business tips

Choosing a Legal Professional for Your Business: FAQs

Westchester NY accountant Paul Herman of Herman & Company CPA’s has all the answers to your personal finance questions! The following are frequently asked questions our Westchester accounting firm regularly receives regarding choosing a legal professional for your business.
▼ Should I hire an attorney?

It is necessary to hire an attorney for some disputes that require a lot of time. Having an attorney makes you more prepared, but you may also hire one for a significant business transaction. http://www.flickr.com/photos/safari_vacation/6260723020/If there is a problem where the court is concerned, it is advisable to hire an attorney.

 

 

The following should be considered when determining if an attorney is necessary:

  • Is this a difficult legal dispute or will I end up in court? What is involved in terms of money, property, or time? Positive answers demonstrate the need for an attorney.
  • Does a book exist that will be able to help me so I don’t have to hire an attorney? Some problems can be resolved with little help.
  • Have you looked for non-Lawyer legal resources to help?

Certain disputes can be solved without needing an attorney. For example, a living will can be prepared by a non-legal organization such as the American Association of Retired Persons. There are several organizations that can aid in the process of obtaining a living will form from the state along with information for filling it out.

▼ What process do I follow to handle the dispute by myself?

The use of letters and negotiation solves many disputes without the need of an attorney. Arbitration or mediation may also be used. There are legal self-help manuals and conferences that can aid in resolving disputes.

Idea: Instead of hiring an attorney to fully represent you, only use them for paper review or advice.

Negotiation without a lawyer: This can resolve many small disputes. Many books cover the process of negotiation.

Idea: Make sure to learn about the legal issues that could be brought up before the negotiation by speaking with a legal hot line or consulting resource.

Mediation or arbitration: You can find dispute resolution centers in almost every state. The areas that they commonly focus on are complaints from consumers, rental property disputes, and arguments between neighbors or members of a family.

Mediation consists of a third party who helps the two parties talk about the problems and hopefully reach an agreement. Arbitration is a more formal process where a third party reaches a conclusion after hearing both sides.

These are the low cost options in comparison to going to court or hiring a lawyer for representation.

Small claims court: Each state defines the limits for the amount of damages, which can be filed in small claims court. These are less formal and require less paperwork than normal courts. You must be prepared to function as your own lawyer in small claims court, which involves compiling evidence, investigating the law and making your story known in court.

 What method should I use to find a good attorney?

Speak with friends, relatives, clergymen, social workers or your doctor for their opinions. You can also use the referral lists that are compiled by the Bar Association.

Pay close attention to the specialty area in the Bar Association lists, as many attorneys work in different areas. A lawyer that is a part of one of the organizations may have just what you are looking for.

More sources are the Who’s Who in America Law and the Martindale Hubbell Law Directory. Make use of referral services for particular groups (for example, people with disabilities, elders or victims of domestic violence).

If using the referral service, ask for details on how the lawyers were selected. Many referral services use lawyers who are members of a certain organization.

The court and your bank can be great referral sources as well as the yellow pages. After the list is compiled, spend time with each of them and slowly eliminate attorneys.

▼ What should I ask my possible lawyers?

Before beginning a consultation, the following questions should be asked:

  • Is the first consultation free?
  • How long have you been an attorney?
  • Do you have a lot of cases that are like mine? (Try to find an attorney that has experience in your problem area.)
  • Are there references, such as trust officers in banks or other attorneys that I can contact?
  • Are there any clients or special-interest groups that you work for that may cause a conflict of interest?
  • Can we make a fee agreement? May we discuss the fees?
  • Is there anything in particular that I should bring to the first consultation?

Make sure to consult with at least two of the attorneys from your list. There is no need to be embarrassed about choosing the best attorney or changing appointments with an attorney after all investigation is complete.

It is now time to interview the possible attorneys. Make sure to have a brief summary of the case at hand as well as general questions to ask the attorney. There are two objectives for meeting with the attorney: 1) to see if the attorney has the talent needed to represent you, and 2) to see if you are comfortable with attorney and the fee agreement.

 Is a certain fee agreement better for me?

