Tim works vigorously to protect the rights, licenses and reputations of regulated professionals and entities, like realtors, exhaust emission license holders and attorneys facing allegations of misconduct. Business laws and regulations must be identified and followed when forming and running a business. Laws that govern how to start, buy, manage, close, sell or transfer a license or certain types of business are found at state and federal levels. Regulations are meant to supplement and provide guidance regarding the interpretation and application of statutes. If a person, business or licensee becomes crossways with a regulation or licensor, they cannot seek a remedy in a non-administrative court before they have otherwise exhausted all administrative remedies. This includes an administrative hearing in a court or before a board associated with the agency or licensor threatening a license or which has promulgated the offending regulation. Tim represents many licensed professionals on matters before professional boards of review as well as students facing expulsion or other repercussions stemming from honor code or legal violations. Tim is an aggressive negotiator and advocate for his clients.
Upon the sale or transfer of a business, certain permits and licenses require a Successor Operator application or may require an entirely new application. This may mean making a presentation before a government board, replacing an existing bond, offering a financial warranty or re-evaluation of a bond.
Tim can help.
The legal structure chosen for a business impacts its registration requirements, taxation and the personal liability. of its owners. Tim can assist in selecting a business entity that reflects the right balance. The following offers a brief sample and explanation of business-entity types.
Common Business Entities
Sole Proprietorships. A sole proprietorship is used by individuals and provides complete control of a business. The owner of a business is automatically considered to be a sole proprietorship if they conduct do business activities and don’t register as another types of business entity. Sole proprietorships are NOT a business entity separate from the person forming the business. In practical terms, this means the owner’s business assets and liabilities are not separate from their personal assets and liabilities. The owner of a sole proprietorship can be held personally liable for the debts and obligations of the business.
Corporations. A corporation is a business form that is a separate, legal entity guided by a board of directors. Incorporation occurs by filing articles of incorporation with the secretary of state. Stock is issued to the company’s shareholders in exchange for cash or other assets they transfer to the company. Corporate formalities must be followed. They are legally required to observe formalities like having regular board meetings, keeping board meeting minutes and filing other documents. Money earned through a corporate entity may be taxed twice. First, the corporation is taxed as a separate taxable entity. Second, its shareholders may be taxed on the dividends they may earn. Corporations provide limited liability protection to their owners (the shareholders). The owners are not personally responsible for the debts or liabilities of the business.
Limited Liability Companies. An LLC is a hybrid entity that has some of the benefits a corporation and a some of the benefits of a partnership. LLC’s provide their owners with limited liability in the event the business fails. Like a partnership, LLCs “pass through” profits so that they are taxed as part of the owners’ personal income. LLC’s have less paperwork to file with the state than corporations.
General Partnerships. A partnership is a formal arrangement by two or more parties to manage and operate a business. in a partnership business, all partners share liabilities and profits equally or according to agreement. Simplicity is a main attraction of using the general partnership for a business start-up. Little or no paperwork is required to create a general partnership and, in its most basic form, it can be based upon an oral agreement. General Partnerships may not have to file any paperwork have to file any paperwork in the states where they operate. If they do, it may be only to get a sales tax license or receive a permit to engage in an activity regulated by the state or local government. With respect to taxation, a general partnership as an entity pays no income taxes. Partners pay individual income tax on their share of the partnership profits. Once the partnership has run its course, it’s easy to dismantle. If any or all of the partners want to leave the partnership, it can be dissolved by notifying federal and state tax authorities and informing any creditors and vendors of the partnership’s conclusion.
Limited Partnerships. A limited partnership features at least one general partner and one or more limited partners. The general partner acts as the ‘owner’ and is responsible for day-to-day operations. The general partner is usually the business manager and is personally liable for the business’s debts if the business can’t meet its obligations. By contrast, a limited partner only invests money in the business. A limited partner has no control over day-to-day operations and is not personally liable for the business’s debts. A limited partner is not personally responsible for the limited partnership’s business liabilities. A limited partner’s only potential liability relates to the level of their investment in the partnership. However, if a limited partner takes an active role in the business, they may expose themselves to liability. If a limited partner is not active in the day-to-day operations of the business, the limited partner will not have to pay self-employment tax. Income generated from a limited partnership is not considered ‘earned’ income attributable to the limited partner. Limited partners trade their role in day-to-day operations for the shield against liability for the LLC’s debts and litigation.
