For many new businesses the best initial ownership structure is either a sole proprietorship or if more then one owner is involved a partnership. A sole proprietorship is a one person business that is not registered with the State.

You don’t have to do anything special or file any papers to set up a sole proprietorship. You create one just by going into business for yourself. You will need a business license from the City in which you operate. And you should file a fictitious business name statement with your county recorder (also known as a “dba’) if your business will have an name other than that of the owners.

You should speak with an accountant and an insurance broker. Make sure you set up an appropriate book keeping system with a separate business account. Make sure you obtain insurance if necessary. For example you might need errors and omissions insurance.

A potential draw back of the sole proprietorship is that it is inseparable from its owner. This means that the owner of the business reports business income and losses on his or her personal tax return and is personally liable for any business related obligations such as debts or court judgments.

A key purpose of corporations, LLCs and other business entities is to provide protection from personal liability for business debts and to memorialize the rights and the obligations of the individuals who are shareholders or members. But remember for you to obtain credit for your business you will have to personally guarantee the obligation–whether a credit card or bank loan–no lender will be willing to look only to a newly formed LLC for payment. So, unless the business has an unsually high risk for lawsuits insurance should suffice instead of corporation or LLC.

If you don’t have employees, don’t plan on seeking investments or funding, don’t have a business that creates great legal exposure, and don’t have a lot of income you may not need to form a corporation or LLC. A corporation or LLC can be expensive to maintain. Corporate books and records must be kept, minimum state taxes must be paid (presently $800) and an annual tax return must be prepared and filed, even if there is a loss. Once your becomes lucrative it may make sense to create an LLC or corporation.

Whether you incorporate or not, if there is more than one owner of the business, you must plan for what happens if one of the owners desires to leave or must leave the business and you should plan for what happens if one of the owners gets a divorce.  The way to accomplish this is through a buy-sell agreement.  A buy-sell agreement is more important to a start up than incorporation in almost every instance, and yet most of my clients who have going concerns, that is operating businesses, have no buy-sell agreement in place.  A buy-sell agreement may be thought of as a prenuptial agreement between business partners/shareholders.

Beverly Hills Business Attorney Galen Gentry can help you create your business start up, draft employee contracts, buy-sell agreements, and incorporate your business. With 21 years of experience and the highest rating for legal skills and ethical conduct from avvo.com and martindale.com Galen can work with you to avoid costly legal problems through proper planning. Call 800 486 6814 for a free, no obligation consultation. Serving clients in Southern California including Los Angeles, Beverly Hills, Santa Monica, Hollywood,The San Fernando Valley,Ventura County, Orange County and Long Beach

1. Obtain an Employer Identification Number (EIN)
Before hiring employees, you need to get an employment identification number (EIN) form the U.S. Internal Revenue Service. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies. To obtain an EIN, you can contact the IRS directly or apply online.

2. Set up Records for Withholding Taxes
The IRS states that you must keep records of employment taxes for at least four years. Also, keep good records for your business to help you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible expenses, prepare your tax returns, and support items reported on tax returns.  In California a business has withholding tax obligations to both the Federal and State government tax authorities.

Federal Income Tax Withholding (Form W-4)
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of employment. The employer must then submit Form W-4 to the IRS. For specific information on employer responsibilities regarding withholding of federal taxes, read the IRS’ Employer’s Tax Guide.

Federal Wage and Tax Statement (Form W-2)
On an annual basis, employers must report to the federal government wages paid and taxes withheld for each employee. This report is filed using Form W-2 Wage and Tax Statement. Employers must complete a W-2 Form for each employee to whom they pay a salary, wage or other compensation.
Employers must send Copy A of Form W-2 to the Social Security Administration (SSA) by the last day of February (or last day of March if you file electronically) to report the wages and taxes of your employees for the previous calendar year. In addition, employers should send copies of Form W-2 to their employees by Jan. 31 of the year following the reporting period.
Visit the Social Security Administration’s Employer W-2 Filing Instructions and Information for further guidance and assistance.

