… Read More

This articles was originally published in Forbes.

By: Doug Bend

Many business owners build their businesses hoping that they will continue to generate income for their heirs after they pass away. However, businesses often die or lose significant value when the owner dies. 

When strategizing how to make sure your business continues to thrive, it is important to know that if you do nothing, your business already has a default game plan in place. If no additional planning is done, your business is an asset of your estate and will be subject to probate. 

There are four problems with this default game plan. First, it can take years for a court to probate your estate. In the meantime, your business can wither on the vine until the probate has been finalized. Second, if you do not have an estate plan, your heirs can fight over who will inherit the business. Third, whoever inherits the business under defaults in the law (intestate succession) might not be the best person to make sure your business will continue to grow and be successful. Lastly, if you have co-owners, they might not like the heir to your estate and could quickly get into disputes with the new owner that harm the business.

Estate Planning Attorney Megan Yip contributed insights regarding business succession, as our law offices are collaborating to provide the best insights into this emerging issue. There are two legal tools to consider when evaluating your options:

1. Buy-Sell Agreement

A buy-sell agreement is a legal contract between the co-owners of a company that addresses a variety of business-changing events, including when an owner dies. Instead of the deceased owner’s equity being a part of the assets that are distributed during probate, the buy-sell agreement can include an agreed-upon amount that will be paid to the estate in exchange for the business repurchasing the equity. Often, the purchase amount is financed with a life insurance policy on each owner of the business.

2. Proper Estate Planning

Instead of allowing your business to be subject to probate, the business owner can work with an estate planning attorney to have the business be an asset of the owner’s trust. This replaces a probate process that can take years with a more seamless transition from the deceased beneficiary to their heirs.

Whether you choose a buy-sell agreement or to include your business interests strategically in your estate plan, make sure you pay attention to the digital assets that are important to the continued operation of your business. Your business’s digital assets may include client lists and data stored in software systems, primary communication channels like email addresses, intellectual property or creative products, and even revenue streams like online stores or websites.

Here are my top three tips on considering your digital assets.

1. Know the policies that affect your tools. 

Most of our businesses today depend on software for managing client data, communicating with clients and keeping track of productivity. As part of your plan and regular course of business, review your software provider’s policies on what happens if your company needs to name a new point of contact, pay bills in a different way or be transferred to a different company in case the unexpected happens.

2. Balance security with redundancy. 

Many business owners focus on the security and safety of information and digital assets used in their business, and rightly so. A business’s success demands that owners and employees alike keep proprietary information and client information secure. However, that concern for safety needs to be balanced with a sort of redundancy that considers which trusted individual or team of people will have access to digital assets and an understanding of what to do with them if the owner or main management team is unable to tend to business as usual for any reason, including death.

3. Include digital assets in your legal documents.

Don’t just discuss digital assets; include an inventory of digital assets in your buy-sell agreement or estate plan. Get specific about who should get access to digital assets, how and at what juncture in case of emergency. Make a plan to review digital assets on a regular basis with your other assets, and keep in mind that they might change more often than traditional assets.

Making a detailed plan about who should have access and who should not have access to your business’s digital assets in the case of you becoming incapacitated or passing away is an important part of succession planning today. No matter what legal structure you employ to ensure your wishes for the continued success of your business come to fruition, developing a strategy for what should happen to the digital assets your company relies on needs to be a part of the process.

No one likes to think about dying. But taking the time to work on your business succession plan now can help ensure your heirs get the most value possible from the business you spent years of your life building long after you are gone.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article

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Buying or Selling a Small Business? Here Are 5 Ways to Assess the Value

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When buying or selling a small business, you want to make sure to assess the value accurately. There are five ways to determine a fair purchase price: 1.  Look At Similar Businesses The least accurate option is to look at similar businesses that are for sale on the Internet. The advantage to this option is… Read More

When buying or selling a small business, you want to make sure to assess the value accurately. There are five ways to determine a fair purchase price:

1.  Look At Similar Businesses

The least accurate option is to look at similar businesses that are for sale on the Internet. The advantage to this option is you can look at similar listings from the convenience of your home whenever you would like.

This is, however, the least accurate option as there can be a wide variety of factors that might make the fair market value of the business you are buying or selling more or less than other listings online.

