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Succession Planning for Your Business - Protection for Your Family
May 5, 2016

Building a thriving family business takes a lot of grit. It’s like raising a child. Ensuring the business continues to thrive takes foresight and planning. We consistently talk about planning for next year’s growth and setting proper goals.

When business owners are preparing to transition the business to the next generation of leadership, it is critical to have a well-considered succession plan to guide them.

To ensure a successful transition, there are a ton of critical areas to focus on. These are three of them:

Compensation. A common pitfall for family business owners is not having a well structured compensation plan in place for the next generation of owners. This generally happens when parents own a successful business and have gained considerable wealth from that business.

Along with their desire to pass the business on to their children, they also have a desire to pass assets as an inheritance. When the children come on board, it can be tempting for the parent-owners to combine their children’s work compensation with the anticipated inheritance.

This can be dangerous, since the child can be earning more than is appropriate for the position and may suppress his or her desire to work hard to earn success. To avoid this, parent-owners should pass non-business assets to the next generation using other vehicles like trusts to ensure the inheritance is not tied to work compensation.

Financial planning. Joining the family business is not an instant guarantee of lifelong financial success, which is why it is important for the next generation of business owners to start planning for their own financial future – home ownership, parenthood, retirement, etc.

Once the next generation joins the business, it is important for them to have a true picture of the company’s financials so they can accurately gauge their future earnings potential and plan for it.

Communication. Succession planning is both an art and a science, and there is no “one size fits all” for every situation. Frank, honest communication between the generations and between current owners is critical to achieve buy-in on all fronts.

Succession planning is also not a “set it and forget it” process; the best succession plans are flexible enough to be able to adapt to different variables that affect not only the business but the business owners as well.

We can help you.

If you’re a small or mid-size business owner or a service professional, call us today to schedule your comprehensive legal, insurance, financial and tax foundation audit. We can help you plan for the successful transition of your business when the time is right.

Talk soon,
Tim Geiger

Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 5/4/2016 16:50 PM | Add Comment




When Doves Cry - How Having No Estate Plan Will Affect Prince's Family & Legacy
April 28, 2016

Prince’s sister, Tyka Nelson, has filed documents in county court in Minnesota, to request a special administrator to tend to the settling of Prince’s estate, valued at potentially $300 million dollars and growing. How do I know this? I read the documents. They’re public record. Anyone can read them.

I always tell my clients that if you don’t have an estate plan, the state has one for you. Though I’m a huge fan of Prince’s, Prince may not be a fan of the state’s plan for his “Little Red Corvette.” Sorry, I can’t resist the song puns. Are they making you “Delirious?”

There are so many lessons to be learned from this. Here are three big ones:

You & Your Family Will Have Private Information Go Public Unless You Plan Properly

In the court documents filed by Prince’s sister, she had to disclose her home address, the last known home address of Prince, and the names and addresses of all of his five living half brothers and sisters, who also stand a chance at inheriting some of his fortune.

If Prince had worked with a trusted advisor to properly prepare an estate plan during his life, absolutely nothing would have to be handled in court or in public. Nobody would have to know his home address and nobody would have to know the names and addresses of his siblings.

Because this information is public record now, anyone wanting to approach Prince’s family members with interesting financial opportunities or scams can do so. Predators, people with shady investment opportunities, luxury car dealerships — all these folks know exactly who to contact now and exactly how to contact them.

You Could Actually Harm Your Family Without A Plan to Protect Them

Tyka and Prince were not known to be very close. They had been through a lot in their relationship since Prince helped Tyka get into a rehab facility in 2008 after her struggle with addiction. Prince was, however, known for his humanitarian efforts and was a generous donor of his time and money to various causes.

With a proper estate plan, Prince could have generously provided for causes he believes in. Prince could have also provided for his sister in a trust that would have given her lifetime asset protection without running the risk of her receiving assets outright, which would offer a greater protection against any triggers to relapse that coming into large sums of money might have on Tyka.

Your Business Must Be Part Of Your Estate Plan

Prince was known to be very heavily involved in his business and every decision that was made in it. If you’re a business owner, of course you are, too. Prince, like many business owners, employed people who have families who depend on their salaries to live. He also had many unreleased songs. Those unreleased songs, along with the huge increase in sales of his existing albums since his death, are all part of his estate.

