How Do I Protect My Business Name?

If you use a name for your business other than your personal name, you want to register the name in the state or states where you do business so that other businesses can't use your name. Going through the  registration process also keeps you from using a business name that someone else already uses.  In Ohio and some states, registration of a trade name is done with the Secretary of State’s office.  In other states, the registration is done at the county level.

A corporation does not have to separately register its name in the state where the corporation is incorporated.  The same is true for an LLC.  But a corporation or an LLC should register its trade name in other states where it does business.  Sole proprietorships and partnerships are not incorporated anywhere, so generally the owners of a sole proprietorship or a partnership will want to register their business name everywhere they do business. 

Before you select a name for your product or business, you should conduct a name search.  You should do an internet search on Google and Yahoo, and a search with the state registries where you intend to do business now or in the future.  You should also do a search of the federal register of trade and service marks at www.uspto.gov.  There is a cost involved in doing these state and federal registrations.  But it can be far more costly in terms of time, money and lost opportunity if you have to change the name of your business or product because you used someone else's name.

If you are using a trademark, be sure to state on your packaging and advertising materials that you own the mark.  If you have federally registered the mark, use an “R” with a circle around it to indicate this.  If you have registered the mark with the state or not at all, use the letters “TM” for trademark or “SM” service mark to indicate your ownership of the mark.  And make sure you enforce your rights by notifying other businesses in writing if they improperly use or infringe on your mark.

A state trademark registration can be done in several weeks and creates a presumption of use throughout the state.  The state registration may also entitle you to attorney fees upon infrngement.  A federal registration can take 18 months or more, but results in a presumption of use throughout the US.  A Federal registration can give the owner the right to collect statutory damages and attorney fees. 

Your business name can be the most valuable asset you business owns.  Protect it.  If you are interested in finding out how to register or otherwise protect your tradename or trademark, give me a call. 

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AND ONE MORE THING.   In an effort to create jobs in Ohio, the legislature enacted a new "InvestOhio" Tax Credit to reward investments in an eligible small business.   Under the new law, a non-refundable 10% tax credit is available for any qualifying “cash for equity” investment in a small business up to $1 million per eligible investor ($2 million for spouses filing jointly).  An eligible investor is an individual, estate or trust subject to Ohio personal income tax.   The total amount of credits under the InvestOhio program are limited to $100 million every 2 years.  To take advantage of the credit you need to apply for a small business investment Certificate.  The Certificates are issued in the order received.  It is expected that application forms and open registration will start October 15^th.  If you have any questions about how to apply for the InvestOhio tax credit give me a call. Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Why Should I Set up a DISC?

 A “DISC” is a domestic international sales corporation.  A DISC can be used to lower the overall effective income tax rate a company pays on its income derived from export sales.   Under federal income tax law, a company which manufactures a product in the United States, and exports the product outside the United States, can pay a tax-deductible royalty to a DISC in an amount equal to the greater of 4% of export sales or 50% of export income.  The DISC itself pays no federal income tax on the royalty payments it receives.  Rather the royalty payments received by the DISC are taxable to the DISC shareholders at a 15% rate when distributed as qualified dividends.  This means the effective overall federal income tax rate on the company's export income has been decreased by  20% or more.  This income tax savings can be even greater if the DISC is established in a state like Nevada or Florida which does not have a state income tax.

To set-up a DISC, it is necessary to incorporate a the DISC as a corporation with stated capital of $2,500.  The DISC can be a subsidiary of the operating company or a brother-sister affiliate of the operating company.  In a brother-sister affiliate situation, the owners of the DISC are usually, but not always, the same as the owners of the operating company. 

The DISC enters into a royalty agreement with the operating company whereby the operating company agrees to pay the DISC a royalty in an amount no more than 4% of export sales or 50% of export income (the maximum allowed under the federal income tax law).  The DISC does not need to have employees or actually conduct its own independent operations.  It is important however to be able to prove the amount of export sales and export income.  For this purpose it is important to properly allocate expenses and overhead between the operating company’s domestic and international sales operations. 

There has been some talk over the last few years about eliminating the favorable tax treatment afforded DISCs.  But at this point, no legislation to remove the DISC advantage is imminent.  The favorable DISC treatment is a powerful incentive for domestic companies to sell abroad.  Given the current trade imbalance, it seems unlikely that Congress would act to eliminate this export incentive. If you are interested in knowing more about how a DISC works or setting up a DISC, give me a call.  