State Taxes
Depending on the state where your employees are located, you may be required to withhold state income taxes. Here in California you are required to withhold taxes and pay to the Franchise Tax Board. You can visit the state and local tax pages in your area for more information.
3. Employee Eligibility Verification (Form I-9)
Federal law requires employers to verify an employee’s eligibility to work in the United States. Within three days of hire, employers must complete an Employment Eligibility Verification Form, commonly referred to as an I-9 form. This requires you to examine acceptable forms of documentation supplied by the employee to confirm the employee’s citizenship or eligibility to work in the U.S. Employers can only request documentation specified on the I-9 form. Employers who ask for other types of documentation not listed on the I-9 form may be subject to discrimination lawsuits.

Employers do not file the I-9 with the federal government. Rather, an employer is required to keep an I-9 form on file for three years after the date of hire or one year after the date of the employee’s employment termination, whichever is later. The U.S. Immigration and Customs Enforcement (ICE) agency conducts routine workplace audits to ensure that employers are properly completing and retaining I-9 forms, and that employee information on I-9 forms matches government records.

All U.S. employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the U.S., including citizens and non-citizens.
Instructions for Completing the I-9: Handbook for Employers
Offers a comprehensive guide to completing Form I-9, Employment Eligibility Verification.

Employers can use information taken from the Form I-9 to verify electronically the employment eligibility of newly hired employees through E-Verify. To get started register with E-Verify to virtually eliminate Social Security mismatch letters, improve the accuracy of wage and tax reporting, protect jobs for authorized workers and help maintain a legal workforce.

4. Register with Your State’s New Hire Reporting Program
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires all employers to report newly hired and re-hired employees to a state directory within 20 days of their hire or rehire date.
Visit the New Hires Reporting Requirements page to learn how to register with your state’s New Hire Reporting System.

5. Obtain Workers’ Compensation Insurance
Businesses with employees are required to carry Workers’ Compensation Insurance coverage through a commercial carrier, on a self-insured basis or through the state Workers’ Compensation Insurance program.

6. Unemployment Insurance Tax Registration
Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to pay these taxes, you must register your business with your state’s workforce agency. The state taxes page includes links to your state’s agency.

7. Obtain Disability Insurance 
Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related sickness or injury.
The California – Employment Development Department can provide free information on disability insurance requirements.

8. Post Required Notices
Employers are required by state and federal laws to prominently display certain posters in the workplace that inform employees of their rights and employer responsibilities under labor laws. These posters are available for free from federal and state labor agencies. Visit the Workplace Posters page for the specific federal and state posters you’ll need for your business.

9. File Your Taxes
If you are new employer, there are new federal and state tax filing requirements that apply to you.
Generally, each quarter, employers who pay wages subject to income tax withholding, Social Security and Medicare taxes must file IRS Form 941, Employer’s Quarterly Federal Tax Return. Small businesses with an annual income tax liability of $1,000 or less may file IRS Form 944, Employer’s Annual Federal Tax Return instead of Form 941.
You must also file IRS Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, if you paid wages of $1,500 or more in any calendar quarter, or you had one or more employees work for you in any 20 or more different weeks of the year.

If you need expert advice on legal issues confronting your business. If you desire to expand your business, form a new or different business entity (incorporation or LLC) if you have questions about trademarks or business contracts, then contact us for a free, no obligation consultation from a top rated lawyer.

Call 800 486-6814

In a recent article in the LA Times author Alana Semuels notes that from 2001 to 2009, California ranked either first or second in the nation in creating businesses. But last year, the state plummeted to 50th as it lost 4,600 businesses, according to a study by Economic Modeling Specialists Inc. The article and the study conclude that California’s business creation plunged because of low employment.

That’s wrong. The article and study put the effect before the cause. California’s drop in business creation has resulted in lower employment.  As has the inability of existing businesses to expand.  The drop in business creation and the inability of existing businesses to grow is the result of something simple–no credit.

During the housing bubble banks and other lending institutions stumbled all over each other not only to make house loans but to loan to business people. Lending institutions extended large “lines of credit” to businesses throughout the state. Lines of credit were essentially signature loans. Like a credit card. The interest rates were fixed or variable but the credit was available. When the housing bubble burst and the mortgage crisis occurred the banks pulled all the money they could, off the table. And the business “lines of credit” were some of the first to go.  While it’s true many of the lines of credit were poor credit risks, there is no evidence that the majority were.  Businesses which had never missed a payment, never used all the credit available to them, and that were good risks, still lost their loans.   The banks behaved irrationally. The decision to make signature loans on mortgages was folly, but so was the decision to pull the lines of credit of most small businesses.