Since Prince did not have an estate plan, it is incredibly likely that he did not have a business succession plan. This means that his sister, who was not at all involved in running his business with him, and his half-siblings, will be the ones with legal authority to step in and run his business now. Imagine getting 6 people to agree on each decision that needs to be made in your business?!

The best way to find out exactly what would happen in your situation if something happened to you is to come in for a Family Life & Legacy Planning Session with our firm. In this session, we’ll whiteboard with you exactly what would happen if you didn’t change a thing — the state’s plan for you. Then, we can identify what you like and don’t like about what would happen, and decide if you need to take these lessons from Prince as Signs O’ the Times, and make sure U Got the [Estate Planning] Look.

Talk soon,
Tim Geiger

Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 4/28/2016 2:29 PM | Add Comment




How to Protect Your Most Important Asset - Your Children!
March 25, 2016

If you have young children, chances are that you are always carefully planning to keep them safe from harm. Unfortunately, even with proper precautions in place, accidents do happen and not just to children.

Have you planned for what will happen to your children if you are the one involved in a tragic accident?

If you don't put the proper legal protections in place and the unthinkable happens to you, any number of things could happen to your children, and none of them are good:

* Your children could be put in the care of Child Protective Services, even temporarily. You never want strangers determining your children's fate.

* Your children could be put in the custody of someone you would never want to have them by a judge who does not know you or your family dynamics.

* Your family could get into a fight about the custody of your children.

* Your estate can be thrown into probate, with a portion of your assets going to court costs and fees - money that your children could use in the future.

* If you have significant assets, those could go to your children once they turn 18 in one lump sum that they will likely not be prepared to handle properly.

Since there are so many bad things that can happen to your children should something bad happen to you, we have developed the Kids Protection Plan® for families with young children. This plan includes a comprehensive set of instructions and legal documents that will ensure your kids will be raised by someone you choose and that your assets are protected for their well-being.

To find out more about our Child Protection Plan, contact our office today to set up a time to chat.

Talk soon,
Tim Geiger

Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 3/25/2016 5:27 PM | Add Comment



A Living Will is Just a Healthcare Document
What You Need for a Comprehensive Estate Plan
February 10, 2016

Legal terms are confusing and one of the most confusing terms is “living will,” a term that I would very much like to send to the garbage heap of words.

People often believe that when they have signed a living will that they have some kind of estate plan in place that would help them in a time of crisis. Sadly, nothing can be farther from the truth.

A living will is a very limited scope document intended for one purpose only—to inform healthcare workers how you want to be treated when you are dying. That’s it. The living will is strictly intended to help make sure what you want to happen when you die happens, so that you’re not left as a potted plant in a nursing home, draining resources away from your loved ones and suffering needlessly.

The proper legal term for a living will is “Directive to Physicians.” While a Directive is a critically important document when it’s needed, it’s not a Will like a Last Will & Testament, which is a document that disposes of our assets after a probate proceeding. A living will is a healthcare document. A Will is a wealth transfer instrument (and not the most powerful one in our quiver for that matter).

Years ago, a family member of mine held up a document and said, “See? I have a Will.”

“That’s not a Will!” I wanted to shout in frustration. Instead, I calmly explained that it was a living will and is not the same as a Will. My family member had believed that the document in his hand was all he needed to make sure his family didn’t have to go to court if he died.

What he had was a document someone printed out online and had him sign. He hadn’t even read it. The living will itself was a terribly written document that didn’t do what he thought it did. That was a disaster waiting to happen—fortunately that won’t happen because we were able to help him get the right plans in place before anything bad happened.

Another misconception is that people believe that getting a Will in place is all they need to do. But a Will is not, by itself, an estate plan. A Will is merely one document among many that comprise a solid plan. There’s so much mis- and incomplete information online today that people really believe they can get by with a Do-It-Yourself estate plan, not knowing anything about how property is titled, what the legal effects of each document are, and how institutions interact with estates during disability or at death.

A REAL estate plan is not a document. It’s an emergency response structure for any kind of emergency. A real plan is designed, thought out, and carefully engineered to provide for ourselves and our loved ones without court intervention, reducing drama between family members, and making life easier in a tragic situation.

