Seattle Small Business Law Blog

Commercial Real Estate Negotiation - Good time for Tenants

2011-03-04T10:45:00.000-08:00

An Article from the WSJ regarding commercial real estate leasing:

More than two years before his firm's five-year office lease was due to expire in 2013, Robert Finlayson told his landlord he was interested in renewing, but wanted some incentive to stay put.

Mr. Finlayson, a managing partner at Mozley Finlayson & Loggins LLP, a 40-person corporate-law firm in Atlanta, says on the advice of a broker he felt it was the right time to make a deal. After three months of negotiations, he secured a six-year extension at a 20% discount, plus one year of rent at half price, starting in January.

Annual retail-property leases averaged $15.56 a square foot in the fourth quarter of last year.

The firm's landlord, real-estate firm Ackerman & Co., was satisfied with the agreement. "We don't want to see tenants walk out the door, particularly big tenants who have been with us a long time," says Frank Farrell, a senior vice president for Ackerman in Atlanta. "You're trying to renew early because it reduces risk. The costs of a renewal are probably half of what they are on a new deal."

Weitz - A lot of Tenants overlook this in their negotiation - its not easy to re-let a property. Don't be afraid to negotiate at lease renewal.

Small-business owners are seeing opportunities in the soft commercial real-estate market, trying to renegotiate their office, retail and industrial leases for less money. Now, with rental rates even lower than they were during the recession, and the economy showing signs of improvement, more tenants are scurrying to lock in better deals.

"It's a feeding frenzy," says Faith Hope Consolo, chairman of the retail leasing, marketing and sales division at Prudential Douglas Elliman Real Estate, a brokerage firm in New York. Business owners are "concerned that rents will be out of their reach sooner or later."

In the fourth quarter of 2010, annual leases for U.S. office properties averaged $23.20 a square foot, down from $25.02 during the same period in 2008, according to data from CoStar Group Inc., a commercial real-estate services firm in Washington. At the same time, vacancies rose to 13.4% from 11.8%.

The trend was similar in the retail and industrial sectors, CoStar's data show. Annual retail-property leases averaged $15.56 a square foot in the fourth quarter of last year, down from $17.51 in 2008's fourth quarter, while retail vacancies rose to 7.3% from 6.6%. Industrial-property leases averaged $5.47 a square foot in the fourth quarter of 2010, down from $6.28 in the same period in 2008, and vacancies rose to 10.2% from 8.8%, according to CoStar.

Chris Macke, a senior real-estate strategist for CoStar, says the commercial market is more tenant-friendly today than two years ago because it tends to react more slowly to economic changes. But, he adds, "we are already starting to see rents increase in some markets," such as Washington, D.C., and New York.

Data from LoopNet Inc., a San Francisco information-services provider specializing in commercial real estate, show similar figures, with the lowest yearly rental rates per square foot for office space in metro areas such as Rochester, N.Y., ($12.25), Columbus, Ohio, ($12.50) and Minneapolis-St. Paul-Bloomington ($12.54). For retail spaces, the lowest yearly rental rates per square foot are in Oklahoma City, Okla., ($11.08), Buffalo-Niagara Falls ($11.39) and Rochester, N.Y., ($11.58).

But it may be difficult for business owners to renew a lease at a lower rate more than two years in advance of its expiration date, says Wayne D'Amico, president of PropertyPolitics.com, a consulting company to both tenants and landlords in Essex, Conn. "It's easier if the opportunity to renew is close or imminent," he says.

Entering into lease negotiations can also be dicey. "You have to be willing to move," says Nick Balletta, chief executive officer of TalkPoint LLC, a Web-technology firm in New York with 100 employees.

Late last year, he completed a renegotiation of his company's decade-long office lease for six-a-half more years at a 20% discount, plus an initial six months of free rent. He entered into negotiations 13 months before the lease was due to expire and discussions lasted for nine months, during which he considered several other properties.

Mr. Balletta made the move because a broker told him that his company's office building was 30% vacant at the time and several other tenants' leases were up for renewal. "We knew we had leverage for negotiations," he says, adding that his broker helped him seal the deal.

"Let the broker have the hard conversations with the landlord because you have to live with the landlord post transaction. It's kind of like a real-estate pre-nup."

For more information, consider contacting a Seattle Commercial Lease Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point, Bldg 5000
Kirkland, WA 98022
T: (425) 889-9300

weitzlawfirm.com

Small Business Capital Raising? - Look to China

2011-03-01T10:32:00.000-08:00

An AP article on what I expect to be popular trend in the coming years – Chinese investment in the U.S.

Two years ago, Brad Williams halted production at his 250-employee recreation-vehicle company and eventually laid off more than 200 workers, unable to find cash to keep his factory humming when sales slowed.

Brad Williams, left, is hiring 1,200 at MVP RV, thanks to a $310 million investment from China. 'It's almost something out of a fairy tale,' he says.
"During the downturn, we went on the hunt for capital, but after 44 presentations we came up short," says Mr. Williams, 56 years old.

