New York Real Estate Lawyer Blog

I own a small business, and am proud of it. In fact, I “know it all,” and, better yet I “can do it all,” because “Paying professionals a waste of money.” So, why should I need a lawyer when I buy, sell or even operate a business.

Since the bottom line is key, most small business owners I encounter genuinely think that hiring a lawyer is akin to turning on the water faucet, and getting little in return but a hefty water bill. I assure you that such rationale is flawed.

Take for example the client who was operating a thriving New York City diner. The business flourished, because it had a ten (10) year lease with options to renew; or so they thought. Then, the building was sold. Deep in the “standard form” lease agreement signed ten years earlier was the barely legible clause, “Upon sale, the incoming owner may cancel and terminate this Lease on ten (10) day notice,” and that’s what happened.

As an attorney, that is my nightmare, and it happens with alarming frequency. Some friend, business owner, client, or interested person says, “just take a quick look, its one of those forms I found on the internet.” As I take up my pen to fix what’s broken, I should respond by saying, “my, it’s a good thing that the internet went to law school, because this is a humdinger of a contract.” Kidding aside, legal advice and guidance is absolutely vital to any small business, and yes, it costs money, but it can be both valuable and not a financial drain.

When is an attorney best suited to helping you and your business?

1. Startup. Review the potential business structure, legal ramifications and other elements designed to protect you, your business, and your family. An accountant can help ameliorate some of the tax issues that might arise.

2. Check your contracts. As life and a business evolves, relationships, methods of payment, operations, and other needs might change the way your existing contracts operate. That handshake may not cut it when you have a ten thousand dollar account receivable. Get your attorney to review every contract you use in your business, both with customers and suppliers. Without a writing, we cannot sort out the problems.

3. Review your exit strategy. Someday, you might become disabled by Lyme disease, want to retire, or want to turn over the business to your kids, but you have a partner with a different agenda. Worse yet, if your business is failing, how do you identify and protect your assets. Plan ahead for the problems.

4. Check your debt collection. Attorneys can advise you on suitable collection methods. resources, and help your cash flow without overstepping the lines.

5. Plan for the Wealth. Experienced estate attorney can help you transfer some of that to your spouse and other family members, but it takes, time patience, and ingenuity. Thinking about retirement in your forties and earlier can make it attainable.

6. Succeed. Establishing procedures and guidelines to transfer ownership your business takes time and care, you need your attorney to understand the nuances, and no internet form can do that.

7. Resolve a business dispute. Once you reach this reason for hiring a lawyer, you will understand why you should have hired one before– to avoid the problem before you had the dispute. Clearly, no small business should litigate a business dispute without a lawyer and it pays to have something prepared by a lawyer to rely upon.

The Bottom line– Lawyers can help you to avoid some pitfalls in life and in business by planning ahead. They are no different from accountants, pharmacists, financial planners, even secretaries because they fulfill a valuable function for business and society. Experts cost money, so hire the experts– be that a real estate attorney, a bankruptcy attorney, a litigator. Solid legal advice is not dirt cheap, but it need not be prohibitively expensive. So, go ask your lawyer to help you today, and don’t be shy about dickering over price, payment arrangements, and timing. The world is full of creative, flexible, energetic and smart attorneys who can thrive with you.

The economy is topsy turvy, the job unrewarding, the grass always greener . . . . . so why not start a business. America runs on . . . small business (and the coffee), so let’s consider the basics. While insurance will protect your assets sometimes, starting a separate entity helps to shield yourself from liabilities.

A Name to Call Thyself. Not all names are created equal. Take a name, say, "The Chocolate Library," creative, descriptive, perfect. Turns out that under the New York State Business Corporation Law, “Libraries” are generally known as a collection of books and other materials for reading and study. So, New York bans the use of school-related words such as 'library,' 'school,' academy,' 'institute,' and 'kindergarten,' in a certificate of incorporation by any New York business is barred unless there is prior consent from the education commissioner.

A Form to Fill. Now that we have a name, what “type” of entity for liability and tax purposes. New York State recognizes various corporate structures, but why choose one over another. While your attorney and accountant are best prepared to advise you for your particular situation, but here are some of the more identifiable structures:

Sole Proprietorship. The simplest form of ownership, where all liability passes through to you personally. Generally, this is used by very small businesses without a physical location and other significant liabilities.