A REAL estate plan is created by a professional who doesn’t just dabble in planning for death—it’s a plan that can be deployed when things don’t go as we expect, so that we don’t have to look around every corner wondering if the next bus that passes us is the last bus we’ll ever see.

A REAL estate plan includes a Living Will, a Will, and many other instruments and vehicles that carry out the design you and your attorney crafted together.

A REAL estate planner is someone who spends time with you to understand what your wishes and vision are for your family and designs a plan you can understand.

A REAL estate planner is not a general practitioner or an hourly biller that can’t tell you how much a plan will cost or how it should be maintained.

A REAL estate plan is a process. It should take more than one meeting and include a significant education for you as the head of your household so you know how to approach the way you own property and how you’ll transfer that to the right people if something happens to you.

A REAL estate plan is a project that parents take on as one of their most important tasks as adults—to carefully provide for our loved ones.

A REAL estate plan captures your intangible wealth, not just your monetary wealth. It makes sure your kids know more of who you are at your core—in the event you’re not here to share your wisdom with them in person. Your plan will share some of your most important values in an interesting and valuable way.

A REAL estate plan is not cheap. And it shouldn’t be. Because you matter. What you do and how you do it are important to someone other than you.

A REAL estate plan is an act of love and devotion. It announces to your family and the world that you mean business in your life—that you’re not kidding around or playing small. You are important. To your family and your community.

Creating an estate plan not only serves your family in an emergency, it is a critical step in your development as a parent. Take it seriously.

Talk soon,
Tim Geiger

Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 2/10/2016 11:29 AM | Add Comment


Arizona Small Business Blawg
Small Business Start-Up Course - Lesson 2 - - How to Form a Corporation in Arizona
Today's post focuses on the topic of how to form a corporation in Arizona.

For many people, forming a corporation probably sounds like a complicated and time-consuming task, or a nearly impossible one along the lines of building a skyscraper or making an exact replica of the U.S. Capitol out of tongue depressors. Honestly though, it doesn't have to be that way; it is possible with the right guidance and assistance.
Forming a corporation, while a process that requires precise attention to detail, can be rather straightforward. However, it helps to have good guidance, a lot of patience, and maybe even an espresso machine nearby.

First, you should to ask yourself; why am I forming a corporation? Is a corporation absolutely necessary? If you are starting a small business on a shoe string budget and without outside investment, then forming a corporation may be overkill. In addition, to the some relative complexities in formation, corporations are not as easy to maintain as some other business structures; corporations require a good number of legal formalities and adherence to numerous, strict corporate rules.
So, you may be thinking, why does anyone form a corporation? Entrepreneurs usually set up corporations because as a legally separate entity from its owners a corporation shields its owners from personal liability for obligations of the business, which, as you can imagine, is a good thing. Even with all the other reasons that enterprising individuals start small businesses, without the ability to protect their personal assets from the business' liabilities; many such entrepreneurs might not start businesses. This is particularly so for businesses in high risk or high potential for liability enterprises like restaurants, contracting businesses and many retail operations. And the fact of the matter is, entrepreneurs starting new ventures and businesses are good; especially during a time of economic renewal - like right now.

(It's important to note however that a business owner is not 100 percent protected from all personal liability by a corporation. In certain circumstances, such as a breach of fiduciary duty or for negligent or intentional acts, the owners of a corporation could face personal liability, putting their personal assets at risk. Also, not following all of the "formalities" and "rules" for corporations mentioned above could result in "piercing the corporate veil." These are, as you can imagine, not good.)

One of the biggest advantages to corporations - and many times the reason entrepreneurs choose to incorporate over other business structures - is that the owners can bring on investors (venture capitalists, angel investors, etc.) by selling "share" in the corporation (think, Facebook, Google, etc. and IPOs (initial public offering)). The attractive feature of this type of "investment" to many enterprising people is while providing capital and financing for the business the "investors" generally are not involved in active, day-to-day management of the business.

Additionally, with a corporation (S-corp or C-corp), owners also may be able to take advantage of savvy tax planning to reduce their overall income (business and/or personal) taxes. If this is your motivation, goal and part of your reasoning for forming a corporation rather than a different business structure it is advisable - and prudent - to work closely with your accountant or other qualified tax advisor.