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AND ONE MORE THING.  Many businesses have been improperly classifying employees as independent contractors.  The reason?  Classifying workers as contractors rather than employees can save an employer 20-30% of its overall labor costs.  Now in a surprising move, the IRS has announced a new program that will allow businesses to reclassify their workers as employees, and pay only a small amount to cover past payroll taxes.  However, the IRS has also announced plans to aggressively audit and look for worker misclassification in the future.  Give me a call if you have any questions about whether your workers can or should be treated as employees or independent contractors.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Can We Merge an LLC into a Corporation?

Yes.  Under the laws of Ohio and many states, limited liability companies and corporations may be merged into a single surviving entity.  The surviving entity can be the LLC or corporation as determined by the parties and set forth in the Merger Agreement.  The Merger Agreement must be approved by such number or percentage of the Directors and Shareholders of the corporation, and such number or percentage of the Members and Managers of the .LLC, as set forth in the organizational documents of the corporation and LLC, or as otherwise prescribed by law. 

Under Ohio law, the Merger Agreement would need to be approved by a 2/3rds majority of the Shareholders of the corporation unless the Articles of Incorporation of the corporation provided for a lesser percentage (not less than a majority).  Under Ohio law, if the LLC had no Managers, the Merger Agreement would need to be approved by ALL of the Members (unless the Operating Agreement provided for a lesser number or percentage).  If the LLC had one or more Managers, the Merger Agreement would need to be approved by ALL of the Managers (unless the Operating Agreement provided for a lesser number or percentage). 

The tax treatment of the merger could vary depending on several factors including: (1) whether the LLC elected to be a corporation or partnership for federal income tax purposes, (2) whether the LLC or the corporation was the survivor of the merger, (3) whether the corporation was an “S” corporation or a “C” corporation, and (4) whether the owners of the merged entity became owners of the surviving entity or were cashed out.  If the LLC made an election to be treated as a corporation for federal income tax purposes, the merger of the LLC with and into corporation would generally be treated like a tax-free reorganization under the federal income tax code.  If the LLC was treated as a partnership for federal income tax purposes, then the merger of the LLC into the corporation would generally be treated as a tax-free partnership distribution, followed by a tax-free capital contribution to the corporation. 

If the merger was done in the other direction, and the corporation were merged into the LLC, the merger would be treated as a tax-free reorganization if the LLC had previously made an election to be treated as a corporation for federal income tax purposes.  But if the LLC was treated as a partnership, the merger of the corporation into the LLC would be treated as if the corporation had sold all of its assets to its shareholders in a taxable sale, and the shareholders subsequently contributed the assets to the LLC as a capital contribution. 

When merging, LLCs, corporations and other entities, you need to consider all of the legal, tax and accounting issues that might arise or be affected by the merger.  Please call or email me if I can help you understand the process.  Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  How long has it been since you had a Legal Audit?  The Business attorneys at PS&E would like to meet with you and do a FREE legal audit of your business.  As part of the legal audit, we will work through a checklist with you and identify areas where you may be at risk.  If you would like to schedule a free Legal Audit with one of the PS&E attorneys, please send me an email or give me a call.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Who Controls LLC Decision-making?

 Under the laws of Ohio and most other states, the management of an LLC may be vested in its Members, or may be vested in Managers, as set forth in the LLC’s Operating Agreement.  The Operating Agreement may appoint one or more Managers to make all or some of the decisions affecting the LLC.  Or the Operating Agreement may provide that all decisions are made by the Members based on their respective percentage ownership interests, positive capital account balances or contributions to capital, or by the Members on a per capita basis (one vote per member), or other methodology to which the Members agree.  If there is no Operating Agreement, or if the Operating Agreement is silent as to management of the LLC, then all decision-making is vested in the Members based on their relative capital contributions to the LLC.

To avoid uncertainty regarding LLC decision-making, it is advisable to describe in detail how LLC decisions are to be made.  In many situations it makes sense to create a management hierarchy where different types of decisions require different levels of consent or approval by Managers or Members.  For example, a Manager could be appointed to handle the day-to-day business decisions, but the approval of a majority in interest of the Members could be required to appoint the Manager, or make other higher level decisions such as entering a long term lease, buying or selling significant assets or making expenditures over a specified dollar amount.  In addition, if appropriate, a super-majority of the Members (2/3rds or 3/4th) could be required to approve extraordinary events and transactions such as dissolution, merger or sale of the business.