The basic rate for legal services depends on location. Based on your knowledge of the fees, a “fair” fee should be selected. Here are a few factors that play a role in the decision:

  • What can you afford?
  • Is this a routine case or do I need someone with special experience?
  • What is the going rate for the attorneys in my area?
  • What can I take care of without the attorney?

The following are basic fee agreements in use by attorneys:

Flat fee: There is a specific total that will be charged for work on your case.

  • Idea: Make sure to ask if copies, transcribing and other expenses are included in this rate.
  • This is normally offered only if the case is simple or routine.
  • Note: Litigation is not usually a flat fee, but an attorney can give you a fair estimate beforehand.

Hourly rate: A rate will be charged for each hour or part of the hour that the attorney works on your case. For example, if the attorney’s fee is $50 per hour and puts in five hours of work, then the cost will be $250. Some rates may vary depending on whether they are hours spent in court or doing investigation and preparation.

  • Idea: If you decide on an hourly rate, find out how much expertise the attorney has in your particular problem area. Someone who is less experienced will need more hours to complete the work, even though the hourly rate is lower.
  • The size of the firm also affects the price. Smaller firms and urban lawyers usually charge a higher hourly rate than lawyers in rural areas and large law firms charge the most.
  • Idea: Find out what is included in the hourly rate. Will you be charged for other staff members time put into the case and if so, how? Are there any other expenses that I will be billed for besides the hourly rate?

Contingency fee: The final amount owed is based on the amount awarded in the case. In this scenery, if you lose the case, the lawyer does not receive anything besides expenses. This is normally one-third of the total.

  • Idea: Find out if the fee will be calculated before or after expenses are taken into account. This can make a significant difference in the amount of the fee.
▼ What can I do to save money on legal fees?

Bear in mind that attorney fees are usually negotiable even though you will not be asked to bargain over the fees. The following are a few tips to make sure you save the most money possible:

  • Shop around for flat fees on routine cases.
  • Discuss the method of billing for hourly rates. To avoid problems, have a written agreement stating the fee agreement as well as what is involved.
  • Find an attorney with the qualifications necessary for your case. The majority of legal work is fairly routine. Knowing what form needs to be completed and then who to file that with plays a large role.
  • Propose to help with the workload.
  • Use the lawyer as the middleman. If you only need a letter written to the opposing party, some attorneys will negotiate a lower fee.
  • Work the lawyer as your coach. Hire a lawyer to guide you and review documents and letters that you prepared and signed if you would like to represent yourself in court (pro se).
  • Select an attorney that specializes in your particular case.
  • Always arrive prepared to lawyer meetings. The more information you have at hand means that less time that the lawyer needs to spend looking for that information.
  • Be forthcoming with your attorney. To save time and money, make sure the attorney knows all the pertinent facts as soon as possible to reduce the need for more investigation.
  • If factors change, inform your lawyer immediately. This can possibly save the lawyer’s time or keep the lawyer from working on the case in the wrong direction.
  • Be prepared when having contact with your lawyer. Ask all questions in one call. When you receive a letter or information in writing, pass it on to other staff members instead of contacting the attorney, unless you have a specific need.
  • Pay close attention to invoices. Ask that you receive an invoice regularly. This applies to all types of fee agreements including a contingency fee. If you have a question regarding any of the items, you should immediately speak with your attorney.

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Armonk NY, Bedford NY, Harrison NY, Chappaqua NY, White Plains NY, Scarsdale NY, Purchase NY, Greenwich CT and beyond.

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Business Forms of Organization: FAQs

Scarsdale tax preparers at Herman & Company CPAs have all the answers to your personal finance questions!

Business Entity and Tax FAQs from Scarsdale NY accountant

Don’t let your business be a gamble when it comes to your taxes.

The following are FAQs our Westchester accounting experts regularly receive regarding business forms of organization and how to approach them. 

▼ Will some types of business organization or entity limit my liability to business creditors?

Yes. Limited liability companies (LLCs), limited partnerships, limited liability partnerships (LLPs) and corporations are the most common forms. General partnerships and sole proprietorships don’t restrict owners’ liability, whereas limited partnerships limit liability of some partners (such as limited partners) and not others (like general partners).

▼ How can I avoid the “corporate double tax” and what exactly is it?