As part of deciding on the appropriate business structure (see our previous post "Small Business Start-Up Course - Lesson 1" - Seven Steps to Choose the Right Business Structure) entrepreneurs need to remember there are other options; including ones with similar tax savvy advantages. One other such option and very popular legal entity is called a Limited Liability Company (LLC), which is much more cost effective to set up and especially to maintain, more flexible, is subject to less "rules," and requires far fewer "formalities."

Most often, if you consult with an Arizona small business attorney, you will be advised that setting up a LLC is better suited for your particular small business rather than a Corporation. In most cases this is true because a LLC is much easier for most small business owners to maintain on an ongoing basis without significant interference in the owners main task(s); running the business, making a profit and building individual and family wealth.

However, for now let's move forward with the idea that forming a corporation is the best option and how you want to proceed. The following are the basic steps to form a corporation:

Two Types of Corporations

The first step is to choose which type of corporation to form. There are two types of corporations that a small business can choose - an S Corp or a C Corp. A C Corp is generally for larger companies; think Apple or Microsoft. The "investors" (or shareholders) generally can easily buy and sell shares. However, C Corps can be subject to double taxation, which is why many small business owners who need or want the formalities of a corporation choose an S Corp instead.

The S Corp election is generally for smaller, more closely held businesses, like a family business. In fact, many people refer to S Corporations as a "closely-held" corporation. The main feature of the S corporation is the entity is "flow-through" for tax purposes, similar to a partnership or a multi-member LLC. That is, unlike a C Corporation, an S Corporation does not pay income tax directly on its profit; it simply reports any net income or loss on an informational return filed with the Internal Revenue Service (IRS). That income is then "transferred" to the shareholders who report the gain or loss on their individual tax returns. These profits or losses from the business must be shared - transferred - to the owners (shareholders) in accordance with ownership interests/percentages.

There are, however, similarities between C Corporations and S Corporations: both are required to have a board of directors who elects the officers (who manage the day-to-day operations of the business) in the company. Both entities are also required to hold regular meetings, including (regular) Board of Directors meetings, take, keep and maintain corporate minutes of these meetings, and hold regular (usually annual) stockholder meetings.

Choose a Corporate Name

Now, it is time to get to some of the more fun stuff - let's pick a name for the corporation.
One easy way to pick a name for your corporation is to search the Arizona Corporation Commission's (AZCC) or Arizona Secretary of State's (AZSOS) databases of corporate names and trade names.

However, keep in mind that just the fact that a name is not listed on the AZCC or AZSOS website that does not mean another business has not trademarked the name, but it is generally pretty safe. Even if you search the appropriate databases you should - especially if you plan to market you business outside Arizona (which often happens in this age of the internet) - still check for trademarks, and you may want to register a trademark for you chosen corporate name.

Additionally, there are some limitations on the choice of and use of corporate names. In addition to not allowing identical names, the name of your corporation cannot be too similar to an existing name on the records of the AZCC or AZSOS. The corporation's name also cannot be "misleading."

Choose Directors

After you pick the type of corporation and decide on a name for your business, the next step is you need to select the Directors for the corporation. The Directors - or Board of Directors - will make many of the "major" decisions for the Corporation; including appointing or hiring the Officers to run the day-to-day operations. Chances are, by this point in the process, you will already have a good idea who you want to be your Directors, but if you have not, you should.
Many times in small businesses the Directors are the owner(s)/shareholder(s); and yes, in Arizona a corporation can have one (1) shareholder and one (1) Director, and the Director and Officers can also be the same person.

File the Articles of Incorporation

Once you choose a name and have appointed the Directors, the next step is to prepare and file the Articles of Incorporation with the AZCC Office. This step in its simplest form is not that difficult, but sometimes the "simple" at this point leads to "complicated" later. The Article of Incorporation while simple on its face, if not prepared correctly can lead to your entity being ignored and personal liability. The Articles of Incorporation, as opposed to the Corporate Bylaws (see below), is a rather simple, brief document that is filed with the AZCC Office along with the required filing fee of (currently) $60 (and $95 for expedited service).

