Business compliance means following all relevant requirements for your business, and is a key part of making sure your business remains in good standing.
Delaware Approach. Delaware rushed to develop LLC status laws striving to make them , the most advantageous in the country, in terms of asset protection, tax savings, and flexible corporate governance. Delaware actions had a dual motive: (i) Protect its so called turf on (being the U.S. and by extension world) capital of business formation filings in the event LLCs grew to challenge the status of corporations as dominant entity structure (ii) Make it easy for large businesses to use LLC’s as substitutions, special purpose entities, other purposes. As Delaware uses it corporate governing laws, so lure precious filing fees in its coffers, it wont be an understatement to say, that many states are trying to emulate Delaware, in regards to structuring their own corporate governance laws. Going their own way. Other states tried to make their own LLC statuses fit into their peculiarities of their other state laws. For example New York had a long standing of historically requiring many of its partnership type of entities, to comply with an expensive costly and potentially complex procedure, known as the publication requirement. Historically this requirement was based on the notions of shedding some light in regards to insights of a partnership’s ownership and/or management structure. Corporations, were largely exempt from the publication requirement, often on the premise that it was easier to discertain the ownership of the very Corporation's ownership, due in large part to the corporation filing separate tax returns at the entity level. RULLCA A third camp composed of mostly rural, western states trying to come to up with a one style fits all approach. Their answer to keeping their LLC laws evolving and maturing to the point of being a trusted, reliable, legal entity type, which could provide its owner with limited liability protection, has recently seemed to turn to the adaptation of RULLCA. It should be noted that RULLCA differs in many aspects from Delaware LLC laws.
Founders' Agreement is a Must This Agreement is not required by statute but is so important we include it here. Most start-ups will not exist three years after they begin. There are many reasons for failure. At or near the top of the list is discord among the founders. Possibly, the founding members of the company do not share identical expectations of one another and have differing ideas as to who is responsible for what. One member might think he is doing this venture only part-time until it gets on its feet. Another might think all the partners will be putting in equal amounts of money. Another might plan on putting in sweat equity only. You get the idea. Unless the founders know and honor the expectations there will inevitably be disagreement and contention that might very well sink the ship before it gets much beyond the harbor. The best thing these founding members can do right up front is draft an agreement that outlines all of the expectations and obligations they have for themselves and each other. This preformation agreement is often referred to as the Founders' Agreement. It is a contract the initial members of the LLC assent to. It touches on things such as: cash vs. in-kind contributions, division of equity, part-time vs. full-time participation, who manages operations, tax-matters, marketing & sales, how will initial capital be raised, and more. The Founders' Agreement can later become in whole or part, the LLC's Operating Agreement. Every serious business person considering an LLC should have a Founders' Agreement. Even a single-member LLC owner is smart to have one. Not on My Account- Treat the Business as its own Person Not many startups can immediately generate cash-flow to adequately fund the business. Usually, members are required to make capital contributions to get the company up and running. Its important to have and follow a process for financing the entity. The LLC must have its own bank account. Money flowing in to this account from the members is classified as either a capital contribution or a loan. The temptation is to use the money in the operating account as if it were the member's personal bank account. It's not! The money is for business purposes ONLY, not for personal expenditures. The LLC is a distinct and separate entity - a legal "person". Treat it as such. Money contributed cannot be pulled back on a whim. A "paper trail" of income and outflows should be accurately maintained and kept current. Use a bookkeeping software and/or an outside service. We know of a few excellent outside bookkeeping and accounting providers. They are reasonably priced and provide a service you need that could easily take up too much of your time as a business owner. You focus on business essentials while letting others keep your books and provide you reports. Commingle Elsewhere, Not Here Save the commingling for dance parties and social events. It's not meant for you and the LLC. Commingling is the mixing of personal and business assets. This might manifest itself in the form of a a single account used for biz and personal purposes or with a credit card used the same way. It is particularly easy for a single member or owners of a closely held LLC to commingle. Sometimes it's out of convenience or laziness, and usually there's no malicious intent. But don't do it! Pay personal obligations with personal money, business with business. Maintain separate accounts for each and don't put money from one into the other unless there is a loan or payment being made. If a member loans the LLC money, a promissory note should be signed by an authorized member of the LLC. Payments to the member on the Note should be carefully recorded and go into a separate account. A personal credit card should never be paid by the LLC's operating account. If there are business expenses on that credit card, create appropriate records, log the data into the accounting software, submit an invoice to the LLC, and have the LLC pay the member the amount due. Remember, do