I recently had a client ask me whether he could avoid all the hassle of payroll taxes, withholding, unemployment insurance, workers’ comp, minimum wage, overtime, etc. — just by issuing 1099’s to all his staff and treating them as independent contractors. The short answer? No. I mean, think about it. If it were that easy, everyone would be doing it.
And in fact, many employers are doing this. But they are also taking on a lot of risk. Because if the government finds out — let’s say, because you try to fire the “contractor” and he seeks unemployment benefits through EDD, or he decides he really wants some overtime and files a complaint with the Department of Labor — you can be liable for very large penalties, plus interest on all the payments owed. As anyone who has been through an employee audit will tell you — It’s generally not worth the risk.
So, how do you know whether a worker can legitimately be classified as a contractor vs. an employee? Read more
I periodically give a SCORE workshop called Legal Issues for Startups, where I get lots and lots of questions about what sort of business entity to form — Should I be incorporated? If so, where — Nevada or California or both? Should I be an LLC or an S-Corp? And what is an S-Corp anyway? How about just being in a partnership? Anything wrong with that?*
The answers to these questions boil down to two basic issues: liability and taxes. As a lawyer, I regularly advise my clients about the liability issues, but always recommend they check with a qualified accountant to get specific tax advice before making a final decision.**
Here’s how the liability issues work: A corporation (or LLC) is a separate legal entity that exists independently of its owners (who may buy and sell shares or otherwise change over time). The debts of the corporation belong to the corporation and, provided the owners are careful about maintaining corporate formalities, their personal assets are protected and cannot be used to satisfy corporate debts. In a sole proprietorship or partnership, on the other hand, the business debts are also personal debts, and there is no protection of personal assets when the business can’t pay.
Now, in practical terms, this may not matter too much if you are the sole owner of a small business where you have signed personal guarantees for credit and where there isn’t much risk of being sued (e.g., certain types of consulting services). In those situations, it may not be worth the cost and hassle of forming a corporation or LLC. I generally recommend those clients get good insurance instead — including professional liability insurance if possible.
But if you own your business with a partner — be careful!!! Read more
I will be doing a presentation on Internet Law, part of a two-part workshop by SCORE Orange County called “Hot Topics in Internet Marketing,” at the Fullerton Library on March 10, 2011, at 6:00 to 9:00 pm. The other part of the workshop, on Google Analytics, will be presented by my colleague Vazi Okhandiar. Usually, these workshops are very lively, with lots of questions and audience participation, and we’re hoping for a good turnout for this one. I will post the presentation slides here shortly after the workshop takes place.
Ok, so you’re ready to start-up your business — either online, home based, or (the old-fashioned way) in a brick-and-mortar building. What do you need to do to make sure you’re operating legally? Here is a checklist of some essential first steps:
√ Get a Business License
Contact your local government to find out what sort of license is required for the type of business you plan to open. Most cities and counties now have websites where you can download the application forms, as well as get further information. Don’t make the mistake of thinking that just because you have a home business you don’t need a license — most cities will require one and can impose penalties if you fail to get a license or you wait until after you’ve already been doing business for a while. Some local governments even have arrangements with state tax authorities to check returns for home-based business income generated by unlicensed businesses.
Also, check to make sure your business complies with local zoning requirements, especially if you are operating from your home. Finally, make sure you have the permits necessary for your particular type of business operation (e.g., food preparation, liquor sales, daycare, etc.). Again, you can get this information from your city or county website, or by contacting your local government office or town hall. Read more