When the Articles of Incorporation are prepared and filed, in addition to the corporation's name and the Directors, you need to select someone to serve as the Corporation's initial statutory (registered) agent for service of process. In many corporations one of the Directors will usually serve this role, but in most cases large corporations utilize third party service or process agencies. These services, as I am sure you are thinking, can be somewhat expensive for a small, start-up business; with this in mind at Geiger Law Offices, PLC we provide this service are part of preparing your initial filings and on an ongoing annual basis for a nominal fee.

The agent for service of process is a legal formality (and requirement) so that a plaintiff will know who to serve the papers on if they want to sue the corporation. We hope you never have the experience of your business (or you) being sued, but the reality of owning a small business is - you will.

Draft Corporate Bylaws

The next and final step in the formation of your corporation is to draft the corporate bylaws. Although bylaws technically are not required by law, almost all corporations draft and adopt them, and we cannot stress strongly enough that ALL corporations should have Bylaws.

The corporate bylaws are the "rulebook" for the corporation, the Directors, the Officers, the shareholders and the interactions of each with the other. Typically, the Bylaws lay out the general "housekeeping" rules and procedures that govern the corporation's affairs and functions; including officers' job responsibilities, the dates and location of shareholders' and directors' meetings, etc.

It is generally not necessary to pay a fortune to have your bylaws drafted. It is an option to search for other corporations' bylaws and use those as a template, but we strongly advise against this option. Part of the reason for this is many corporations' bylaws will be far more complex than your small business will need, and in fact, may have provisions that are not only unnecessary but also damaging to your desired operation of YOUR business if a dispute arises.

If you want to discuss options for preparation of the appropriate Bylaws (and Article of Incorporation) for your small business, including cost effective options, please contact our offices. We understand that many small businesses are started on a shoe-string budget and paying excessive legal fees for start-up documents is not possible. In fact, our founder started Geiger Law Offices, PLC on a shoe string budget and knows how to make it work for future success.

Obey Corporation Rules, Always

Finally, after completing the steps above to "form" your corporation, the most important "step" in establishing the corporation for your small business is left for last. In order to maintain and preserve the personal liability protection afforded by the corporation, the corporation - and you - needs to "act like a corporation." The corporation must issue stock to shareholders, maintain records of directors and shareholders' meetings, and keep records and business transactions completely separate from your personal affairs (legal and financial).

We cannot stress this enough - this step is ABSOLUTELY crucial to maintaining protection for your personal assets. If the corporation - and you - do not observe and obey the required corporate rules and formalities, and the corporation - and you - is subject to a lawsuit, the liability protection of the corporation may be lost.

If you want to discuss options for Geiger Law Offices to assist your small business with observing and maintaining the necessary corporate formalities, including cost effective options, please contact our offices. We understand that many small businesses operate on a small monthly profit margin and paying excessive legal fees may severely hinder the ability of the business to support you as the owner/operator. Again, our founder, Timothy Geiger, understands this fact all to well and is here to assist you in designing, forming and maintaining your business structure for long-term success and financial well-being.

Ready to Go Public?

Woe! Slow down just a bit, Steve Jobs, not so fast. While I did say at the start of this post that corporations are not as complicated as many people would have you think, a publicly-traded corporation is an entirely different animal. Small, privately held corporations owned and managed by the same small group of people, while more complex to form and maintain than sole proprietorships, LLCs or partnerships, are far simpler to form and operate than large, public corporations.

However, if you think you have the next Google or Facebook on your hands, and you are interested in taking your corporation public, you definitely need to contact an attorney experienced with publicly-traded corporations and taking such a corporation public (an IPO). Corporations that sell shares to the general public, including IPOs, are heavily regulated by both state and federal securities laws that will require the guidance and direction of an experienced attorney on your team. Although, as you may have seen on CNN or Fox News legislation was recently enacted that relaxes some of those regulations and laws in order to promote more "investment" in small businesses.

We have come to the end, and if after reading this lesson it seems that forming a corporation would be overkill, then don't worry. In a series of future lessons we will post in the Small Business Start-Up Guide here on the Arizona Small Business Law Blawg we will discuss how to form a LLC in Arizona; which is a far simpler legal entity than a corporation.

Stay tuned! And we look forward to your comments.

- Tim Geiger, Esq.

Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 4/6/2012 1:36 PM | Add Comment





Small Business Start-up Course - Lesson 1 - - 7 Steps to Choose the Right Legal Form for Your Small Business
The topic of today's Lesson focuses on the steps to take to choose the right legal form/entity for your small business.

One of the initial fundamental and all important questions any entrepreneur must ask before starting up a new business is; how should I legally structure my new entity?

Each of the different legal forms for a small business (sole proprietorship, Limited Liability Company, corporation, etc.) has its advantages or disadvantages. No one structure/form will work for every business or individual owner or for that matter for the different owners of one business. The six-step plan below should help get you started on figuring out which legal entity is right for your needs.

Step 1: Ask yourself: Do I want to be the next Facebook, Google or Apple?

First, you should figure out what your goals and ambitions are for your new small business.
Do you want a side business that generates some extra income to supplement a primary source of income - i.e. your "day job?" Or do you want to eventually hire hundreds or thousands of employees and become the next Facebook, Google, Apple or General Motors? Is your business a simple one with minimal risk, or do you anticipate the activities of your new business could expose you and your personal assets to legal and financial risk? That is in addition to the normal financial risk of starting your own small business (more on this in a later Post/Lesson).

What answers you give and decisions you make on these issues will help you determine which legal entity is right for your small business.

Step 2: Consider whether you even need a corporate or partnership entity: Will a sole proprietorship work for your business?

The most common ways of organizing a new small business are as a sole proprietor, a partnership, a Limited Liability Company (LLC), or a corporation.

A sole proprietorship is the easiest and least expensive form of business ownership. Sole proprietors have complete control, and may make decisions as they believe are best for the small business. All profits from the small business flow through directly to the individual (more in future lessons about sole proprietors being one owner businesses and the exception) owner, and the individual owner claims the profits on their personal tax return. The business is also easy to wrap up.

There are, however, also disadvantages to owning a small business as a sole proprietor, including the fact that sole proprietors have unlimited legal and financial liability and are legally responsible for all debts incurred by and against the small business. The owner's personal assets, in addition to the business assets, are at risk. This may not be an issue now when you are starting out, if you have only a few assets, but it could be an issue later as your business grows and you accumulate business and personal assets.

It also will likely be more difficult to raise funds for your business and as the owner you may be limited to using funds from your personal savings or consumer loans to start and maintain your business. Finally, it may be harder to attract high-caliber employees or to motivate employees with the opportunity to own a portion of the business.

Step 3: Decide if you want to/should own and run the business yourself or form a partnership (not the same discussion as the legal entity - Partnership) with another person?

The discussion and presentation of the legal entity Partnership (further divided into General Partnerships and Limited Partnerships) will be the topic of a future Post.

A partnership is similar to a sole proprietorship in that the law does not distinguish between the business and its owners. Note the plural here - owners - is unlike in the sole proprietorship where it was singular - owner. A partnership is the basic entity when two (or more) people start a business and do not take the steps to form a general or limited partnership, LLC or corporation. Much like the person who operates a handyman business and did not form an LLC or corporation; if two people (with the exception of a husband and wife - more on this in later Posts) start and own a handyman business; they are partners.

Generally, partners will have a legal agreement - an actual document - laying out the rules and guidelines on how their business will operate; i.e. how they will make management decisions, how they will share or divide up profits, how they will resolve disputes, how future partners, if any at all, will be admitted to the partnership, how partners can be bought out, or what steps will be taken to dissolve the partnership when needed. However, if two people - unlike the individual owner discussed above in the sole proprietorship - own a business together they are partners and the standard partnership rules (under Arizona law) will apply to the above situations if there is ever a dispute between the partners.

Like a sole proprietorship, a partnership is generally pretty easy and cheap to establish. This is especially so if the partners do not have a partnership agreement, but as the previous paragraph alludes to, it is not wise to go into business with a partner without a partnership agreement. Also, partners are jointly and individually liable for all business debts and obligations; note it does not matter which partner (or even if the other partner knew about it) incurred the debt or obligation - both are liable. And profits must be shared with others.

If you are considering a partnership (or even the more formal General Partnership or Limited Partnership) you should consult with a knowledgeable, experienced Arizona Small Business attorney.