not pay for the monthly mortgage, the groceries, the Outlets shopping spree, etc, with business funds! They Said What? An LLC does not have the same "business formalities" requirement as a corporation. This is one reason business people are attracted to an LLC. It's generally simpler and more flexible. Nevertheless, there are still good reasons to keep certain formalities and there are record keeping and reporting requirements. When meetings are held where important decisions are made, those should be recorded. Minutes should be kept. The terms of the Operating Agreement should be meticulously followed by the members. If it says a formal meeting of members is to be held monthly, hold it! If it requires certain officers be elected by a majority of members, have the election and keep a record. The Operating Agreement is probably the most overlooked, essential component of an LLC. If it doesn't exist or was poorly drafted, like a cut and paste hatchet job, it jeopardizes the business. Over the years, we've had several clients come in with an Operating Agreement that was so poorly plagiarized it still had the names of the company and members it was "borrowed" from! Genuine business owners don't do that kind of stuff! The Operating Agreement lays our the rules you adopted and intend to follow. Failing to follow the rules agreed to, voted on, and ratified, is an indication that the business is simply an alter-ego. It makes you look like your hiding something or you're just not serious about running a business. Alter-ego LLC members are susceptible to IRS auditors and creditors making all sorts of challenges.
Avoid SEC Registration with a Private Placement A private placement is the non-public sale of securities to passive investors. For smaller capital raises of up to $5 million, a streamlined process exists ("Rule 504"). For multi-state, larger capital raises, a more common but more somewhat more intensive process ("Rule 506") exists. The Federal Securities Act of 1933 requires companies selling securities to file registration statements with the Securities and Exchange Commission unless an exception to that requirement exists. "Regulation D" is a set of rules promulgated by the SEC setting forth the guidelines to qualify for the private offering exemption. The private placements described below all qualify for the federal exemption. Debt Offering vs. Equity Offering In any private placement, the issuer can sell either equity (ownership) in the company or it can offer debt securities such as promissory notes. In a Corporation, equity securities are called shares whereas in LLCs or partnerships, these securities are called interests or units. The owners of equity securities are entitled to receive a share of a company's profits. The owners of debt securities are entitled to receive a guaranteed rate of return over a pre-defined time period. Both debt and equity securities can have limitations set on their liquidity as a condition of the offering. Rule 504 Private Placement Overview Rule 504 is a pro-business regulation meant to shift the obligation of regulating small offerings to the state "blue sky" administrators. As such, it does not preempt State laws and requires careful compliance with state rules as well as Federal rules. Under this rule, a company can raise capital from any number of investors of any sophistication provided that the total capital raise is less than $5 million in any 12-month period. Except in limited circumstances, purchasers under Rule 504 receive restricted securities that cannot be sold for at least six months or a year without registering them. Rule 506 Private Placement Overview Rule 506(b) private placements are more common vehicles for private capital raises because the rule completely preempts state "blue sky" laws, reducing the administrative burden when multiple states are involved in the transaction. Under this rule, an issuer can can sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors. The rule does not place a limit on the amount of money that can be raised but the securities are issued with certain restriction on the resale limiting their liquidity. These placements cannot be generally advertised to the public to qualify for registration exemptions. Oregon Blue Sky Registration Requirements A business based in Oregon that wishes to issue securities under rule 504 must comply with Oregon blue sky laws as well as the blue sky laws of any state in which the security will be offered. Oregon requires the registration of all security sales unless a specific exception exists. Two exceptions can apply in Rule 504 offerings: (1) Sales to accredited investors in cases where there was never a public offering or advertising, and (2) Sales to no more than 10 individual investors, whether accredited or not, during any 12-month period. The relevant statutes provide more details, but suffice it to say that with a small private placement, it is likely that one of these exceptions will apply. Federal Filing Requirements Under Rules 504 and 506 The only Federal Filing Requirement for a private placement is a "Form D" filing that can be completed electronically and must be filed with the SEC within 15 days of the first security sale. Some states also require a courtesy copy of the Form D to be filed when an investor resides there. Documentation & Disclosure Requirements Private placements offerings are documented in the form of a Private Placement Memorandum, or PPM. A PPM is a lengthy and complicated document describing, at its core, what an investor is buying and how the issuing company intends to use the funds to grow. The PPM is not technically required in Rule 504 offerings but we strongly recommend creating one anyway because it can help shield you from future claims of misrepresenting your business during the offering. * A subscription agreement is the actual contract with the explicit terms of the sale. * For Rule 506 offerings, an accredited investor questionnaire will accompany the PPM. These documents confirm the investor's status as a sophisticated investor, which is important to keep track of and insulates you from some liability.