If a Manager is appointed, it is important to describe who the successor Manager will be, or how the replacement Manager will be selected, upon the termination or resignation of the current Manager.  If you need some help drafting or interpreting your Operating Agreement, we can help.  Call or email me at.   Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  The Ohio statute contains many default rules for governing a LLC.  As noted above these defaults can be changed as necessary or desirable in the Operating Agreement.  But the Ohio statute also contains many default rules affecting corporations.  For example, under the Ohio statute, no person can serve as both President and Secretary of a corporation, and a corporation by statute must have at least as many directors and Shareholders up to three.  In single owner corporations and certain other situations, these default rules can be inconvenient.  Ohio law provides that any or all of these default rules may be changed if the Shareholders sign a Close Corporation Agreement.  Let me know if you want to know more about Close Corporation Agreements and how they can be used to help you structure the management and governance process of your corporation.  Call or email me at Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Are Non-Compete Agreements Enforceable?

The enforceability of non-compete agreements varies by state.  In a few states, an over-broad or burdensome non-competition agreement will be held to be unenforceable.  In other states, including Ohio, courts will rewrite non-competition agreements so as to scale back overly-broad provisions, while still protecting what the court believes to be the employer’s legitimate business interests.  Courts generally permit a non-competition agreement between a business and a former business owner to be of longer duration, cover broader territories and be more restrictive, than a similar agreement between the business and an employee.  For example, a non-competition agreement might only be enforced by a court against an employee for 12-18 months in a 25 mile radius of the business, while the court might enforce the non-competition agreement for 5 years or more anywhere in the United States if such restriction was necessary to protect the legitimate interests of the business from a former business owner.  

A good non-competition agreement should accurately describe the term, the restricted territory and the types of activities that would be considered competitive.  But a better non-competition agreement should also prohibit solicitation of customers, vendors, employees and others who have a business relationship with the business.  And the best non-competition agreement will also include a provision prohibiting use or disclosure of confidential or proprietary information. 

A well-drafted non-competition agreement should provide that the business is entitled to obtain all equitable and legal remedies necessary to enforce the agreement, and that the business can collect attorney fees and other costs necessary to enforce the agreement.  In many situations it also makes sense for the non-competition agreement to include a liquidated damages clause which provides for monetary damages to be paid to the business if the former owner or employee uses or discloses confidential information, solicits a client or employee or otherwise violates the non-competition agreement.  Please call or email me if you would like to talk about non-competition agreements or need help in enforcing such an agreement.   Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  Many small businesses share confidential information with their employees.  This confidential information can include client names, addresses and other client contact information, business methods, business practices and know-how.  This confidential information can be the life blood of the business.  Yet business owners often fail to adequately safeguard this information.  While state law provides some protection for “trade secrets”, such protection is limited and difficult to enforce.  Confidential information should be protected by a properly drafted and executed non-competition and/or non-disclosure agreement.  Call or email me if you would like to talk about protecting your confidential information at Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

What is a Heath Reimbursement Account?

A health reimbursement account (“HRA”) is an arrangement designed to reimburse an employee for part or all of medical expenses incurred by the employee.    An HRA is often used to help employees cover part or all of the medical expenses that are not covered by the employer’s group medical plan such as deductibles or co-pays.  An HRA may also be used to cover various expenses such as dental or vision or prescription drugs that are not covered under the group medical plan.  Under most HRAs, the employee is required to submit a claim for reimbursement along with a receipt or invoice to substantiate the claim.  An HRA can limited to an annual maximum, or otherwise tailored to fit well with the employer’s group medical plan and to suit the employer’s needs.  By using an HRA, an employer may be able to adopt a group medical plan with a higher deductible and thereby lower the overall cost of providing health coverage to his or her employees.  Please call or email me if you would like to talk about health insurance coverage and/or setting up an HRA.   Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  How long has it been since you had a Legal Audit?  The Business attorneys at PS&E would like to meet with you and do a free legal audit of your company.  As part of the legal audit, we will work through a checklist with you and identify areas where you may be at risk.  If you would like to schedule a free Legal Audit with one of the PS&E attorneys, please send me an email or give me a call.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

What is a Cafeteria Plan?