Limited Liability Partnerships. Limited Liability Partnerships are a common structure for professionals, such as accountants, lawyers, and architects. This arrangement limits partners’ personal liability so that, if one partner is sued, the assets of other partners are not at risk. Some professional firms make a further distinction between equity partners and non-equity partners. Non-equity partners do not have an ownership stake and are typically paid bonuses based on the LLP’s profits. LLP’s are a hybrid of general partnerships and limited liability partnerships. At least one partner must be a general partner, with full personal liability for the partnership’s debts. At least one other individual is a silent partner whose liability is limited to the amount invested. This silent partner generally does not participate in the management or day-to-day operation of the partnership.
Q: What entity type should be used to form a business?
A: Every business is different. Core considerations usually center around tax consequences and liability protection. Lesser factors may include entity maintenance requirements, continuity and fiduciary duties.
Q: Can a business entity function outside of the state where it is formed?
A: Yes. Incorporating in one state does not prevent a business from carrying on business in another state. Business entities doing business outside their home states are required to file a ‘foreign company registration’. This process is simple and involves disclosure of the same information from the original registration statement to the state where the business intends to do business. Foreign registration can be done through the foreign state’s ‘Secretary of State’. There is usually an annual filing fee of $50 to $500 for the foreign state. Be forewarned however that doing business in multiple states will be subject the business to the foreign state’s taxation.
Trade Names. A trade name is the name by which a business entity does business. It is a name that reflects a brand identity and doesn’t clash with the types of goods and services offered. Before selecting a trade name or mark, it must be researched to determine whether the name or mark is sufficiently unique and would not create confusion with any other businesses or goods. Once a trade name or mark are identified, Tim can register the name with the right agencies.
There are multiple ways to protect a business name: registering a domain name; creating a business entity with the state, and; registering a trademark with the United States Patent and Trademark Office (USPTO). Each method of registering serves a different purpose, and some may be legally required depending on the business structure and location.
Trademarks. A trademark is a sign or symbol registered with the USPTO to distinguish proprietary business goods or services from nonproprietary business goods or services. It is a symbol, word or words which are legally registered or established by long-term use as representing a company or its product. When a trademark is registered, the brand (mark) is protected – other people or entities are prohibited from using it without permission of its owner. After registration, a trademark is protected forever subject to renewal every ten years. It is a form of intellectual property which is licensable or assignable. Once registered, its owner will be able to sue anybody who uses the brand without permission and may place the ® symbol next to the brand. (The TM sign denotes that the mark is being used by the business as its trademark, but does not necessarily mean that it is registered or protected under intellectual property law).
Q: Are trademarks the same as tradenames?
A: No. The law makes a definite distinction between the two. A trade name refers to a company’s official name, while a trademark provides a company’s brand with legal protection.
Q: Should an entity name be registered at the state level?
Q: Does a ‘DBA’ offer legal protection?
A: Not necessarily but it can be evidence of ‘use in commerce’ of a name over a period of time.
Q: Does registering an entity’s ‘Domain Name’ offer the same level of protection as a trademark?
A: A domain name that’s distinctive enough to trademark protects against anyone else using that name. Neither copyright nor domain registration offer the same level of protection as a trademark. A trademark owner will likely have a strong claim against someone who registers a domain name using the same trademark for selling similar products. Even if the other party is able to establish some right to the domain name, legal action could be taken against them if they breach a trademark.
When a small business goes on the market, both sides investigate. Buyers need a clear understanding of the business, its competitive position in the market and a realistic asking price. Sellers want to know a potential buyer’s suitability before they negotiate a price. Selling requires careful planning, clean books and understandable operating systems. Ramping up sales may command a higher asking price at the time of sale but may not last. If you are a seller, Tim can help position your business for sale. If you are looking to purchase a business, Tim can assist with due diligence and proper documentation. Sale of a business also requires knowledge of tax rules. Usually, selling a business is not just the sale of a single asset. Instead, multiple assets are sold and, when this occurs, each asset may be treated as a separate sale. At sale, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as inventory or stock in trade. The gain or loss on each asset is determined separately. The sale of capital assets result in capital gains or losses. The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss (from a Section 1231 transaction). The sale of inventory results in ordinary income or loss. Different tax strategies employed at the time of sale may reduce tax liability.