Today MVP RV Inc. is on the verge of hiring 1,200 workers and boosting production by some 30,000 motor homes to 40,000 this year. The difference is a $310 million investment from a Chinese entrepreneur who sees Asia as an untapped market for American-made RVs.

"It's almost something out of a fairy tale," Mr. Williams says.
His Riverside, Calif., company is one of a growing number of small U.S. companies benefiting from a surge in foreign direct investment from China.
Once dominated by purchases of U.S. Treasury bonds, Chinese foreign investment is shifting to mergers and acquisitions, joint ventures and taking stakes in new businesses.

Private-sector Chinese businesses and investors put nearly $5 billion into U.S. firms of all sizes last year, more than double the amount in 2009, according to the Rhodium Group, a New York research firm. That's a small fraction of the more than $55 billion that has flowed from the U.S. to China, according to the U.S. Commerce Department.

But the flow of private-sector investment toward the U.S. from China is expected to grow substantially, says Rhodium research director Thilo Hanemann.

It isn't clear how much of the Chinese investment funds go to small businesses. Many of the deals with small businesses are under $10 million and involve Chinese investors looking for early-stage U.S. partners as an entree into the U.S. market and for exporting goods and services back to China,, says Siva Yam, president of the U.S.-China Chamber of Commerce.

Recent deals have involved clean-energy, automotive, aerospace, information-technology and health-care industries, he says.

The White House, meanwhile, is encouraging small-business owners to seek global partnerships. Of the nearly 30 million small and midsize companies, only 1% currently sell goods abroad, trade figures show.

George Haley, a marketing professor at the University of New Haven in Connecticut, says although China investors provide welcome capital to U.S. companies, he worries that the ultimate goal in small-business investments is part of an effort by Beijing to relocate the companies to China and reap gains in technology, resources and jobs.

Mr. Williams, however, describes MVP RV's deal as a partnership, not a takeover. "We're not exporting jobs, we're exporting products. We're a homegrown company that happens to have a partner from China," he says.

His lifeline arose almost by accident. When sales were slow last year, Mr. Williams traveled with a team of MVP RV executives to Shenzhen, China, as part of plan to remake the company as an electric-car manufacturer. Talks with the Chinese electric-car company he'd gone to meet collapsed, but Mr. Williams was introduced to Winston Chung, whose company, Winston Global Energy, makes batteries for electric vehicles.

Over the course of several months, Mr. Chung became the majority shareholder in MVP RV in exchange for his $310 million investment. Messrs. Williams and Chung hope to develop a battery-powered motor home for sale in the U.S. and export to China's rapidly expanding automotive market.

Mr. Williams says although Mr. Chung is a majority owner, the company was very clear throughout negotiations that the MVP RV team will be running the business. He would regret being perceived as having sold out the company and offshoring jobs. Mr. Williams adds, "That fear is unfounded. As American businesses, we should not be fearful of partnering with foreign investors. This is something we need to do."

Business Up for Sale face harsh reality

2010-10-19T17:05:00.001-07:00

An interesting Article for the Wall Street Journal:

Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.

A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices—factors similarly affecting home sellers—has left the small-business marketplace at a standstill.

David Wetzel says he spent two years trying to sell his business, Dorset Hardware, a Ventnor City, N.J., shop he's owned since 1993. He's now liquidating the business and expects to earn only about a third of his asking price. "I had some very close leads who wanted to buy, but they could just not get the financing," says Mr. Wetzel, who is 64 years old.

Just 1,117 small businesses were sold in the U.S. in the third quarter, the same number as in the year-earlier period, reports BizBuySell.com, an online marketplace for small-business acquisitions in San Francisco. By contrast, there were 1,462 small businesses sold in the third quarter of 2008, according to BizBuySell. (BizBuySell.com licenses some of its data to The Wall Street Journal.)

One of the problems, experts say, is that business owners are proposing prices greater than their companies' true value.

"Owners still think their businesses are worth what they used to be," says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many "small companies just aren't earning what they used to earn," he says.

Weitz- the converse of this is that there could be great opportunities for buyers of businesses. Remeber, if you're buying - try to do an 'asset sale'.
During the third quarter of 2010, owners listed their businesses for a median price of $245,000, according to BizBuySell. However, the average closing sale price in the period was $140,000, which was 6% less than what owners sold their businesses for during the same period in 2009, according to BizBuySell data.

Some owners say they have identified interested buyers but that many of these people are unable to obtain sufficient funding amid declines in loans guaranteed by the Small Business Administration. The agency backed $16.84 billion in loans in its fiscal 2010, down from about $20.61 billion in 2007.

As an alternative, some sellers are offering to finance part of the asking price for buyers "to close the gap," says Joseph L. Caffrey, president of Worldwide Business Brokers LLC. The arrangement has been typical of transactions that his company has brokered over the past 18 months, he adds.

Another challenge hindering sellers is that even potential buyers with sufficient funding are hesitating to close deals due to the volatile economy, says Mike Handelsman, BizBuySell.com's general manager. "People's risk profiles have taken a dramatic kick in the stomach over the last few years," he says.

