Transactional

By: William J. Burke, III

Business owners form corporations, limited partnerships and limited liability companies to protect their personal assets from debts, claims and liabilities that can arise out of any business. Although the liability protection afforded by corporations, LPs and LLCs is real and worthwhile, it is far from absolute, and there are numerous exceptions.

Sometimes creditors attempt to “pierce the corporate veil” which is the subject of other blogs on this site which can be found here and here. In addition, representatives of an organization are potentially liable for acts or omissions in which they personally participate as representatives of the organization, under the so-called “participation theory” of liability.

Owners who receive distributions when the organization is insolvent or that render the organization insolvent, or who receive distributions in liquidation of the organization rendering it unable to pay valid claims, may be required to account for and disgorge funds distributed.

There are various state and federal laws that specifically impose liability for certain categories of claims. These include liability for unpaid wages under the Pennsylvania Wage Payment and Collection Law, and liability for “trust fund” taxes, which are taxes that the organization withholds from others and is required to pay over to federal, state or local taxing authorities, such as sales taxes and income, social security and Medicare taxes.

Observing corporate formalities, ensuring that the organization is adequately capitalized, and engaging in sound business entity housekeeping practices can and will bolster the liability protection the law affords. In addition, however, to avoid unexpected personal liability that can arise when a troubled business cannot pay all of its obligations, the owners and the officers are well advised to ensure that the types of claims for which personal liability can be asserted by law are paid in preference to other obligations for which personal liability is not present.

For more information, contact William J. Burke, III.

By: Daniel Dwyer

Read my recent blog about doing business with local government in Pennsylvania.

For more information, please contact Daniel Dwyer.

By: William J. Burke, III

Entrepreneurs starting a new business often want to protect their personal assets and avail themselves of liability protection afforded by various types of business organizations.

But what kind of business organization? There is an “alphabet soup” of entity types from which to choose: corporations (“S” Corps or “C” Corps), limited partnerships (LPs), limited liability partnerships (LLPs), limited liability limited partnerships (LLPs), limited liability companies (LLCs) and, within those categories, some variations depending on the nature of the business (such as professional corporations and restricted professional companies).

To add to the confusion and complexity, different tax elections are available for different organizations. LLCs may be “disregarded entities” (virtually ignored for income tax purposes) if they have one owner, treated as partnerships (if they have more than one owner), or taxed as corporations (either S corporations or C corporations) if they so elect.

There are “pros” and “cons” to each business organization and each tax option. Key considerations include the type of business activity, the number of owners, expected financial performance in the near and long term (will there be near-term losses that the owners may want to deduct?), the type of investment that the owners or partners intend to make, how the owners will be repaid their investment in the enterprise, whether there will be different classes of ownership, how the owners expect the organization to be managed and, tax considerations. Some entities (LLPs) only provide liability protection for certain categories of claims (such as tort claims), but not others (such as trade debts and contract claims).

Choosing the appropriate form of entity is one of the most important decisions a business owner can make, and should be given careful consideration in consultation with competent legal counsel and an accountant. Changing from one form of entity to another can be expensive or even cost-prohibitive for tax and other reasons. Please see a more depth look at: “How to Choose between an LLC and S-Corporation.”

For more information, contact William J. Burke, III.

By: Theodore F. Claypoole

During February 2010, the Internal Revenue Service (“IRS”) began its first Employment Tax National Research Project in 25 years. As part of the project, the IRS will randomly select a total of 6,000 taxpayers (2,000 taxpayers in 2010, 2,000 taxpayers in 2011, and 2,000 taxpayers in 2012) for comprehensive audits of those taxpayers’ compliance with employment tax law and related reporting requirements. More information about the project can be found on the IRS’ website.

For more information on the Employment Tax National Research Project or Federal income taxes, please contact Theodore F. Claypoole at 610-692-1371 or tclaypoole@utbf.com.