In addition, the asking price of an Internet listing is often not the ultimate selling price. If you work with a business broker or appraiser, they will have access to comps of the sale of similar businesses both in California and across the country.

2.  Back Of The Napkin Calculation

You can also use a multiplier times the revenue of the business. While this option is also free, it is often not accurate as it does not take into account a variety of factors, such as the projection that the future revenues of the business are moving in or net profits. For example, two businesses in the same industry could have the same sales but one business could net $200,000 a year whereas another business could net $59,000 a year because it has more expenses.

3.  Hire A Business Appraiser to Assess the Value

You can have a certified business appraiser do a very extensive valuation. This is often the most accurate valuation of the business because the business appraiser digs deep on your particular industry, market forces, anticipated future returns and other factors. The drawback is it is also the most expensive option and takes several weeks for the business appraiser to complete. However, at the end of the process you have a detailed report of the fair market value of the business.

4.  Hire A CPA

You can also hire a CPA who specializes in valuation work to review the financials of the business and provide a valuation. This is a less expensive and intrusive option than hiring a business appraiser, but the valuation is also not as detailed. You should ask the CPA how much experience they have doing valuation work and whether they have been certified by the AICPA or the CBV as most have no formal business valuation experience and are not certified to provide valuations.

5.  Work With A Business Broker to Assess the Value

If you are selling a business, you can have a business broker review your business and provide a suggested listing price.

If you are buying a business, a business broker can advise you on whether the listing price is fair or if there are better opportunities on the market.

The advantage: initially, working with a business broker is often free because they are typically only compensated if the sale of the business is completed.

The drawback: if you do not work with a trustworthy business broker who keeps your best interests in mind, they might suggest a listing price that is less than the full fair market value to encourage a quick sale and therefore a quick commission payment.

It is fair to ask the business broker how many sales they have completed and hire one who has completed at least fifty transactions. They are more likely to have the necessary experience and competency to set the value appropriately.

If the broker provides you with a suggested valuation, you should request that they provide you with comparable sales to make sure it is a logical sales price.

Some business brokers are willing to credit the cost of a business valuation by a certified appraiser from their commission if the seller agrees to list the business at the valuation price. For many business owners, this is the best of both worlds as you get a detailed, accurate valuation by a certified business appraiser, but the cost is paid by your business broker.

If you have any questions about buying, selling, or setting the value of a small business, or would like an introduction to a great CPA or business broker to help you value a business, please contact us at (415) 633-6841 or info@bendlawoffice.com.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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Why We Love Helping Small Business Owners and Startups

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Rose Rose Productions did an amazing job of producing this video on why we love helping small business owners and startups. We are very fortunate to spend our days helping entrepreneurs start and grow their businesses.

Rose Rose Productions did an amazing job of producing this video on why we love helping small business owners and startups.

We are very fortunate to spend our days helping entrepreneurs start and grow their businesses.

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Should Your California Professional Corporation Elect To Be Taxed As An S Corporation?

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Should your company elect to be taxed as an S corporation? In California, certain professions that require a state license are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation. By default, California professional corporations are taxed as C corporations. As a C corporation, your… Read More

Should your company elect to be taxed as an S corporation? In California, certain professions that require a state license are prohibited from forming a limited liability company or a traditional corporation and instead must incorporate as a professional corporation. By default, California professional corporations are taxed as C corporations. As a C corporation, your professional corporation would pay federal taxes on its profits, and you would also pay individual taxes if you receive salary, bonuses, or dividends from the corporation.

  1.  Tax Advantages of the S Corporation

By electing to be taxed as an S corporation, your professional corporation would instead be a pass-through tax entity, like an LLC or a partnership.  Electing to be taxed as an S corporation may also allow you to pass losses from the business to your personal income tax return, where you can use the losses to offset income that you may have from other sources.

Finally, if the corporation pays you a “reasonable salary,” you may not be required to pay self-employment taxes on any shareholder dividends you receive in addition to your reasonable salary.

  1.  Disadvantages To Being Taxed as an S Corporation

A drawback of electing to have your professional corporation taxed as an S corporation rather than a C corporation is the cost of the premiums for shareholder benefits. In a C corporation, costs like insurance coverage are deductible as a business expense. Additionally, the shareholders may not be taxed on the value of the benefits.