A “corporate double tax” happens when a business corporation (or an entity that is treated as a business corporation for tax purposes) pays a federal tax on its income, and then its owners pay another tax as they collect corporate profits. The “entity level tax” is the tax on the corporation and so an entity taxed in this way is called a “C corporation” or C corp.

Here are ways to avoid the double tax:

  • Become an S corporation, which doesn’t change the nature of the business under state business law but rather eliminates federal tax at the corporate level.
  • The second tax, which is on the owners, can be deferred by suspending profit distributions to corporate owners.
▼ For tax purposes, what type of business entity is best?

Each business is different, although to save on overall taxes a “passthrough” entity is generally best, as it eliminates tax at the entity level. Owners of passthrough entities are taxed on the profits of the entity that they own. Owners are able to make tax deductions for startup and operating losses, against the income from other businesses or investments.

▼ What entities are considered to be “passthrough”?

The leading “passthrough” forms are limited partnerships, LLCs, LLPs, S corps, sole proprietorships and general partnerships. You have a lot of power over whether or not your entity is treated as a passthrough for federal tax purposes.

If you have a partnership of any type or a limited liability company, it is possible to choose if your business functions as a corporation or partnership for tax purposes. This is called the “check-the-box” system by tax and business advisors. You can qualify to have it treated as a passthrough by choosing S corp. status if your entity is incorporated or if you elect to be treated as a corporation.

This decision is binding. This means if you select one entity one year and a different one the next, you will have to pay the taxes as though last year’s entity was sold and use those profits towards this year.

▼ To avoid double tax and limit my liability, which entity should I choose?

Assuming you don’t select to have them function as corporations, the following types will avoid double tax and limit liability: LLPs, LLCs, and limited partnerships (only for the limited partners). An S Corporation is usually another option. If you are a sole owner, the only option is an S Corp (or in certain states, LLCs).

▼ Why are limited liability companies (LLCs) so great?

Limited liability and passthrough tax treatment are both combined in LLCs. This provides benefits that are unavailable from S Corps. The main benefits are:

  • The possibility of greater loss deductions.
  • Tax benefits can be disproportionately distributed among owners.
  • When a new owner becomes a member of the business, or when allocations are given to owners in business liquidation, taxes are avoided or reduced.

LLCs are sometimes permitted to have a single owner – laws vary by state. If permitted, the owner has the opportunity to elect to be under the check-the-box rules.

A good alternative where sole ownership LLCs aren’t permitted is an S Corp. This structure will also defer tax, in comparison to LLCs, when a corporate giant is buying out the business.

▼ If my business is a professional practice, what are the special conditions?

A major concern is the limitation of liability, especially malpractice liability. Against the liability of your own malpractice, there is no entity that will protect you. For protection against liability for malpractice of co-owner professionals in the firm and possibly for other debts, Professional Limited Liability Companies (PLLCs), LLCs, and LLPs, when accessible for professional practices, should be used. Depending on the state law, Professionals Corporations (PCs) might not offer protection from liability for a co-owner’s malpractice.

LLPs, PLLCs, and LLCs all have about the same tax rules that govern them while those for PCs are a little more liberal.

 If I change my form of business organization, what are the federal tax consequences?

A change of entity is an event that may need to be carefully planned and implemented to avoid a taxable event. It also may have significant future tax implications. You should consult with a professional before making any changes or decisions to your business organization.

 Is it necessary for state business entity rules to follow federal tax rules?

Bear in mind the differences between state tax law and state business law. Whatever tax status you select for your entity beneath the federal check-the-box system, keep in mind that you may be considered a different type of entity for state business law purposes. This means that if you choose corporate tax treatment for a partnership, it will not necessarily bring corporate limited liability.

A state normally treats the entity selected under federal check-the-box as the entity acknowledged for state tax purposes, but this is not always the case.

The law of a state may agree to passthrough status for an entity like an S Corp or an LLC, but still enforce some sort of tax on the entity.

Our Scarsdale tax preparers here at Herman & Company CPA’s are here for all your financial needs. Please contact us if you have questions about these provisions or any other tax compliance/planning issues, and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Mamaroneck NY, Armonk NY, Rye NY, Scarsdale NY, Tarrytown NY, Chappaqua NY, Greenwich CT and beyond.