Step 4: Do you really need to incorporate? i.e. consider the benefits of forming a Limited Liability Company (LLC)

An LLC generally is easier to set up, less expensive, more flexible, and has fewer formal requirements than a corporation. This flexibility is one reason (among some other reasons) that makes the LLC a very popular format for small business owners. LLCs, as is likely apparent at this point, were essentially designed to create a business form that provides liability protection for its owners, but with more flexibility and easier operational requirements for small business owners to start new businesses. The owners of an LLC are generally called members.

An LLC is like a Corporation in many aspects; it is a separate legal body, the owners have separate legal protection so they are not liable for the business' debts and judgments (unless the owners agreed to be personally liable for the LLC's debts, contracts or judgments). Also, owners of an LLC can elect to pay business income taxes separately (like a corporation) or on their individual income tax returns (like a sole proprietorship or partnership) and still maintain the liability protection.

One brief point of caution (that I will discuss in more detail in a future Post/Guide/Lesson about LLCs): LLCs protect the owners from the business' liabilities, but the business is not protected from the liabilities of the owner(s). If this final note is of concern to you talk to an experienced, knowledgeable small business attorney.

Step 5: Is a Corporation better suited for your particular business?

A corporation, like an LLC, is controlled by state law and considered a unique entity, separate from its owners. A corporation can be taxed, sue and be sued, and can enter contractual agreements. However, even is your business is a corporation, another company (and financial institutions) may require start-up owners (shareholders) to agree to be personally liable for debts, loans or contracts before that company or bank will be willing to go into business with the new start-up. This may even be the case for an existing corporation depending on the amount of assets, stock, cash flow, income, etc. the business has at the time of the negotiation with the other company or bank.

The owners of a corporation are called shareholders. The shareholders elect a board of directors to oversee the corporation and guide its major decisions. The board of directors will then appoint senior level management (President, VPs, etc.) to manage the day-to-day operations of the business. The advantages of a corporation include that shareholders have limited personal liability for the corporation's debts or actions. The shareholders liability for the business' debts or actions is limited to the shareholders interest (stock) in the corporation. However, the officers in a corporation can be held personally liable for their actions even if they were on behalf of the corporation.

The disadvantages of a corporation include: corporations take more time and money than other organizations to set up, corporations require more formalities, and corporations may result in higher overall taxes.

Step 6: Pick the Legal Form/Entity that is Best Suited for your Business and Works for You!

As indicated throughout the above, there is no "one size fits all" solution for the owner of a new small business. The best way to determine what business type will work best for your new small business is to thoroughly research how each business form will work for your small business. Or, and maybe the better route to take is to consult an experienced and knowledgeable small business attorney who can review your business idea and help you to properly weigh the advantages and disadvantages of the various business forms.

Step 7: Meet with and choose knowledgeable, experienced small business professionals (at a minimum a small business attorney and in many cases an accountant familiar with the needs of small business owners) to discuss and choose the correct entity/form for your small business.

Once you have worked through the 6 steps above and have a good idea of your goals and aspirations, Step 7 may be the most important step in the process of deciding on the legal form for your small business. Meet with knowledgeable, experienced professionals to advise you on the entity/form best suited for your business and to assist you with the establishment and operations of your business.

Most importantly, meet with small business attorneys and decide on who will be your attorney. Then, review your considerations of the above 6 steps and decide, with the assistance of your small business attorney, which business form is best for you and your business. I will go more into this important relationship in later posts/guides here on the blawg/in other guides, but it is important to understand at this point in the development of your small business that the advice and guidance of a knowledgeable, experienced small business attorney will help make sure small questions, concerns and issues do not become huge problems that may irreparably damage your business (and personal) finances.

It is also important to consult with and establish a relationship with an accountant or CPA that is knowledgeable and experienced in the needs of small business owners. The information and advice they can provide are invaluable to a successful small business. Again, I will provide more information on this aspect of starting your small business in later posts/guides, including information about referrals to our partners in the field.

After you've decided which business form is right for you and your small business, the next step will be to form that legal entity.

In the next Lesson in the Small Business Start Up Course series I will cover that topic; starting with how to form a corporation in Arizona. Don't worry, after reading above, it may sound complicated, but I will break it down into easy to follow chunks.

Stay tuned.


Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 3/16/2012 9:50 AM | Add Comment



Small Business Start Up Course - Prelude
First, I want to once again thank you for reading and following my Small Business Law Update Blawg.