Partnership or joint venture assets are treated as a capital assets for tax purposes when sold. The part of any gain or loss from unrealized receivables or inventory items will be treated as ordinary gain or loss.
Ownership of a corporation is represented by stock certificates. Sale of a business is greatly influenced by potential taxation. When stock certificates are sold, this is a taxable event realizing capital gain or loss. When a corporation is liquidated, this may be treated as a sale or exchange. Specialized taxation rules may apply to certain categories of business.
If a business requires a permit or bond, it will likely be necessary for the new owners to reapply. Tim can help.
Q: What is the benefit of ‘structuring’ the sale of a business?
A: Strategic tax planning may be accomplished through a structured sale. Receiving payments over time, liquidating inventory, selling or leasing certain capital assets may reduce or spread-out tax liability.
Q: How is a business valued?
A: There are several approaches to use in valuing a business.
Liquidation Value. The liquidation value method looks at the cash value of the business if all of its hard assets (things like furniture, equipment, property, and goods for sale) were to be sold off. A thorough inventory of hard assets is required for an accurate liquidation value. When using this method, it’s important not only to get a good idea the value of each hard asset and how likely it is to sell quickly. A liquidation approach presumes the business will not be advancing forward as a viable entity.
Income Capitalization. The income capitalization method supposes that the business will remain in operation after it is sold, and projects future income based on the business’s past performance. Detailed financial records help estimate income capitalization. This method takes into account operating costs and other on-going expenses.
Asset & Liability Approach. Under the asset and liability approach a business as a set of assets and liabilities. The balance sheet create the picture of business value but may not reveal intangibles like ‘blue sky’ (good will of the business).
Market Approach. Under the market approach, comparable businesses in the market place establish the worth of the business. The fair market value is the price at which a buyer is willing to purchase and the owner is willing to sell. The less unique a business, the easier it is to value. A market transaction is an arms-length deal with the buyer and seller each having full information and acting in their own best interest. Knowledge of the market is of key importance.
Income Approach. The income approach concentrates on making money. Profit expectation prevails under this method. This analysis reviews economic benefits and when these benefits will be available. The guiding tenant of the income valuation method is that it calculates business value in the present. Expected income and risk are considered in present terms using capitalization and discounting.
Litigation is an expensive tool to which resort should be sparing. Alternatives such as simple, respectful communication, negotiation, arbitration and mediation should be first considered. When dealing with regulatory agencies, all administrative remedies must be exhausted. If litigation becomes necessary, Tim is thorough and efficient working to achieving client’s objectives. His trial background includes litigation in multiple state and federal courts. His appellate experience has been in the Colorado Supreme Court and the Tenth Circuit Court of Appeals.
Q: How can a business avoid or reduce litigation?
A: Yes. Anticipate and plan for disputes. Because disputes are inevitable, a business owner should plan for them. Tim can assist his client’s thinking through the types of disputes which may arise. He can build into his client’s contracts preferred dispute resolution paths and can assist his clients in developing creative policies to avoid expensive litigation. Tim encourages the use Dispute Resolution Clauses (ie: mediation and arbitration) in contracts and can help client’s develop them. With respect to arbitration however, Tim cautions his clients of its downside. Arbitration is often just as expensive and time-consuming as litigation and there may be no right of appeal. The laws of many states may mandate judges take into consideration an arbitrator’s award. Courts are otherwise highly differential to results obtained through arbitration.
Tim can write other clauses into contracts like requiring his client’s opponents to pay all costs associated with litigation regardless of outcome. Additional creative protections are available.
Q: Why would anyone litigate?
A: Tim believes that litigation should be a last resort but, when the parties have used or don’t see alternatives, it may be a necessary to: recover a loss; protect a trade secret; set a precedent; resolve a public policy issue or put a competitor out of business.
The following list identifies several ‘pre-employment documents‘ regularly used in business. Tim can draft these to suit an employer’s needs:
Non-disclosure. A non-disclosure agreement is a legally binding contract that establishes a confidential relationship. The party or parties signing the agreement agree that sensitive information they may obtain will not be made available to any others. An NDA may also be referred to as a confidentiality agreement.
Non-competition. A non-compete agreement is a contract or contract clause wherein an employee promises not to enter into a competition with an employer after the employment period is over. To be upheld, it must be reasonable in both scope and geographic reach.