Another drawback is the restrictions on who can be a shareholder of an S corporation. For example, S corporations may not have shareholders who are non-resident aliens.

Finally, S corporations may only issue one class of stock whereas C corporations can have different classes of stock that have different rights and liquidation priorities.

  1.  Conclusion

You should consult with your CPA or tax professional to make sure being taxed as an S corporation is the best fit for your professional corporation. However, for most California professional corporations, an S corporation election is likely to provide the most tax savings.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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What Is A California Professional Corporation?

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In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and must instead incorporate as a professional corporation. Professions that are required to be professional corporations include many of those that require a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists,… Read More

In California, certain professions are prohibited from forming a limited liability company or a traditional corporation and must instead incorporate as a professional corporation.

Professions that are required to be professional corporations include many of those that require a state license, such as dentists, certified public accountants, doctors, veterinarians, lawyers, optometrists, marriage and family therapists, psychiatrists, and psychologists.

What Is Different About Professional Corporations?

Professional corporations have more restrictions than traditional corporations.

For example, with a few limited exceptions, officers, directors, and shareholders of a professional corporation must be licensed to conduct the professional activity.

In addition, professional corporations are subject to the regulations of the applicable governmental agency overseeing the profession in which the professional corporation is engaged. For example, some agencies have restrictions on what you can name a professional corporation and require specific language to be included in the professional corporation’s bylaws regarding who can own shares or be officers of the professional corporation.

Who Can Be A Shareholder Of A Professional Corporation?

Professional corporations are also subject to specific rules in the California Business and Professions Code. For example, only licensed persons can be shareholders of a  professional corporation.

Why Form A Professional Corporation?

While professional corporations do not provide liability protection for malpractice, you could have limited liability protection for claims not based on malpractice, such as a slip and fall accidents.

In addition, forming a professional corporation may allow you to deduct payments for benefit plans, such as disability or health plans and group term insurance.

Finally, you should speak with your CPA or other tax professional about whether forming a professional corporation and electing to have it taxed as an S corporation may provide tax savings.

Please contact us at (415) 633-6841 or info@bendlawoffice.com to discuss whether your company is required to be a professional corporation and, if so, the steps necessary to set it up right.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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How To Incorporate In Delaware (Even If You Don’t Have an Office There)

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Business owners often want to incorporate in Delaware, but are unsure if it is possible without having a physical office in the state. You do not need a physical location to incorporate in Delaware, but you do need to have a registered agent for service of process. A registered agent for service of process is where… Read More

Business owners often want to incorporate in Delaware, but are unsure if it is possible without having a physical office in the state.

You do not need a physical location to incorporate in Delaware, but you do need to have a registered agent for service of process. A registered agent for service of process is where service would be delivered if your company is sued.

BizFilings ($220/year) and a number of other companies provide a registered agent for service of process in Delaware.

If you need a registered agent for service of process in California, our firm charges $99/year.

It is important to remember that even if you incorporate in Delaware, you will also need to register your business in each state where you are doing business.  Most states have a very low registration threshold because they want to know which businesses are operating in their state and maximize revenue from franchise taxes.

You can read about the pros and cons of incorporating in Delaware. If you have any questions regarding incorporating in Delaware or any other business legal issues, please contact us at (415) 633-6841 or info@bendlawoffice.com.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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Top Questions to Ask Before You Hire A Business Attorney

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As a business owner, you face many challenges and expenses. One of the most important decisions is how to meet the legal requirements of your business while balancing the need to preserve time and capital.  Below is a list of tips you may want to consider when selecting a qualified, trusted business attorney. 1.   … Read More

As a business owner, you face many challenges and expenses. One of the most important decisions is how to meet the legal requirements of your business while balancing the need to preserve time and capital.  Below is a list of tips you may want to consider when selecting a qualified, trusted business attorney.

1.     Where do I start to look for a business attorney?

The best method for selecting a great business attorney is to consult other business owners and your trusted advisors.  Does a business owner you trust have an attorney they recommend?  Does your CPA, financial planner, or banker have an attorney they know and trust?  An attorney who has the money or aptitude to have their website on the first page of a Google search is not necessarily the attorney who is best suited to help your business.