Successful businesses need investors willing to bet their money on the success of the business (which is generally the Silicon Valley business model) or else they need credit. It’s a rare business that reaches its full potential by using its monthly receivables to pay its bills. A business may be able to limp along in that manner, but it can not expand. It can not employ more people in hopes of selling more goods or services because it doesn’t have the cash. An important consideration for businesses is unexpected contingencies.

Sometimes the contingencies are opportunities–a restaurant in a strip mall is informed by the landlord that it has the opportunity to rent the adjacent space, receive the extra parking allotment and expand.  Normally he would use credit to pay for the expansion (and the business attorney’s services to put the deal together). Sometimes contingencies are negative–liability exposure for a consumer lawsuit, or the need for the business to hire a lawyer to file a lawsuit for breach of contract, trademark infringement or unfair competition.  Without credit businesses forgo the services of business lawyers and litigation attorneys because they can’t afford them.

California has the work force, the space, and the consumers to have a strong economy–but it needs small businesses because they employ the most workers, and small businesses need money. Something must be done to make more credit available to those business people whose credit history warrants it. Only then will this great state be able to fulfill its promise. 

The credit situation is bad, but there is money out there for some businesses.  If you own a small business or are considering starting one and are having trouble obtaining the working capital contact us for a free, no obligation consultation.

San Francisco County Presiding Judge Katherine Feinstein said her court has sent layoff notices to 41% of staff and plans to close 25 of 63 courtrooms. Until this year San Francisco had a adopted a head in the sand approach to the budget shortfall. It utilized furlough days and made no hard choices. In contrast the Los Angeles County court under former Presiding Judge Tim McCoy has for the past couple of years refrained from filling positions vacated by employees who retired or left of their own volition. Judge McCoy created dark days where certain civil court were closed one day a week. Almost all the Los Angeles County judges involved volunteered to work without pay or staff on those days. Last year, 329 employees were laid off and more positions were left unfilled. The present Presiding Judge Lee Smalley Edmon told the LA Times on July 20th that the court was striving to reduce costs methodically, but “the sorts of dramatic cutbacks that other California courts are implementing may be felt here in Los Angeles as well.”

Why Should You Care? Divorces, traffic tickets, civil lawsuits all face monstrous delays in the coming years. Imagine being in the middle of a marital dissolution proceeding that has been going on for six months and being told that even though you’re ready for trial the earliest available date is 10 months away? Consider having to wait up to five years for your day in court on a civil case such as a lawsuit against the contractor that made a hash of your bathroom remodel or a personal injury suit?

Access to justice is critical to our society.  Obviously due to the state’s economic situation all government services will be trimmed. But cutting $350 million from the budget of the state courts will prove to be a disaster for the people of California. The court’s financial woes are a boon for private litigation (commonly known as arbitration) where litigants hire an arbitrator and pay him or her to decide their dispute.

I am not a fan and think arbitration should be avoided in most instances. One reason is that arbitration is incredibly expensive. It costs a relatively modest $395 to file a complaint in any California state court. Filing an arbitration is often a function of the value of the case and can cost thousands of dollars. The arbitrator’s time is also expensive–$570 per hour is the low end and $850 is common (and it can be more…a lot more). The expense of arbitration can favor the litigant with the deepest pocket.  Another problem with arbitration is that for the most part the arbitrator’s decision is the final word. There can be no appeal to a higher court. This is true even if a litigant can show the arbitrator’s decision was clearly wrong according to the law!

What Can You Do? I’d be lying if I said you could do much. But you should be cognizant of the dire financial situation of the courts and it should play an important factor in your decision on whether to file a lawsuit over a civil dispute. Despite my misgivings about arbitration I engage in it regularly and their are steps business persons can take to minimize the expense of arbitration and to attempt to include the costs in the arbitration award to the party that wins.

In the context of divorce and child custody and support issues the best approach is to attempt to resolve the property division and custody/support issues without fighting and then use attorneys to present the agreement to the courts as a mutually agreed upon stipulated judgment of dissolution. That is not always possible, so it’s important to have a divorce lawyer familiar with the judges were your case is located. The reason is some family law judges move things along faster than others despite the budget woes, and an attorney familiar with the court will know the history of your judge.