I'm going to show you 4 of the best ways to get your GDPR implementation going. As you may know, on May 25, 2018 the General Data Protection Regulation (GDPR) went into effect in the European Union (EU). For businesses in the United States, implementation with this European data protection act is a must if the business has customers engaging it from the EU. This video set forth some GDPR implementation strategies you can use to make sure your business remains GDPR compliant.
Food Truck Regulations For Self Sufficiency One important food truck regulation is the requirement of self-sufficiency. This means that the food truck has equipment for refrigeration and storage, cleaning utensils and equipment, a liquid waste disposal system, a separate hand wash sink, potable water, and power. The reason for this is that the food truck has to ensure food safety and hygiene. If a food truck doesn*t have all these amenities, it has to be connected to a physical site where all these features are available. Although, you should note that if you plan on only selling pre-packaged food, you might not need to comply with all these regulations. Food Truck Regulations For Employees The food truck regulations require that your employees need to be well trained and licensed to handle food. If you have more than four employees, there needs to be a certified food manager on site who will supervise the whole process of food preparation. If you do not take care of your food sanitation and quality, it can cost you more than your license. This is because a sick customer can decide to sue your business if your food caused the illness. Food Truck Regulations For Business Licenses If you are applying for a business license for your food truck business, you need to provide information about your areas of operation, your type of business, and hours of operation. When it comes to geographical location, you can be allowed to operate your food truck in a general area but be prohibited from locations like residential areas. Alternatively, you might be allowed to operate in a particular area for a time of the day. You should note that if you park your food truck on private property without permission, you could face a lawsuit for trespass.
The Pros Of Using A Letter Of Intent If a letter of intent is well drafted, it can be an instrument to ensure that some parts of the agreement are binding while some other parts are not. The binding parts of a letter of intent include terms on non-solicitation, confidentiality, and exclusive negotiating rights. The following are some of the advantages of using a letter of intent: - It provides a clear expectation of the timeframe for concluding the negotiations and the broader transaction. - It outlines the terms and the structure of the business deal. - It identifies the key issues that are deal breakers. - It can also be an instrument preventing the negotiating parties from engaging with other parties at the early stages of the negotiation. Cons Of A Letter Of Intent If a letter of intent is not well drafted, it could be mistaken as being binding on the parties. When this happens, parties can incur unintended liabilities and potential damages if the deal isn't completed. Alternative To A Letter Of Intent Due to the risks associated with a letter of intent, many businesses now make use of a term sheet. A term sheet outlines the basic terms and condition of the business deal. Although the parties do not usually sign the term sheet, it serves as a talking point for further negotiations. It also performs a lot of the other functions of a letter of intent, is simple, and cost-effective. Drafting a letter of intent or a term sheet requires a bit of legal expertise. To ensure you do not make any costly mistakes, consult with an attorney.
Business compliance includes registration, recordkeeping, accounting, and taxes required by local, state, and federal governments where the business operates.
by attorney Mark Michael Campanella
Get an overview of corporate formalities, and learn why following them is so important.
Piercing the corporate veil removes your limited liability protection and endangers your personal assets. Learn how to protect yourself and your company.