Business owners also are shying away from the marketplace. Though the number of enterprises sold in the third quarter was stagnant, there was a 7.1% decline in listings from a year ago, to 31,856, according to BizBuySell.

Mr. Caffrey says some owners whose businesses lost market value during the recession are waiting for the economy to rebound before going to market. "They're reluctant to sell based on current valuations," he says.

For many, selling in the current environment will likely mean having to settle for less, which from the buyers' perspective, can be a good thing.

Franchises may have the benefit of a more recognizable brand name. Stacy Swift, owner of FranNet Colorado, a franchise brokerage business in Denver, says sales of new and existing franchises she's brokered over the past year have increased moderately. She declined to disclose figures.

"They probably started thinking of selling their businesses years ago and times got tough," says Maria Coyne, executive vice president of the business-banking unit at KeyBank, a division of KeyCorp., in Cleveland. "But now they're thinking we're back to a more reasonable environment" and they're not going to go through a recession again.

For more information on Small Business Law, consider contacting a Kirkland Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Export Licenses: An Overview

2010-02-08T11:49:00.000-08:00

Export Licensing Overview:

This post is designed to give people who are new to exporting, and, in particular, new to export controls an overview of the regulations and how to use them. Note: nothing provided here can substitute for consulting the Export Administration Regulations (EAR).

Does My Shipment Require an Export License?

Maybe. A U.S. export license requirement from the Department of Commerce can be triggered by several important factors specific to your transaction:
a. the actual item (commodity, software or technology) being exported,
b. where it is going,
c. who is going to use it, and
d. what they will be using it for.

If any of these factors change in your transaction, the license requirements may change.

What types of items does the Department of Commerce regulate?

The Bureau of Industry and Security (BIS) implements and enforces the Export Administration Regulations (EAR). The EAR regulate the export and reexport of most commercial items.

Does the Department of Commerce regulate all exports?
The DOC does not regulate all goods, services, and technologies. Other U.S. Government agencies have export control responsibilities for regulating more specialized exports. (For example, if you are shipping military goods, your item may be subject to the licensing jurisdiction of the Directorate of Defense Trade Controls at the Department of State.)
The Treasury Department’s Office of Foreign Assets Controls (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers. The BIS website identifies resource links for various U.S. Government agencies with export control responsibilities. Go to http://www.bis.doc.gov/About/reslinks.htm for a listing.

Is there a list of restricted countries to which I can’t export?

Restrictions vary from country to country and from item to item. The most restricted destinations are the embargoed countries and those countries designated as supporting terrorist activities, including Cuba, Iran, North Korea, Sudan, and Syria.

So how do I know if my shipment needs an export license?

Step 1: Know your item’s Export Control Classification Number (ECCN). ECCN entries are found on the Commerce Control List (CCL) and identify reasons for control which indicate licensing requirements to certain destinations. Other reasons an export license may be required for your shipment relate to concerns about the parties to the transaction and the end-use of the item.

Do all items have an ECCN?

Many commercial goods are not on the Commerce Control List and do not have an ECCN. These goods are designated as EAR99. EAR99 items generally consist of low-level technology, consumer goods, etc. and do not require a license in most situations. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern, or in support of a prohibited end-use, you may be required to obtain an export license.

Where do I find the Commerce Control List?

The Commerce Control List is part of the Export Administration Regulations (EAR) which can be found on the Government Printing Office’s EAR database at http://www.access.gpo.gov/bis/ear/ear_data.html#ccl Scroll down the page to Part 774. Below are the ten categories of the Commerce Control List which can be viewed as separate files in several different formats, including PDF.

So if my item is EAR99, does that mean I don’t need a license?

EAR99 items will generally ship under the designation “NLR” which stands for “No License Required”. However, if your proposed export of an EAR99 item is to an embargoed country, to an end-user of concern or in support of a prohibited end-use, you may be required to obtain an export license.

What is the difference between EAR99 and NLR?

EAR99 is a classification for an item. It indicates that a particular item is subject to the Export Administration Regulations (EAR), but not specifically described by an Export Control Classification Number (ECCN) on the Commerce Control List (CCL). While the classification describes the item, the authorization for shipment of that item may change, depending on the circumstances of the transaction.
NLR stands for the "No License Required" designation. NLR may be used for either EAR99 items, or items on the CCL that do not require a license for the destination. However, exports of an EAR99 item to an embargoed country, an end-user of concern or in support of a prohibited end-use may require an export license.

If I determine my item is classified EAR99 and I can ship under NLR, what do I need to do?

You indicate “NLR” as your authorization for export on the Shipper’s Export Declaration or Automated Export System record. By signing the SED or submitting via AES (or designating your freight forwarder to do so), you are certifying that your item is eligible for NLR. You should also keep records relating to your NLR determination and the export transaction for five years.

What is a license exception?

A license exception is an authorization that allows you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license based on the ECCN and destination.

What do you mean by prohibited end-user or end-use?