Limited Liability Company. This entity enjoys “passthrough taxation” which allows the “member(s)” to pass the income or losses through their personal returns (i.e., no double taxation), but owners may owe “self-employment” tax on income. Members are protected from liability for acts and debts of the LLC, and can elect to be taxed as a sole proprietor, partnership, S-corp or corporation, providing much flexibility, with even just one natural person (not partnership). These are enduring legal business entities, which, with proper planning, may avoid business termination issues, including those caused by death. An LLC is considered a “partnership” for Federal income tax purposes, so (a) if more than fifty (50%) percent of the capital or profit interests are sold or exchanged within a 12-month period, the LLC may terminate for federal tax purposes; (b) there may be no ability to offer incentive stock options, and no tax free reorganizations. If more than thirty (35%) of losses can be allocated to non-managers, the limited liability company may lose its ability to use the cash method of accounting. Overall a very flexible entity. The business files income through Schedule C of the personal income tax return as a sole proprietor unless it elects to file as a corporation.

“S” Corporation. After paying a salary to the shareholders working, income can be passed through as “distributions of profits,” and may not be subject to self-employment taxes. As the company grows, if it needs to restructure, there are none of the issues that arise in an LLC. S corporations can have one shareholder. The tax ramifications of an “S” Corporation are varied and complex as to what gain or loss or tax basis may be used on death, transfer or termination. If the company plans to own real estate, consult with an accountant and a lawyer if choosing this form of ownership.

“C” Corporation. This is the father of the “S” Corporation, where there are more formalized accounting procedures and paperwork, double taxation at the corporate and individual level, however, no restrictions on the number of shareholders, the types of investments available; or the nature of the entity to add or subtract shareholders. Generally, these are managed by a Board of Directors, which may have too much power over the day to day operations.

Other Types. The remaining types include Limited Partnerships, where some partners are responsible for the acts of the Partnership only to the level of their investment; General Partnerships where all partners are fully liable for all debts; Limited Liability Partnerships where professionals agree to work together under this umbrella.

Organize or Die (Lose the Protection of the Entity). I say this with tongue in cheek, but if you go through the process of setting up an organization to run your business, use it to run your business. Do not, under any circumstance, be disorganized with your books and records, especially the money and checks. Pay yourself as recommended by the accountant, do not mingle your personal funds (assets) with the business, get a bookkeeper or a program to track your finances, and hold meetings for large decisions, so that you can avoid the appearance that this new corporate entity is really just you in disguise.

The Bottom Line– lawyers and accountants can help you to avoid some pitfalls by incorporating properly. Then, it’s up to you to run the business as a business.

[Dutchess County, New York]. When is a television monitor a "sign," under Rhinebeck Zoning Enforcement Regulations. That is a battle being waged between our client and the Village of Rhinebeck, New York. Since this is a pending matter, we will permit the Poughkeepsie Journal newspaper account to speak for itself.

Bottom Line-- The First Amendment of the US Constitution is a powerful tool, supported by the New York State Constitution which provides even broader protection to freedom of speech.

Judge for Yourself

Village of Rhinebeck Code 12-63 (Definitions)

SIGN
Any material, structure or device, including awnings, composed of letters, pictures or symbols designed or used for the purpose of attracting, or which does attract, the attention of the public to the subject matter thereof and located out-of-doors, on the exterior of a building, or inside the building within two feet of the window or in a manner to be viewed primarily by passersby. Any striping, lighting, corporate color schemes and other graphic design intended to serve as an attraction or to call attention to the site will be defined as a "sign."

Buyer Beware: When buying a small business in New York be sure that your small business attorney follows the New York State Bulk Sales rules.

Prior to 1990, Article 6 of the Uniform Commercial Code (UCC) regulated bulk sales– the transfer of large pieces of inventory, notes, etc. Article 6 was enacted to deal with sellers who attempted to fraudulently convey inventory (obtained on credit) by selling in a “bulk sale” transfer to a single buyer outside the ordinary course of business, disappearing with the proceeds, and leaving creditors without paying.

Under New York’s version, the Code provides various mechanisms to protect both potential buyers and creditors of businesses where bulk transfers of inventory occur. Failure to comply with the Bulk Sales or Transfers Act means that the original creditors (of the seller) get a lien against the assets (inventory) transferred to the buyer. Buyers must comply with the Bulk Sales provision and be ready for its implications.

The Bottom Line–hire a new york business formation attorney to handle the transaction, or pay the price later.