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Incorporating: FAQs

Scarsdale CPA Paul Herman has all the answers to your personal finance questions! Business Incorporating FAQs from Scarsdale Accountant The following are questions our Westchester CPA firm frequently receives regarding incorporating businesses:
▼ What is the definition of a corporation?

A legal entity that exists independently of its owners is a corporation. When correctly filled out articles of incorporation are filed with the proper state authority and all fees are paid, a corporation is created.

▼ There is a difference between an “S” corporation and a “C” corporation, what is it?

Every corporation begins as a “C” corporation and must pay income tax on the taxable income made by the corporation. After filing federal form 2553 with the IRS, a “C” corporation becomes an S corporation. The net income or loss of an “S” corporation is included in their personal tax returns and are “passed-through” to the shareholders. There is no double taxation as with “C” corporations because income tax is not taxed at the corporate level. Also known as Subchapter “S” corporations, they are limited to 100 shareholders.

 Is an attorney necessary to incorporate?

Obtaining a lawyer is not a necessity to incorporate (except in South Carolina, where an attorney’s signature is required). You can fill out and file the articles of incorporation by yourself in every other state. However, you should be completely briefed on all aspects of the law beforehand.

A good corporate attorney can be an irreplaceable resource to a small business despite the expensive hourly rates. A one-hour consultation can be very beneficial if you are unsure of the process, or if there isn’t time for research. Prepare a list of questions before the consultation.

▼ Is there a process for naming my corporation?

Take time to think about a name for your corporation. The most common rule for naming your corporation is that it cannot be misleadingly similar to a company that is already formed, but each state has their own rules. A suffix must be included in the corporation name such as “Incorporated”, “Inc.”, “Company”, and “Corp.” Each state has suffix standards of their own.

▼ Are there benefits to incorporating?

Limiting your liability to the assets of the corporation is the primary advantage of incorporating. It is common that shareholders are not responsible for the debts or obligations of the corporation. Unless you didn’t personally sign for the loan and your corporation defaults on it, your personal assets are safe. With a sole proprietorship or partnership, this is not the case. There are many tax advantages that are available to corporations and not sole proprietors.

A few of the advantages are:

  • A corporation allows for easier setup of retirement funds and qualified retirement plans (such as a 401k).
  • The life of a corporation is not limited and is not dependent upon its members. The corporation will continue to prosper and do business even if an owner dies or wants to sell their interest.
  • A corporation has a centralized management.
  • It is easy to transfer ownership of a corporation.
  • With the sale of stock, capital can be raised more easily.
▼ What exactly is a Registered Agent?

In the majority of states, a corporation is required to name a “registered agent.” The agent must be located in the formation state. The registered agent must be accessible during regular business hours to receive official state documents or service of process.

▼ Do I need a specific number of Directors or Shareholders?

Most states permit one person to function as director, shareholder, and all officer roles.

 Are there a number of shares of stock I should choose and at what par value?

You may select any quantity that you wish. The par value is either “No Par Value” or any dollar amount per share as you choose. In some states you must issue the stock for no less than the par value. Some states establish their fees from the amount of shares approved, multiplied by the par value.

▼ What does EIN stand for and what is a Federal Tax Identification Number?

A Federal Tax Identification Number, which is also known as a Employer Identification Number (EIN) is required for each corporation so the IRS may track payroll and income taxes paid by the corporation. Just as a Social Security number, an EIN is used for almost every function of the business.

▼ After I incorporate, what do I do next?

If your director(s) have yet to be designated in the articles, you will need to hold your first shareholder meeting to select your director(s). After that, you will need to hold the first organizational meeting of directors. During this meeting, you will hold elections for officers, approve the company’s bylaws and issue your stock, as well as other actions.

Scarsdale accountant Paul Herman is here to help you with all your personal finance needs. Please contact us for all inquiries and to receive your free personal finance consultation!

Herman and Company CPA’s proudly serves Larchmont NY, Tarrytown NY, Bedford NY, Dobbs Ferry NY, Scarsdale NY, Katonah NY, Armonk NY, Pound Ridge NY and beyond.

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Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.