If you know or have reason to know your item would support a proliferation activity, such as nuclear, chemical/biological, or missile proliferation activities in a country of concern, a license would be required. Part 744 of the Export Administration Regulations spells out the specific regulations related to end-user and end-use controls.

Do the licensing requirements change depending on how I’m sending the item?

No. Export license requirements stay the same regardless of the method of shipment or transmission. This includes technology shipments via the internet or items carried in a briefcase. [Note: although license requirements may not change, license exception availability may (i.e. BAG or TMP.]

I’m not a company, I’m just sending something overseas to a friend. Does this mean I don’t need to worry about whether or not my item needs a license?

Whether or not something is being given away or sold does not affect the license requirements of your shipment. You still need to determine whether or not an export license is required.

Does it matter if what I’m sending is under $2500 dollars?

No. The value of the shipment does not affect the export license requirements. However, the value of the shipment may affect the requirements for filing a SED or AES Record. If an export license is required, a Shipper’s Export Declaration will be required as well, regardless of value.

Can I just have my freight forwarder fill out the license related information on the Shippers Export Declaration or AES record?

Your freight forwarder is generally not in a position to determine your requirements because a technical assessment of your item is required to determine its ECCN and any associated license requirements. You are ultimately responsible for the proper export authorization

What if my customer asks me to send the item to their freight forwarder here in the U.S.? Do I still have obligations?

Yes. Just because your customer is directing the U.S. forwarder to ship the items does not relieve you of obligations in the export transaction. The responsibility for determining the proper export authorization and obtaining an export license, if necessary, would be your obligation unless your customer provides you something in writing indicating that they are assigning the licensing responsibility to another party in the U.S., such as the forwarder. In either case, you will continue to show as the “Exporter” on the Shipper’s Export Declaration. In this case you need to provide specific information to the forwarder in order for them to do what it takes to ensure compliance. You will still be cited on the export declaration as U.S. Principal Party in Interest (USPPI).

I’ve got some paperwork from past exports made before I started here, can I just use the same information again?

Not necessarily. Export license requirements are transaction specific. If the item, country of destination, end-user or end-use have changed, it could affect the type of authorization for which the export is eligible.

My company has been exporting for years and I’ve never heard of an ECCN or license requirement. Is this requirement new?

No, this requirement is not new. Perhaps someone in your company already determined that the items you export are not listed in a specific ECCN on the Commerce Control List and do not require export licenses for the destination to which you ship. Be aware that classifications may change over time. Since the exporter is responsible for determining the proper authorization for shipment, you will want to review the Commerce Control List or submit a classification request.
If you find there have been exports without proper authorization, you should notify your company’s management and consider filing a voluntary disclosure to BIS.

I know the Schedule B number for my item, will that help in determining the ECCN?

No. The ECCN and Schedule B number do not correlate, although you will need to know both when you make a shipment.

What is the Schedule B Number and how do I get it?

Schedule B commodity codes are 10-digit numeric codes used to identify products for trade statistics purposes. The Bureau of Census’s Foreign Trade Division can assist you at 301-763-2238. A Schedule B search engine is available at http://www.census.gov/foreign-trade/schedules/b/.

I’ve been told that I can I get an official ECCN determination over the phone from the Department of Commerce. Is this true?

No. The ECCN is based on the technical characteristics of the item and requires a detailed analysis of the item in order for it to be classified. The Department of Commerce cannot provide you with an ECCN over the telephone. However, we can assist you in understanding how to do a self-classification of the item using on-line resources and your technical understanding of the item. We can also explain the process of submitting an official request for a classification which typically takes 4-6 weeks. The Office of Exporter Services has counselors available from our Washington DC headquarters at (202) 482-4811 and our Western Regional Office in California at (949) 660-0144 or (408) 998-8806.

I don’t have time to wait for a response to my classification request. Are there any alternatives to this?

If you are not the manufacturer of the item you are exporting, the item may have already been classified by the manufacturer if they themselves export. One of the quickest ways to determine the ECCN of your item is to check with the manufacturer. Many companies list ECCNs on their website.

I’ve found an official classification done by the Department of Commerce back in 1996. Can I still use this?

The Commerce Control List and ECCNs change often - sometimes items are added to the CCL and other times item specifications are changed or removed. In addition, your item may have different technical characteristics than what was classified previously. It’s important to stay up-to-date with changes to the Commerce Control List which may affect your item’s classification.

Once I’ve determined my ECCN, what do I do?

Once you have classified the item, the next step is to determine whether you need an export license based on the “reasons for control” of the item and the country of ultimate destination. You begin this process by comparing the ECCN with the Commerce Country Chart (Supplement No. 1 to Part 738). The ECCNs and the Commerce Country Chart, taken together, define the items subject to export controls based solely on the technical parameters of the item and the country of ultimate destination.

How do I screen my customer?
Certain individuals and organizations are prohibited from receiving U.S. exports. Others may only receive goods if the transaction has been licensed, even for items that do not normally require a license based on the ECCN and country or based on an EAR99 designation. There are various lists that may be relevant to your export or reexport transaction such as the Denied Persons List and Entity List. These lists are available on the BIS website at http://www.bis.doc.gov/ComplianceAndEnforcement/ListsToCheck.htm.
In addition, BIS has guidance on its website on knowing your customer and potential red flags in a transaction at http://www.bis.doc.gov/complianceandenforcement/KnowYourCustomerGuidance.htm.

What happens if I don’t get the proper export authorization?

Responsibility for export compliance rests with the exporter. Administrative and criminal penalties exist for violations of U.S. export law. The maximum financial penalty per administrative violation is $50,000.

I’m a small businessperson. Does everyone have to follow these regulations?
Yes. Keep in mind that most low-level or dual-use products will have the designation EAR99 and be eligible for shipment under the NLR designation. Products with this designation will only require a license to certain prohibited destinations, end-users, or end-uses.

If I do have to apply for an export license, can I do it online?

Yes. The fastest way to get an export license is to use the Internet based electronic licensing system, SNAP-R. You must first obtain a PIN prior to submitting an electronic license application or classification request. For further information regarding SNAP-R and PINs, visit the BIS website at http://www.bis.doc.gov/snap/pinsnapr.htm.
The alternative is the paper application, the BIS-748P multipurpose application which is available from BIS. You must use the original form which must be typed. You can order the form by calling (202) 482-3332.
Is there someone I can call if I have additional questions or need specific guidance?
Assistance is available. The Office of Exporter Services has counselors available from our Washington DC headquarters at (202) 482-4811 and our Western Regional Office in California at (949) 660-0144 or (408) 998-8806.

Is there information available on the Internet?
Yes, additional export control information and related resources are available online at www.bis.doc.gov.

For more information on your small business, consider contacting a Seattle Small Business Attorney.

Retirement Planning for Small Business Owners

2010-02-01T08:24:00.000-08:00

While this is typically a non-legal issue, I want my to insure that my clients have a full understanding of all the issues surrounding small business owners. Thus, here are some excerpts from a an Article in the Wall Street Journal on retirement plans for small businesses.

By JANE HODGES - WSJ
Talk about control. In addition to managing themselves, self-employed workers have their own options for retirement saving, too.

The Journal Report
See the complete Investing in Funds: A Monthly Analysis report.
Two of the best options: solo 401(k)s and solo Roth 401(k)s.

Both have been around a few years but are more common now as accountants with entrepreneurial clients have become more fluent with them, says Rick Meigs, president of Portland, Ore.-based 401khelpcenter.com, a 401(k) research firm.

Their biggest benefit is they often allow for higher retirement-savings contributions than other plans. They also have less-complicated contribution rules than a Keogh, which offers high contribution potential but may require the expense of an actuary and extra paperwork.

Salt Away

Solo 401(k)s let you put away more than a Simple IRA, which allows a maximum contribution of $11,500 a year for those under 50 and $14,000 for those older, plus up to 3% of income (after adjusting for self-employment tax). More than Roth IRAs, too, which set a ceiling of $5,000 for those 49 and under, and $6,000 for those older. Unlike a Roth IRA, solo 401(k) plans also place no income limits on who can participate.

Regular solo and Roth solo 401(k)s also can allow for higher contributions than a Simplified Employee Pension (SEP) IRA at the same income level. In a SEP IRA for 2009 and 2010, entrepreneurs may contribute as much as 20% of their net business profit (up to a maximum of $49,000) if they are sole proprietors, or 25% of their salary if their company is a corporation. (Net business profit is defined as the income of the business after expenses, and minus half of the self-employment tax.)

But with a solo 401(k) or solo Roth 401(k), for 2009 and 2010 you can put into the plan 100% of your first $16,500 in income from the business (or $22,000, if 50 or older), plus 20% of net profit, until you max out contributions at $49,000 (or $54,500, if you are 50 or older).

How can an entrepreneur sock away more with a solo 401(k) than with a SEP IRA? Clint Gharib, director of managed products and insurance at J.P. Turner & Co. in Atlanta, uses the example of a 51-year-old sole proprietor whose business income was $100,000. If the proprietor used a SEP IRA, he or she could invest only 20% of $92,936 ($100,000 minus $7,064, half the self-employment tax), or about $18,600.

But the same proprietor could put $22,000 in a solo 401(k), plus 20% of $92,936, for a total of about $40,600. Under some accounting rules and business structures (if incorporated, for instance), this same entrepreneur might be able to put as much as 25% of his or her salary in a SEP IRA—but that amount would still be far less than a solo 401(k) allows.

Numerous mutual-fund, brokerage and discount-brokerage firms offer solo 401(k) plans. Among fund families that sell them through financial advisers: Invesco Aim, Pioneer Investments and OppenheimerFunds. Self-directed investors can open such plans at T. Rowe Price Group, Charles Schwab Corp., Fidelity Investments and Vanguard Group. The Roth versions are also available from fund companies and securities firms such as Invesco Aim, Pioneer, T. Rowe Price, Vanguard, ING Direct's ShareBuilder unit and E*Trade Financial Corp.

Fees vary, and can include a setup fee, annual administration fee, and routine mutual-fund fees—in addition to adviser fees. The highest fees are for those solo 401(k)s sold through insurance companies, Mr. Meigs says.

Among adviser-sold plans, Pioneer charges no setup fee but has a $25 annual fee that is waived on accounts over $25,000. Invesco Aim charges no setup fee and offers two administration options: a self-service option with a $10 annual fee or a full-service option, in which advisers choose a third-party administrator that aids with plan compliance. Fees for the latter vary but average less than $100 per year.

OppenheimerFunds charges no setup fee and annual administration fees of $10 for accounts over $50,000, and $15 for accounts under $50,000.

ShareBuilder's solo 401(k) products cost $195 to set up, and are assessed a $15 monthly fee, waived on accounts over $250,000; start-up costs are $125 for Costco members.

Russell Lowry, a certified financial planner with Sagemark Consulting Private Wealth Services in Windsor, Conn., says he has opened plans for clients at Plan Administrators Inc., a third-party administrator in De Pere, Wis., which offers adviser-sold plans featuring funds from companies such as American Funds and OppenheimerFunds. At Plan Administrators, setup costs $50, and annual fees are $150 (for balances below $250,000) or $250 (for balances $250,000 and above). Mr. Lowry also charges a fee on the plans; he says it's about 1.5% of assets annually, or less as balances rise.

Solo 401(k)s do in some cases have higher administration fees than SEP IRAs or other plans. Investors need to weigh whether they save aggressively enough to justify those fees. Another detail: With solo 401(k) plans, once accounts hit $250,000, investors are required to file annual paperwork on them to the Internal Revenue Service.

Richard Reyes, a certified financial planner in Orlando, Fla., says to help his clients decide which plan is right for them, he asks them: "How much money are you going to put away yourself? If he/she tells me less than $10,000 to $15,000, then I will always lean toward the SEP and Simple arena. If the owner says a lot more, then one is almost automatically thrown into the solo 401(k) arena."

Mr. Reyes advises that when an investor can reliably contribute at least $15,000 a year, solo 401(k) plans often make more sense than SEP IRAs.

Other Considerations
Investing benefits aside, the ability to borrow is a plus, too. The decision also involves age considerations and guesswork about future tax rules. Investors or their advisers must figure whether it's wiser to contribute after-tax now—to a Roth IRA or Roth 401(k)—or reduce taxable income now and pay tax on retirement income later—with a SEP IRA or solo 401(k).

Mr. Lowry, the financial planner, says that for entrepreneurs under 40 who want to maximize their retirement investment, he generally recommends a solo Roth 401(k) because of likely future tax increases.

The bottom line? As more workers start businesses, work as contractors or opt for self-employment, higher earners should strongly consider a solo 401(k). Even among adviser-sold plans, it's possible to find reasonably priced options.

For more information on tools to assist Small Business Owners, consider talking to a Seattle Small Business Attorney.

Cash for Coporate Clunkers

2010-01-28T21:20:00.000-08:00

Below is a article from CNN-Money regarding a new stimulus that will provide cash for hiring employees. Politics and deficit concerns aside, I'd rather see the money in the hands of my small business clients than in the hands of the government...or bank executives.

When President Obama called last month for a new tax break to spur job creation, critics blasted him for offering no specifics. On Friday, Obama plans to fill in the details: He wants to give businesses a $5,000 tax credit for each net new employee they hire this year.

Job creation "must be our No. 1 focus in 2010," Obama said Wednesday night in his State of the Union address. "We should start where most new jobs do -- in small businesses."

The $5,000 per-worker tax credit would be available to businesses of any size, and would be retroactive to the start of the year. Startups launched in 2010 would be eligible for half of the tax credit.

Obama is also proposing a reimbursement of the Social Security taxes businesses pay on increases in their payrolls this year. Firms could earn the credit by raising wages or increasing the hours of their current workers, as well as by hiring new employees. The tax credit would be adjusted for inflation, and would not apply to wage increases above the current taxable maximum of $106,800.

The proposal will cost $33 billion, according to estimates released by the White House, which expects 1 million businesses to benefit from it.

While any business would be eligible for the tax breaks, the refund would be capped at a total of $500,000 per firm, a move the White House hopes will steer the biggest benefits to the smallest companies. Firms eager for cash could claim the credits on a quarterly basis, sparing them the wait before they file their annual taxes.

Hiring tax credits have been proposed before, and shot down in part because of their vulnerability to abuse. Senior White House officials say Obama's plan includes a slew of safeguards to prevent companies from gaming the system.

For example, companies would have to show net increases in their staffing and payroll to qualify. Businesses that cut 20 workers and hire five wouldn't be eligible, nor would those that lay off a $50,000 worker and hire two $20,000 staffers.

Main Street's cash crunch: Several in Congress are already on board with the idea of tax credits for hiring. Senators Charles Schumer, D-N.Y., and Orrin Hatch, R-Utah, unveiled their plan, which has some similarities to Obama's, in an op-ed on Wednesday.

But some business owners say the idea puts the cart before the horse.

"I need money before I hire people, not after I hire them," said Jimmie Hughes, the owner of Grand America in Richardson, Texas. Hughes' 15-person company sells supplies for a range of businesses.

Jeff Moss, the owner of Pancho's Border Grill in Great Neck on Long Island, N.Y., had a similar reaction.

"In my line of work, the restaurant business, jobs are going to be created or deleted as a direct result of customer traffic," Moss said. "It is not like we are a Fortune 500 company, where we are going to be adding hundreds of jobs and those credits are going to be adding up. We are a small business. If we are adding one employee, the effect on the bottom line is going to be negligible."

My take is that the plan will be generally ineffective. If you don't need an employee, paying someone $20,000 or more to make $5,000 tax credit is simply not sound economics. Further, the enforcement is going to be a nightmare for the IRS...abuses will certainly occur and the program will be pulled within a year or two.

For more information on your Small Business, contact a Seattle Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Kirkland, WA 98033

(425) 889-9300

Hiring New Employees in Washington

2010-01-26T10:26:00.001-08:00

For many small businesses, one of the most common hiccups in the legal process is how to effectively bring on new employees. Below is an overview of the steps that should be taken when your business is able to hire new employees. All businesses are different, you should consider meeting with a Seattle Small Business Law Firm.

1) Provide a W-4 form update hiring a new employees for Federal Tax / Withholding purposes. W-4 Form Here.

2) I-9 Form to verify ability to work in the United States: Click here for I-9 Form.

3) Report Hiring to DSHS: Clink here.

4) Labor & Industries Worker’s Compensation Insurance:

This information should have been provided to you after you applied for your Master Business License). If not, click here.

5) Required Posters:

Click here for guidance on Federal Postings needed.

6) Taxes Issues:

See great IRS Publication for Small Business Taxation Issues: Click here.

Finally, you should submit a W-2 to the IRS at the closing of the year. Click here for W-2.

For Independent Contractors:

* Remember, you do not need to withhold taxes for ICs, however, the government will scrutinize the relationship to verify the relationship is not an Employee relationship disguished as a IC.

1) Gather all information regarding their business
2) Complete Independant Contractor Agreement
3) Gather an W-9
4) Treat them like an IC!!
5) Issue 1099 Misc at the conclusion of the taxable year

For more information, see a Kirkland Small Business Attorney.

Our Firm:

Weitz Law Firm, PLLC
5400 Carillon Point
Building 5000, 4th Fl
Kirkland, WA 98033

T: (425) 889-9300

What is an Incorporator - Washington State

2009-12-28T11:45:00.000-08:00

When Incorporating in the State of Washington, an incorporator will required to register with the state.

An incorporator is the person or entity in charge of setting up the corporation and filing the articles of incorporation with the state of Washington. When an attorney is hired to set up a corporation, they generally take on the role of incorporator. An incorporator may have to do some preliminary things such as gathering the initial investors and investments that are going to be used for setting up the corporation. In addition, the incorporator will definitely have to do things like prepare and file the articles of incorporation and select the initial board of directors.

The incorporator generally has broad powers up until the directors assume management of the corporation. Once the directors take over, the incorporator basically no longer has any power or management ability left.

For more information about Forming a Corporation in Washington State, please see a Washington Business Attorney.

Trademark Infringment Basics

2009-10-12T17:05:00.000-07:00

The test for Trademark Infringement is the ‘likelihood of confusion’.

If you believe someone has infringed on your trademark, contact a Trademark or Business Attorney to file an injunction against the use.

There are eight factors the Court considers:

5 most important:
1. the similarity in the overall impression created by the two marks (including the marks' look, phonetic similarities, and underlying meanings);
2. the similarities of the goods and services involved (including an examination of the marketing channels for the goods);
3. the strength of the plaintiff's mark;
4. any evidence of actual confusion by consumers;
5. the intent of the defendant in adopting its mark;
________________

3 other factors considered:
6. the physical proximity of the goods in the retail marketplace;
7. the degree of care likely to be exercised by the consumer; and
8. the likelihood of expansion of the product lines.

* first two are arguably the most important. The similarity of the marks is clearly an important part in establishing likelihood of confusion, but it is far from determinative. It is possible for the same, identical mark to be used in the same geographic area without any trademark infringement occurring, as long as the goods or services of the parties are sufficiently dissimilar.

Legal Intent: The goal is to protect consumers, not to protect trademarks. Therefore, even if the marks in question are quite similar but there is no real likelihood that consumers will be confused → there would be no harm.

For more information on how to obtain a Trademark, consider contacting an experienced Kirkland Small Business Attorney.

Buy-Sell Agreements: A Primer

2009-10-06T15:16:00.000-07:00

Washington Buy – Sell Agreement

For owners of small businesses, the buy-sell agreement is one of the most important pieces of the planning puzzle. The agreement defines the value of the owner’s equity interests in the business.

