The Wonderful Blog Which You ve Never Seen

Walter Small Business : Skip I feel like I’ve hit a wall that’s dripping with red ink.
I have a stack of unpaid invoices that’s squeezing the life out of my bank account. I
need to take some of these people to court, but I don’t have a clue about how to get it
done. These things are so expensive.

Gene Skiptracer: Sue them in small claims court.

WSB: I don’t know anything about courts.

GS: Get yourself a legal plan and then sue them in small claims court.

WSB: I’ve tried to get legal help. I went to see an attorney, he charged me two
hundred and twenty dollars an hour and said he would need two thousand dollars in
a trust account before he could get started. I sell business supplies, my average customer
spends six hundred to two thousand dollars a year. I can’t afford an expensive attorney.

GS: I’m sure you’ve heard the expression “Why pay for the cow if you can have the milk
for free?” Well a prepaid legal plan gives you the milk. Simply stated, a prepaid legal plan is a service which allows you unlimited access to an attorney for a monthly or annual fee. It’s the same idea as medical coverage. When you buy into a Blue Cross or Cigna benefits package , you pay so much a month for coverage. The amount of benefit
depends on the type of plan that you buy into. One of the most basic legal plans is
the Prepaid Access Plan . This plan provides members with specified services (unlimited consultation via phone, some document examination, and a phone call on
your behalf.) at no additional cost, plus other services, such as legal representation, at
a discounted legal fee. Other plans include Group Legal where members pay low fees,
or special plan fees, as needed, and the Comprehensive Plan which is usually paid by
employers, or through payroll deductions. Comprehensive Plans usually cover 80% to
90% percent of legal costs in any given action. A prepaid legal plan can be a valuable
asset to a small business that does not have a legal budget.

WSB: So I can pay a monthly fee and get access to an attorney?

GS: That’s right, eight hours a day, five days a week.

WSB: But laws differ from state to state. If I call a national hotline how will they know
what laws apply in my state?

GS: They wouldn’t if one law firm had to cover all fifty states. But the companies that offer legal services usually refer their members to local attorneys. I’ll tell you something amazing that I read on the American Prepaid Legal Institute (API) website. This is a direct quote “Sixty five to eighty five percent of all problems brought to lawyers through
plans can be resolved throughadvice and a small amount of follow-up.”.

WSB: Well you sold me. Do you have an address for the API website?

GS: You b-e-t-c-h-a! Go to http://www.aplsi.org/legal_plans/index.htm

Gene Allen is a collection specialist with 11 years of experience in the industry. His new
ebook “Powerful Secrets of Bounty Hunters & Lawmen for Tracking Deadbeat CashGuaranteed” gives practical tips on asset location. http://www.digenrecovery.com

Tags: collections, prepaid legal, small businesscollections, prepaid legal, small business

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The most common decision for smaller start up companies is whether to form a LLC or corporation with a “s election”. Both entities have many similarities such as limited liability protection of personal assets against lawsuits and debts. However, there are several differences, especially in regards to taxation. Although there is a lot of information regarding s-corporations and LLC’s in general, there is very little available that breaks down the important differences. Below I have summarized the major characteristics and issues associated with each entity:

I. S-Corporation

A. Liability

1. Shareholders granted personal protection from debts and liabilities of business (like c-corp and LLC)

B. Taxation

1. Pass through: Profits and losses pass through the corp and reported to the individual tax return of shareholder (same as partnership and LLC)

2. Self-Employment Tax Break: Profits of the S-Corp which pass through to the shareholders are not subject to self-employment tax (Social Security and Medicare which is approximately 15%). Rather, self-employment is only taxed on the portion classified as a “reasonable salary”. LLCs and sole-proprietorships must pay self-employment tax on all income. The ability to minimize self-employment tax is deemed to be one of the greatest benefits of a s-corporation.

3. Corporate Losses: losses in the corporation can be deducted from the individual tax returns of the shareholder thereby allowing them to offset other sources of income such as their W-2 income.

4. Franchise Tax: Franchise Tax is waived your first year. LLC on the other hand, must pay franchise tax its first year. S-Corp must pay the CA Franchise Tax board either a 1.5% tax on net CA income or $800, whichever is greater.

5. Distribution of Profits and Losses: No special allocation of profit and losses for shareholders. Corporate profits and losses must be split up proportionately to the percentage of shares owned by each shareholder. LLC’s on the otherhand allow for flexibility as to how they split their profits and losses.

C. Formalities

1. Must file an S-Corporation annual income tax return each year (IRS Form 1120S)

2. Must file annual report with Secretary of State, and a reporting fee of $25 and a statement of information are required 90 days after formation.

3. Must maintain corporate formalities such as: Drafting Bylaws, Minutes, Annual Meetings, issuance of stock, to keep a paper a trail of financial dealings between the corporation and its shareholders, and to avoid “piercing of the corporate veil.”

D. Other Characteristics

1. No more than 100 shareholders

2. Shareholders must be US citizens or have US residency status

3. Shareholders must be individuals (not corporations or partnerships)

4. Only one class of stock (but different voting rights permitted, and same rights to participate in dividends and sale of assets)

5. Owners are called “shareholders”
II. LLC

A. Liability: shareholders granted personal protection from debts and liabilities of business (like s and c-corp)

B. Taxation

1. Pass through: Profits and losses pass through the LLC and reported to the individual tax return of shareholder (same as partnership and Corps)

2. Self-Employment Tax: LLC members must pay self-employment tax on all income from the LLC.

3. LLC Losses: losses in the LLC can be deducted from the individual tax returns of the member thereby allowing them to offset other sources of income such as their W-2 income.

4. Franchise Tax: Must pay first year minimum annual tax of $800, and is due 75 days after formation and every year thereafter. Annual franchise tax is greater if total reported income is greater than $250,000. See http://www.ftb.ca.gov/forms/06_forms/06_3522.pdf.

5. Distribution of Profits and Losses: It is flexible since an LLC allows you to decide what share of the LLC profits and losses each owner will receive.

C. Formalities

1. Very little formalities required. Operating agreement is recommended, annual meetings not required.

2. A reporting fee of $25 and a statement of information are required 90 days after formation and then every two years.

D. Other Characteristics

1. Licensed professional in California must form a Professional Corporation instead.

2. Owners are called “members”

3. Members may be individuals or separate legal entity such as a corporation.

4. Member’s investment receives a percentage ownership interest in return. Percentage ownership determines how profit and losses are split up.

© 2006 Michael N. Cohen, Esq.
This article is not intended as a substitute for legal advice. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws.

Michael N. Cohen, Esq. is a licensed patent attorney and is the principal of the Law Office of Michael N. Cohen, P.C., located in Beverly Hills, California. Mr. Cohen can be contacted at info@patentlawip.com or 1-800-396-7210.

© 2006 Michael N. Cohen, Esq.
This article is not intended as a substitute for legal advice. The specific facts that apply to your matter may make the outcome different than would be anticipated by you. You should consult with an attorney familiar with the issues and the laws.

Tags: business entity formation, corporation, LLC S corporation, partnership, small business, start up bizbusiness entity formation, corporation, LLC S corporation, partnership, small business, start up biz

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