As I mentioned in the initial posts, in the weeks ahead, I will be posting updates to the blawg each covering 1 of the lessons in my small business startup course.

If you follow the blawg (www.blog.geigerlawoffices.com), you'll receive general step-by-step information on how to form, build, and grow a business. In addition to the information provided here in my blawg, you can also access all this information on my firm website (www.geigerlawaz.com) and through my legal guides posted on Avvo.com.

So you do not miss any updates or information, I invite you to subcribe to the update fees (RSS feeds) here on the blawg and follow us on Facebook (www.facebook.com/ArizonaSmallBusinessAttorney) so you will know when we post an update to the blawg and publish new Legal Guides on Avvo.com.

I want to start today with a brief look at the the first lesson. It will involve choosing the correct entity form (Corp., LLC, Partnership, etc.) for your business in 7-steps.

Those 7 steps are:

Step 1: Ask yourself: Do I want to be the next Facebook, Google or Apple?

Step 2: Consider whether you even need a corporate or partnership entity: Will a sole proprietorship work for your business?

Step 3: Decide if you want to/should run the business yourself or form a partnership (not the same as the legal entity) with another person?

Step 4: Do you really need to incorporate? Consider the the benefits of forming a Limited Liability Company (LLC).

Step 5: Decide if a Corporation is better suited for your particular buisness?

Step 6: Pick the Legal Form/Entity that is Best Suited for your Business and Works for You!

Step 7: Meet with and choose knowledgeable, experienced small business professionals (at a minimum a small business attorney and in many cases an accountant familiar with the needs of small business owners) to discuss and choose the correct entity/form for your small business.

In the next update to the Small Business Start Up Court - coming in the next few days - I will provide more guidance on each of the 7 steps.

But, for now, I once again want to invite you to visit my website (www.geigerlawaz.com) and call me at my office, and let me know if you have an legal roadblocks or questions; even if it's some small problem, I'd love to hear it.

Talk soon,
Tim Geiger


Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 3/10/2012 11:29 AM | Add Comment





Small Business Startup Course
Once again I want to thank you for signing up for our Blog, and now I want to invite you to subscribe to the Blog (and RSS feed(s)) so you know when we post updates.

In the weeks ahead, I will be posting brief updates about each of the steps in our small business startup course. If you follow our Blog, you'll receive general step-by-step information on how to form, build, and grow a business.

But, for now, I want to ask you: Are there any legal roadblocks that are bothering you right now? Do you have any legal hurdles that are getting in your way? Hit comment or follow the links to my website (www.geigerlawaz.com) and call me at the office, and let me know.

Even if it's some small problem, I'd love to hear it.

Talk soon,

Tim Geiger

Disclaimer: Remember, any information we provide here is general in nature and not legal advice, nor is it intended to be legal advice. It is general information that is incomplete and may not specifically apply to your particular circumstances, so you should not act upon it until discussing your situation with an Arizona attorney (or an attorney in your state/jurisdiction). Every case is unique. Most legal principles have important exceptions that may apply in your case. You should actually talk to a qualified, experienced Arizona (or from your state/jurisdiction) lawyer regarding your situation before taking any action or declining to take action. As mentioned above in the post, I invite you to contact my office (www.geigerlawaz.com), but please note that merely contacting my office in any way, submitting a comment on this blog, my general response above, and any further communication whether electronically, by letter, or by telephone, does not create an attorney/client relationship. You will know when my office represents you because you will receive a signed representation agreement. Please do not send or communicate any confidential information until you receive a signed representation agreement with an attorney; only then will there be an attorney/client relationship and privilege and confidentiality apply to communications. Thank you.

Posted by Timothy R. Geiger at 3/9/2012 7:41 AM | Add Comment


Welcome
Welcome to one of my many current and pending blogs. This blog will be dedicated to Small Business Law information, topics, and discussions.

Please check back soon for new entries.

I will also soon be launching blogs dedicated to Estate Planning, Elder Law and Life Care Planning, Retirement Planning, and eventually Tax Law/Issues.

We look forward to providing valuable information and a lively discussion.

- Timothy Geiger

Posted by Timothy R. Geiger at 3/1/2012 9:13 PM | Add Comment

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