A Cafeteria Plan is a type of employee fringe benefit plan.  Using a Cafeteria Plan, an employer can offer employees various taxable or tax-free benefits including health, life and disability insurance coverage, medical expense reimbursement, dependent care assistance, parking and transportation cost reimbursement, and adoption expense reimbursement.  The employer may contribute part of the cost of these benefits as set forth in the plan.  The employee selects the benefits he or she wishes to receive.  The employer then withholds the employee-portion of the benefit costs from the employee’s paycheck.  Both the employer and the employee save money, because the benefits are paid for with before-tax dollars.  That is, neither the employer nor the employee pay income or payroll tax on the amount of money withheld from the employee’s paycheck.  This can be a significant savings to both the employer and the employee. 

 

Under the Internal Revenue Code, a Cafeteria Plan must be set forth in a written plan document.  The terms of the Cafeteria Plan must also be summarized in a Summary Plan Description distributed to the employees.  If you want to discuss the benefits of setting up a Cafeteria Plan for your employees, please give me a call.   Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  President Obama on Wednesday reiterated his call to extend an existing 2% payroll tax reduction through 2012. This move was denounced by liberal Democrats who fear the reduction in revenues will undermine Social Security.   Republicans backed the tax break when it was included in a December deal, but House Budget Committee Chairman Paul Ryan more recently has criticized it as a “sugar high” for the economy.  If you want some thoughts on where this is headed, send me an email or give me a call.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Should I Treat my Workers like Employees or Contractors?

When workers are properly treated like employees, the employer is required to withhold federal, state and local income tax from the employee’s paycheck and pay such income tax withholdings to the appropriate government agency.  When workers are treated as employees, the employer is also required to withhold and pay-over the employee-portion of social security tax (6.2% on wages up to the wage base limit) and medicare tax (1.45% on wages without limit), and to pay the employer-portion of social security (also 6.2%) and medicare tax (also 1.45%). 

When workers are properly treated as independent contractors, the employer is not required to withhold income tax or payroll tax from the workers paycheck, and is not required to pay the employer-portion of social security or medicare tax.  Rather, the worker is treated as self-employed, and is liable to make quarterly estimated payments of income tax and self-employment tax.  Self-employment is the functional equivalent of the employer and employee payroll taxes.  Self-employment tax is assessed at the rate of 15.3% on wages up to the wage base limit, then 2.9% on all wages over the wage base limit. 

When workers are treated like employees, the employer bears half of the payroll tax burden, and has the responsibility to withhold and pay income and payroll taxes to the government.  When workers are treated as independent contractors, the worker bears all of the payroll tax burden, and the employer is not required to withhold or pay-over any tax withholdings.  When workers are treated as contractors, the workers also generally do not qualify to participate in health insurance, retirement plans and other fringe benefit programs established for employees.  For these reasons, employers are often encouraged to characterize workers as contractors rather than employees.

The IRS looks at worker classification issues closely on audit.  The IRS applies a 20-factor test to determine whether workers should properly be classified as employees or contractors.  Although the IRS test refers to 20 factors, the IRS test really boils down to 2 issues.  First, does the employer control the manner and methods by which the worker does his or her job?  That is, does the employer control the worker to the extent that the employer tells the worker how, where and when to do the job?  

Second, does the worker have a risk of loss on the job?  A contractor has to run a business and pay bills, and the cost of labor or supplies on a job may exceed the amount the contractor collects on the job.  On the other hand, employees are paid a set wage by the hour, day, week or other period, and employee expenditures are reimbursed, so employees do not generally have a risk of loss.

If the IRS determines that an employee has been misclassified as a contractor, the IRS will generally look to the employer to make-up both the employer and the employee portion of income and payroll taxes.  If the employer is insolvent and cannot pay such taxes, the IRS will go after any responsible party.  For this purpose, a responsible party is any person who had the apparent power and authority (ie, a corporate officer) to make decisions concerning which creditors were paid. 

Misclassification of workers can be a very expensive mistake.  The employer may need to pay income and payroll tax, penalties and interest, and may need to make additional contributions to employee retirement, health insurance and other fringe benefit arrangements.   There are some defenses and safe-havens available when the IRS questions worker classification.  But it is better to assess your situation, and either correct your classification or prepare your defense strategy, before the IRS raises the issue.  If you want to discuss worker classification issues, please give me a call.   Jsenney@pselaw.com or 937-223-1130.

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AND ONE MORE THING.  How long has it been since you had a Legal Audit?  The Business attorneys at PS&E would like to meet with you and do a free legal audit of your company.  As part of the legal audit, we will work through a checklist with you and identify areas where you may be at risk.  If you would like to schedule a free Legal Audit with one of the PS&E attorneys, please send me an email or give me a call.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation