Gilbert Law PC

The Corporate Transparency Act

2024-07-01T07:18:29Z

In 2021, the federal government enacted the Corporate Transparency Act which will go into effect at the beginning of 2024. The purpose of the Act is to fight money-laundering and other criminal enterprises that use business entity formation (such as LLC’s) as a method to hide the identity of criminals. This Act, however, has far-reaching consequences for small business owners as it imposes mandatory reporting requirements with the federal government related to your small business. The Act requires most small businesses to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. It is extremely important that you comply with this Act as failure to do so can lead to significant civil and criminal penalties which include, but are not limited to, a civil penalty of $500 per day for each day that the violation continues up to $10,000.00 and/or imprisonment for up to two years. Although there are twenty-three separate exemptions to the reporting requirement (such as for charitable organizations), the exemptions are very narrow and most privately owned small businesses will not meet an exemption and be required to file a report. What is required in a BOI Report? First, the report must include company information: (1) the company’s full legal name, (2) any trade or “doing business as” names, (3) complete current street address of the principal place of business, (4) jurisdiction of formation, and (5) taxpayer identification number. Second, and more intrusively, the BOI Report requires information on all beneficial owners of the Company The information required to be reported for beneficial owners includes: (1) full legal name, (2) date of birth, (3) complete current residential street address, (4) unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license, or (iv) if the individual has none of those, a foreign passport, and (5) an image of the document from which the unique identifying number was obtained. And yes, you read this correctly, an image of each owner’s/applicant’s identification document must be uploaded into the system to be fully compliant. Unfortunately, the initial BOI Report is not a one-time reporting requirement. Although this is not an annual report, there is an ongoing obligation to update when information changes. Every time there is a change or correction to reported information, the reporting company must file an updated report. This includes a change in ownership, a change in an owner’s name (i.e. – owner gets married and changes their last name), change in address, etc. For example, a change in a corporation’s officers would likely trigger the need to file a new BOI Report. As the reporting requirements begin on January 1, 2024, we are strongly suggesting that our clients contact us to make arrangements for our office to complete the reporting requirements for your company. As of the writing of this memo, the federal government has not yet created the forms for reporting this information, but it has provided certain guidance as to the information that will be required. As such, our office has developed a list of questions that can be answered to determine if your small business is subject to the reporting requirement or if you meet one of the exemptions. One estimate anticipates that more than 32,000,000 small businesses will be effected by this reporting requirement. As such, due to the anticipated heavy workload that the reporting requirement will create, we ask each of you to contact us as soon as possible in order to prepare for this filing.

DISTINCTIONS BETWEEN LLC’S AND S-CORPS

2023-01-13T04:50:06Z

LLCs and S-Corporations are often talked about together, but they are not an either-or choice. There are similarities and differences. A limited liability company (LLC) and a corporation are both legal business structures that are commonly used by small business owners. An “S-Corp”, however, is a tax classification. Historically, a corporation would be the entity of choice if you wanted to be treated for tax purposes as an S-Corp. Now, the IRS will allow you to elect to have both types of entities taxed as an S-Corp with the proper document filing. Many companies choose this option for tax advantages, but it’s important to know when and how these advantages apply.

Differences Between LLCs and Corporations

Both these business types will require you to file business formation documents with the state. Both protect company owners from personal liability for business obligations. In general, corporations have a more standardized and rigid operating structure and more reporting and recordkeeping requirements than LLCs. LLC owners have greater flexibility in how they run their business. Taxwise, LLCs have more options than corporations. LLCs aren’t tied to one particular tax classification and can be taxed as sole proprietorships, partnerships, C corporations or S corporations.

Ownership Structure

An LLC’s owners are called “members.” Each member owns a percentage, or “membership interest” in the business. Individuals, corporations, other LLCs, and foreign individuals can own membership interests in LLCs.

The ownership of an LLC is outlined in the business’ operating agreement—other details include the percentage each member owns, how the business is run, and how the company will deal with a new or departing member. Without an operating agreement, the LLC operates according to state law. In some states, the LLC needs to be dissolved if a member leaves, with the remaining owners forming a new LLC if they wish.

A corporation is different from an LLC in that corporate owners are known as “shareholders” whose ownership percentages reflect the number of shares of company stock they own. If there are no written agreements that say otherwise, it’s easier for a corporation to authorize additional shares, or for shareholders to transfer their shares to someone else.

Management

LLCs can be managed by their members (owners), or they can be managed by one or more managers, with the members acting more like passive investors. The people running an LLC–whether members or managers– don’t have to adhere to traditional roles or titles like CEO or Vice President, but can create a management structure that works for their business needs.

In contrast, corporations operate with a much stricter management structure, with a board of directors overseeing the business and officers who manage daily operations. Shareholders must meet at least annually. Paperwork and record-keeping for shareholder and director meetings is extremely important with corporations.

Reporting of Profit and Loss/Income Taxation

There are two ways a corporation can be taxed. By default, corporations are C corporations. They file a corporate tax return and pay corporate taxes. If the shareholders take distributions from the company, they’ll report those distributions on their personal tax returns (along with any company salary they receive) and pay personal income taxes on them.

Some corporations can avoid this double taxation of distributions by electing to be taxed as an S Corp. S Corps don’t pay corporate income tax. Instead, the company’s profits pass through to the shareholders’ personal returns and each shareholder pays individual taxes on their portion. To be eligible for S Corp taxation, a corporation must have 100 or fewer shareholders who must all be legal residents or citizens of the Unites States (stock cannot be owned by an LLC, C-Corp or Partnership) and have only one type of stock (no preferred stock).

LLCs, on the other hand, don’t have an IRS tax classification of their own. Single-member LLCs are automatically taxed like sole proprietorships and multi-member LLCs are automatically taxed like partnerships. In either case, however, the company profits pass through to the members, and the members pay income taxes on their share. LLCs can elect to be taxed as an S-Corp (if all of the members meet the requirements mentioned above to be an S-Corp).

Self-Employment Tax

The minimization of Self-Employment Tax is generally the reason that many small business owners make an S-Corp election when they incorporate or decide to have their LLC treated as an S-Corp for tax purposes.

S Corps can pay out a portion of the owners’ income as salary. The salary is taxed as employment income, which is subject to FICA payroll taxes (15.3% of your gross wages). Your S Corp pays half of this amount (7.65%) as employer taxes and gets to write them off as a business expense. You pay the other half (7.65%), and these taxes are withheld from your paycheck. If 15.3% sounds familiar, it’s because the self-employment tax you pay as a sole proprietor is 15.3% of your taxable earnings. The S Corp advantage is that you only pay FICA payroll tax on your employment wages. The remaining profits from your S Corp are not subject to self-employment tax or FICA payroll taxes. Those profits are only subject to income tax.

Here’s an example: If you make $100,000 in earnings from your S Corp, you can have that income paid out as $50,000 in salary and $50,000 in profit. You’ll pay FICA payroll taxes (15.3%; yes the same amount as self-employment tax) on just $50,000 instead of the whole $100,000. The remaining $50,000 of your income is only subject to income tax.

Why not make my salary $1.00? Another crucial factor is what the IRS calls a “reasonable salary.” That $50,000 we mentioned in our example above assumes that $50,000 is a reasonable wage to pay you for your hours worked and duties performed. There’s no one-size-fits-all guidance for calculating your S Corp salary, and you’ll have to determine what is reasonable for your situation.

Legal Liability

Both corporations and LLCs are limited liability entities. This means the owners aren’t personally liable for business debts or lawsuits against the business. Business owners do, however, remain liable for their own negligence and for any obligations on which they’ve signed a personal guarantee.

To maintain this liability protection, both corporations and LLCs should always keep business and personal finances separate. Owners should sign documents and contracts on behalf of the company, not in their own personal capacity. For corporations, additional documentation needs to be maintained as well. This includes corporate minutes, details on annual shareholder meetings, and information on its board of directors.

Reporting to the State/Registered Agent

LLCs and corporations also need to make required filings and reports to stay in good standing with the state. Both types of businesses must maintain a registered agent and update the agent information on file with the state as necessary. Most states require LLCs and corporations to file an annual report or franchise tax reports to maintain an active status. The annual report form will ask you to ensure you have updated information pertaining to your business and you will have to pay a filing fee. Some states require this to be completed every other year.

With both entities, you will need to designate a registered agent with the state. You can be the registered agent for your company, or you can designate our office as your registered agent. There are many reasons to elect our office to act as your registered agent and those are outlines on a separate document explaining what services we provide as your registered agent.

CPA Guidance

Before choosing an entity or a tax classification, we suggest at least a minimal consultation with your CPA. Your CPA may know facts or circumstances about your situation that you might not be aware of. If you have a CPA, please let us know. If you need a CPA, we can give you a referral.

DO NOT DELETE

2023-01-13T04:45:06Z

A large portion of any civil litigation case involves “discovery.” Discovery is the general name given to all of the things that attorneys do to determine the facts and circumstances of the opposing party’s case and to prepare for trial.

The law requires you to maintain all relevant documents and records, including electronic information, such as emails and text messages, related to the lawsuit. You are required to maintain all evidence even if it has not yet been requested by the other side. Not doing so can be considered “spoliation” of evidence. When a Court finds that a party has allowed spoliation of evidence to occur, the results can be quite disastrous, leading to sanctions such as not being able to introduce certain types of evidence, paying monetary penalties, and/or having your case dismissed.

As such, when it appears that you are going to get involved in lawsuit, you should locate all files, documents, and records that relate to the lawsuit. These could include records that are in a “hard-copy” file or electronically stored on a computer, tablet, smart phone, etc. DO NOT DELETE anything. You should make attempts to preserve all documents that bear any relation to this case whatsoever.

It is common to be asked to provide all of your emails and text messages between yourself and anyone else that is a party to your case or has knowledge about the case. Yes, making copies of these documents can be quite time-consuming, so talk to your lawyer about how to do it properly so you don’t have to do it twice.

THE LAND BELOW THE 800 FOOT CONTOUR – Where do my rights begin and the rights of my neighbor end?

2023-01-13T04:43:03Z

Smith Mountain Lake is a man-made lake controlled by American Electric Power. AEP has certain legal rights to various activities occurring below the 800 foot contour of the lake along the shoreline. Many residents are familiar with the Shoreline Management Plan, dock permits, etc. However, this article is not meant to discuss AEP’s rights, but instead, your rights to use of the shoreline compared to the rights of your neighbor. The law related to ownership and possession of the land below the 800 foot contour is controlled by two different cases arising out of Bedford County that both made their way to the Virginia Supreme Court. One of the cases is Smith Mountain Lake Yacht Club v. Ramaker from 2001, which dealt with the situation where the property owner not only owned their land, but also owned the land beneath the 800-foot contour and then down below the waters of the lake. The second case is Anderson v. Delore from 2009 which dealt with the situation where AEP owned the land beneath the 800-foot contour and the lot owners merely had easements to get to the water Yes, you may actually own “fee-simple” title to the land beneath the water. (Note – Despite the fact that many legal descriptions in deed loosely refer to the land below the 800 foot contour, only a title examination can reveal whether you do or not.) If you own the land below the 800 foot contour, then the 2001 case is applicable. In the Smith Mountain Lake Yacht Club case, SMLYC owned the land beneath the waters of Smith Mountain Lake. The property line between the SMLYC land and the land owned by the Ramakers ran almost exactly along the 800 foot contour line for hundreds of feet, allowing the Ramakers to have land adjoining the waters of the lake only when the lake was at full pond. The Ramakers constructed a dock that originated on their land, but then extended out into the waters of the lake and onto the submerged property still owned by SMLYC, who objected to the use of their land as a trespass. The Supreme Court of Virginia held:

The chancellor's designation of a riparian zone permitting construction of a dock extending from the Ramakers' property is contrary to the law because the dock would have to cross the Yacht Club’s partially submerged property to reach the dock's designated terminus point in the water. [Per the Virginia Code], the right to construct a dock or pier for noncommercial purposes on a watercourse is subject to the restriction that the exercise of this right shall not obstruct navigation or injure the private rights of any person. Thus, we hold that a property owner may not build a pier or dock extending into a watercourse across the property of another without that owner's permission. Since the Yacht Club did not give the Ramakers permission to build a dock across the Club’s property to reach the navigable part of the watercourse, the chancellor's determination allowing the construction of such a dock is plainly wrong.

What does this mean? It means that your neighbor cannot trespass upon your land even if it is submerged/flooded by the waters of a river, stream, lake, pond, etc. Just as in the Ramaker case, if you own the land below the 800 foot contour, then your neighbor cannot come upon your property without your permission. You have the ability to instruct them not to do so, and if they continue to do so, they are subject to a claim that they are trespassing on your property. The second case is applicable if AEP owns the land below the 800 foot contour. In the Anderson v. Delore case, the Andersons owned a parcel of land that was located immediately above the 800-foot contour of Smith Mountain Lake in Bedford County. The Delores owned property that was adjacent to the Anderson lot and also was located immediately above the 800-foot contour. These two parcels derived from a common grantor, the Villamont Corporation, which in 1958 purchased about 140 acres of real property on Smith Mountain Lake for the development of a subdivision known as Gross Point. As part of this development, Villamont retained ownership of the land below the 800-foot contour, but conveyed to Appalachian Power Company a flowage easement so that the company could change the level of the water in Smith Mountain Lake, up to the 800-foot contour. While Villamont conveyed each property owner the right to go over and across the land lying immediately between the lot and the lake, the deeds did not mention “extended lot lines” or any other words that would establish the lateral dimensions for the respective rights of each property owner. The Supreme Court held:

In the absence of express language specifying the lateral dimensions of the easement or otherwise describing its scope, the Andersons were required to present evidence that the grantors of the Villamont deeds intended to convey an easement to the Andersons' predecessors in title over property from the 800-foot contour to the water's edge encompassing the disputed area on which the Delores' improvements lie. The Andersons, however, did not present such evidence. They failed to offer any testimony addressing this issue, and the only documents they presented were the deeds in the parties' respective chains of title, the permits and related documentation concerning the Delores' structures at issue, and the 2006 plat prepared after the present dispute arose.

We observe that in certain instances involving subdivisions created by a common grantor, we have determined the grantor's intent by reference to a common scheme of development. We are unable to do so in this case, however, because the record lacks any evidence regarding other conveyances by Villamont to property owners in the Gross Point subdivision. Therefore, we conclude that the record before us fails to support the Andersons' claim of encroachment based on their theory of "extended lot lines," and that the circuit court was not plainly wrong in refusing the Andersons' request for injunctive relief.

In reaching this conclusion, we do not decide the lateral dimensions of the particular easement before us. We hold only that with regard to the present allegations of encroachment, the Andersons failed to meet their burden of proof. Thus, our holding is limited to the particular encroachment alleged here by the Andersons and does not preclude a future request for injunctive relief involving structures other than the beach area, rip rap, and dock, as presently configured, which are the subject of this litigation.

What does this mean? It means that when AEP owns the land and the adjacent property owners have an easement to cross the 800 foot contour to get to the lake, the language used to create that easement is EXTREMELY IMPORTANT!! If the language in your chain of title does not set out that the imaginary extension of the side lot line is applicable, then do not rely upon that as the basis of a claim that your neighbor is encroaching on “your shoreline.” Note the language at the end of this holding. It appears that the outcome could have been different had counsel for the Andersons presented evidence at trial of the lateral dimensions of the easements. In other words, if the Andersons could have brought the original developer of the property to trial to testify about the meaning of the easement language (called “parol evidence”), the entire case may have turned out different. Unfortunately, in 2007, and certainly in 2023, this is nearly impossible as the developers from the 1960’s are in most cases no longer available to testify in court. (Note – This article is not meant to discuss the details of AEP’s Shoreline Management Plan which requires a 15 foot setback from the imaginary extension of the lot line for purposes of locating your dock when obtaining a dock permit from AEP.)

Welcome To My Blog

2023-07-04T16:08:38Z

I established this blog to share stories and information about topics relevant to my practice. My intent is to regularly provide posts highlighting legal issues of local, state and national interest that I think you will find interesting. Check back later for updates.