2.  Is the business attorney well qualified to handle your specific legal needs?

Once you have a list of attorneys, your biggest concern should be whether they are qualified to handle your legal needs.  An attorney who is fresh out of law school may be inexpensive, but it may be worthwhile to pay more for an attorney who has experience with your industry or navigating the nuances of your city and state.  For example, a family law attorney may be well qualified to handle a child custody dispute, but they may not be the best attorney to set up a new business entity.  It is important to keep in mind that attorneys are business owners as well and some are reluctant to turn away new business – even if they are not particularly well qualified to handle your legal needs.

How can you determine if an attorney is well qualified to handle your legal needs?  The first step is to review the attorney’s biography.  Do they seem like they would be a good fit for your company’s legal matters? If so, contact the attorney and interview them for the position for which they are “applying” – one of the most important roles in your company.  Some questions you may want to ask include:

  • How long have you been practicing law?
  • Have you had any ethics complaints filed against you?
  • Have you done this specific type of work before?
  • How many times?
  • Can you please give specific examples of work you have done in the past that is similar to the work you would be doing for me?
  • Can you please put me in contact with a client with whom you have done similar work?

You should also ask the attorney specific questions that are important to your legal needs to determine if they have the necessary background knowledge.  For example, if you are setting up a new company, you may want to ask the attorney to describe the difference between an S corporation and an LLC or how much the annual franchise tax is for a corporation in California.  These types of questions can be a good method to gauge the knowledge base of the attorney and whether they are best suited to help your business.

 3.  Are the business attorney’s rates reasonable?

Good business attorneys in the Bay Area typically charge between $275 to $595 per hour.  Partners in large law firms can charge as much as $1,200 per hour.  This can lead to large, unexpected legal bills.  What may seem like a simple legal question can result in you receiving a ten page memo and a $3,000 invoice.

However, some attorneys are willing to offer flat project rates, which can better allow you to budget for your legal needs.  An attorney may also be willing to put a cap on the amount they charge for a project.  For example, an attorney might say that it typically takes them three to five hours to set up a corporation.  If an attorney will not provide a flat rate for the project, they might be willing to agree to a cap that the project will not cost anymore than five times their hourly rate.  Having a flat project rate or cap on the legal costs for a project can be key in preventing surprise legal bills.

 4.  Prioritize Your Legal Needs.

It is easy to forget that an attorney is a small business owner and may encourage you to buy additional legal services that your business may not immediately need.  You should ask the attorney how they would prioritize the timing of the legal projects they recommend.  For example, can you pay to set up your company now, but wait to file for a trademark until you see if your business is actually viable?

5.  Is the Business Attorney Not Only Well Qualified, But Also Someone You Would Enjoy Interacting With?

It is important to not only find an attorney who is reasonably priced and well qualified, but someone you feel comfortable working with.  Is the attorney someone you want to develop an ongoing relationship with over the years as your business grows?  Will you enjoy interacting with them or will you dread having to contact them?

6.  The Business Attorney Should Be A Member of Your Team of Trusted Fiduciary Advisors.

The attorney should be a member of a trusted group of fiduciary advisors who provide your company with quality advice for a fair price.  This team of trusted fiduciaries will vary from business to business, but will often include a business attorney, a CPA, a financial planner, a personal banker, and other individuals who will not only provide you with sound advice, but also genuinely care about the success of your business.

7.  Meet With Several Business Attorneys and Trust Your Instincts.

You should meet with several business attorneys.  Selecting the right business attorney is extremely important and you should take the time to make the right decision.  Most business attorneys provide a free initial consultation.  Take that opportunity to meet with several attorneys.  You are no doubt very busy, but finding a good fit early on can save dozens of hours down the road.  Trust your instincts in determining which business attorney is going to best help your business grow and succeed.

If you have any questions regarding hiring a business attorney or any other business legal issue, please contact us at (415) 633-6841 or info@bendlawoffice.com.

Disclaimer: This article discusses general legal issues and developments. Such materials are for informational purposes only and may not reflect the most current law in your jurisdiction. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  Bend Law Group, PC expressly disclaims all liability in respect of any actions taken or not taken based on any contents of this article.

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