Trade Secret Notice and Agreement. The trade secret non-disclosure agreement is used when the owner of a business wants to protect specific trade secrets like customer lists or other sensitive information. A trade secret can be almost anything. It can be a formula, pattern, customer list, physical device, idea, process, a compilation of information, or other information that is both of the following:
(a) information which provides the owner of the information with a competitive advantage in the marketplace; and
(b) treated in a way that can reasonably be expected to prevent the public or competitors from learning about it, barring improper acquisition or theft.
A trade secret agreement should bear the employee’s signature acknowledging that they have been made aware that the employer considers certain information learned from their business a trade secret. This document removes any excuse they may have if their violation is discovered. A trade secret agreement may subsequently be used to: civilly sue an employee who breaches the agreement, or; criminally prosecute a rogue employee who steals information.
Q: What are some of the most common legal documents used in business?
A: Here is a list of ten common legal documents used in business:
Tim can draft any document a business needs.
Q: Are website Disclaimers the same as Terms and Conditions?
A: No. A website disclaimer is notice placed on a website to limit its creators’ liability for information connected with of the use of the website. Each disclaimer should match-up perfectly with the requirements of its corresponding website. Disclaimers: can claim ownership of copyrighted content but they are not substitute for a copyright;
Terms and Conditions found on a website lay out specific rules for using that website such as: identifying the legal relationship between the website owner and site users; imposing limitations on the use of the website; establishing rules regarding legal use the site, and; information about gaining permission to use certain materials found on the site
Q: Is an L.L.C. operating agreement a contract?
A: Yes. An L.L.C. operating agreement becomes an official, binding contract once an L.L.C. member signs it.
Administrative law is a branch of public law that is concerned with the procedures, rules and regulations of state or federal government designed to implement the laws passed by a state or the federal government. Administrative law deals with administrative agencies’ decision-making process and capability to make such rules and recommendations. Administrative agencies have their own administrative courts which are less formal than non-administrative courts and in which hearsay is permitted. Administrative agencies also have their own appellate processes which must be exhausted before a complainant has the right to appeal before a non-administrative court.
Public’s interaction with administrative frequently occurs in connection with some type of public benefit or license which has been denied or terminated. Common areas of administrative law include:
Individuals. Tim works vigorously to protect the rights, licenses and reputations of regulated professionals such as realtors, attorneys and other license holders who face allegations of misconduct. Tim has a proven track record representing these professionals in matters before administrative boards of review. Tim has also represented students facing expulsion or other repercussions stemming from honor code violations. Tim is tactful and aggressive advocating for the rights of his clients in public hearings, administrative forums, at trial and on appeal. Whether the issue involves violations of health code or facility operating regulations, Tim effectively represents his clients to reduce or eliminate penalties.
Government Licenses. Licenses issued by administrative agencies can be removed or diminished by those same agencies. Whether it is a driving license, law license, realtor license or operating license, Tim will ensure due process. He has been successful defending licensors and mitigating the penalties facing his clients.
Commercial Licenses. Tim can help with another type licensing – the licensing (formal permission) of one business to operate under the auspices of another. Licensing manufacturing processes, patents, trademarks, copyrights, designs, and other intellectual property can be a fast, efficient path to a business increasing its profits. Tim can structure either side of a license transaction by assisting the identification of the best licensee/licensor in terms of brand, finances, manufacturing, distribution and marketing. Thereafter, Tim can draft a new license, review a proposed license or aid the Parties with drafting or completing the license application of the owner.
Permits are jurisdictional and administered at multiple government levels. They are required for many businesses where safety is an issue. When a business is sold or its physical location is changed, application for continuance of an operating permit may be required. In other circumstances, a ‘Succession of Operator’ application or a whole new application or bond may be necessary to authorize a permit. Other events may trigger re-evaluation of a permit or bond before an administrative board. Tim can help overcome the hurdles.
Q: When does it make sense to commercially license your product or service?
A: Licensing between businesses allows a licensee to instantly tap into the production, distribution and marketing systems of existing companies. The licensor receives a percentage of the revenue from products or services sold under the licensee’s license usually without expending a proportional amount of resources.
Q: Under what conditions should the actions of a governmental agency be contested?
A: It makes sense to fight an administrative decision when it is: arbitrary and capricious; unduly harsh for the offense alleged; absent due process, or in violation of the state or federal ‘Administrative Procedures Act.