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.

By: Theodore F. Claypoole

While acting in the capacity of an officer of a corporation or manager or member of a limited liability company, it is important for one to hold himself or herself out as the officer or manager or member of the corporation or limited liability company, as applicable. There have been many recent court cases involving creditors attempting to have the Court hold the officers or shareholders of a corporation personally responsible for the corporation’s debts to that creditor. In addition to attempting to pierce the corporate veil of a corporation, a creditor may argue that the officer personally contracted for the services with the creditor. Officers of a corporation and managers and members of a limited liability company may unduly subject themselves to personal liability in a contract intended to be between their corporation or limited liability company and a third party if the officer, manager, or member fails to sign the contract in his or her capacity as an officer, manager, or member of the corporation or limited liability company, as applicable.

For example, a creditor may argue that John Doe, President of ABC Corp. is personally obligated under a contract where John Doe signs the contract as simply John Doe. He should sign the contract in his capacity as an officer as follows:

ABC Corp.

By: John Doe
John Doe, President

OR

John Doe
John Doe, President of ABC Corp.

For more information on corporations or limited liability companies, please contact Theodore F. Claypoole at 610-692-1371 or tclaypoole@utbf.com.

By: Denise C. Werkley

Effective January 1, 2010 new HUD rules went into effect which require the settlement process for borrowers to be made more clear by the use of new forms. The Good Faith Estimate form and HUD-1 Settlement Statement required by the Real Estate Settlement Procedures Act (RESPA) has been revamped. Lenders, borrowers and title companies need to be sure they have implemented the new changes. For more information on the RESPA changes please contact Denise Werkley.

HUD’s press release on the RESPA changes can be found here.

For a sample of the new Good Faith Estimate Form, go here.

For a sample of the new HUD-1 Settlement Statement, go here.

By: Nancy J. Glidden

Please see our blog on financial responsibility of the members of a closely held LLC.

Please contact Nancy Glidden for more information.

By: Transactional Department

Are you a business owner who has had a client go through the bankruptcy process? Have you been sued by the Bankruptcy Trustee to return your money to the Trustee? For more information on your rights to recover your money from the Bankruptcy Trustee, read this article that is posted on our website.

For more information on the bankruptcy process, please contact our office.

By: Denise C. Werkley

If you have a product or service consider expanding your targeted customer to municipalities or institutions. Many organizations need products and services, possibly what you are selling, and their purchasing departments are looking for additional suppliers. Some use a bidding process and others have approved lists. You should start with a little research about the institutions you want to target and talk with or investigate their purchasing departments. Many are utilizing the internet to solicit new suppliers and you no longer need to know someone who knows someone just to make the list. Here are a few sites to start your research:

Montgomery County http://purchasing.montcopa.org/purchasing/site/default.asp?

Penn State http://www.purchasing.psu.edu/suppliers/

Our firm has experience drafting contracts, reviewing requests for proposal and assisting with negotiations. Please contact Denise Werkley to see how we could help you expand your customer base.

By: Theodore F. Claypoole

In a recent Centre County Court of Common Pleas case, the Court pierced the corporate veil of a corporation, thereby disregarding the existence of the corporation and making the corporation’s individual principals and their personal assets liable for the debts of the corporation. The Court found that the corporation was undercapitalized and failed to adhere to corporate formalities, and that the principals ignored corporate form.

Evidence was presented that (1) the corporation had done no business in some time, the corporation had numerous debts and had no money in its bank account, and the individual principals made no personal investment in the corporation, instead financing their construction projects through construction loans; (2) most of the corporation’s assets were stored at one of the principals’ private residence and the properties on which the corporation would construct the homes were not purchased by the corporation; and (3) one of the principals would appear at the job site and give instructions to the subcontractors, never indicating if he was acting as a principal of the corporation or in his individual capacity.

This case confirms how important it is for shareholders to properly capitalize a corporation and to follow corporate formalities. For more information on piercing a corporation’s veil or properly forming a corporation or other legal entity, please contact Theodore F. Claypoole at 610-692-1371 or tclaypoole@utbf.com.