A Seattle Small Business Law Firm will help owners look at the entire life cycle of the business including the “big D’s”: death, disability, divorce.

A carefully designed Buy-Sell Agreement will accomplish many important objectives of the parties. The following are some of the key considerations:

1. Control

2. Fairness – fairly value and fund the equity interest of a departing owner
a. Valuation Methods:
i. Book value (does not include good will)
ii. P/E Ratio
iii. Appraisal at the time of the trigger event

3. Smooth transition- transitions will be smooth when issues arise

4. Market- insure that all owners have a fair ‘market’ for share at appropriate points of entry

5. Expulsion Rights – insure that owners have the right to expel an owner who is no longer wanted

6. Estate Tax Exposure – To be avoided via effective planning

7. Cash – cash and funding challenges are anticipated and covered

Buy-Sell Life Insurance Planning Options:

1. Redemption Options – Business owns the Policy

a. Down-side: no basis increase for shareholders
b. AMT considerations (Corp making over 5M must consider)

2. Cross Purchase – Owners purchase the policy

a. Shareholders get a basis increase
b. Too difficult if lots of shareholders
c. Not ideal if any of the owners has financial difficulties
d. Tax consequences are not an issue with S-Corps, and other pass-thru entities

3. Wait and See

4. In Trust

For more information on considerations for Buy-Sell Agreements for your business, visit an experienced Kirkland Business Attorney.

Choosing Your Washington Business: S-Corporations

2009-10-05T09:55:00.000-07:00

Basic Considerations:

This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free. This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.

Selecting the Form of Business Organization:

No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.

The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. Compare LLCs, or Corporations. This article will focus on S-Corporations.

S-Corporations:

One of the more mis-construed business forms available is the 'S-Corp'. Many people think the 'S' stands for 'Small'. The S actually stands for the subchapter within the Internal Revenue code that governs Corporations which elect to be taxed under the Sub-chapter S regime...thus the real name should be a 'Sub-Chapter S Corporation'.

Basics:

A corporation may be an 'S-Corporation' and not subject to federal corporate tax if shareholders UNANIMOUSLY elect S status for the corporation on a timely basis. A S-Corporation is a tax law label rather than a special type of corporation under state corporate law. Like a partnership, an S-Corporation is simply a conduit for profits and losses to shareholders. Income is passed through to shareholders and is generally taxed only once.

Qualifications:

In order to qualify as an S-Corporation, the corporation must meet certain eligibility requirements including: 1) it must have no more than 75 shareholder, 2) each shareholder must be an individual, certain trust, certain charitable organization, employee stock ownership plan or pension plan, 3) no shareholder may be non-resident alien, 4) it can have only one class of stock, and 5) it must be a U.S. Corporation.

Filing:

To timely file for S-Corporation status, the Corporation must file a Form 2553 form with the IRS by the 15th day of the 3rd month following Incorporation. Should a late filing be needed, one can look to Rev. Proc 2003-43 for guidance in filing a late S-Election.

For more information on forming a S-Corporation, please consider guidance from an experienced Washington Small Business Attorney.

Choosing Your Washington Business: Limited Partnership

2009-10-05T09:28:00.000-07:00

Basic Considerations:

This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free. This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.

Selecting the Form of Business Organization:
No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.

The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. This article will focus on Limited Partnerships.

A Limited Partnership ('LP') is a partnership consisting of one or more general partners and one or more limited partners which is established in accordance with Washington Partnership Law. Like a corporation, this entity has no legal existence until paperwork has been filed with the Washigton Secretary of State. The LP is useful when investors contribute money or property to the partnership, but not actively involved in its business. Examples of LPs include hedge funds, private equity firms, and investment groups. So long as the 'limited partner does not actively involve themselves in the management of the business, a limited partner is liable only to the extent of his involvement. General partners, however are personally responsible for partnership obligations and for each other's act on behalf of the partnership.

Tax Considerations:

For tax purposes, both general partners and limited partners are generally treated alike. Income, gain and losses of the partnership 'flow through' to them and affect their individual income taxes. At the end of each tax year, partners will receive K1 forms outlining their individual tax liability or loss.

For more information on a Limited Partnership, please consider seeing an experienced Kirkland Business Formation Attorney.

Choosing Your Washington Business: LLC

2009-10-01T16:07:00.000-07:00

Basic Considerations:

This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vacuum. Consideration as to how this decision may impact future alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.

Selecting the Form of Business Organization:

No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.

The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs. Compare Corporation features here.

Limited Liability Company (LLC):

An LLC is a form of business organization is available in Washington, as well as many other states. An LLC is essentially a Corporation which is taxed like a Partnership, but without the S-Corporation restrictions.

An LLC has fewer statutory formalities than a Corporation and is often used for a several person consulting firm or other small business.

An LLC does not provide the full range of exit strategists or liquidity options as does a corporation.

It is not possible to grant stock option incentives to LLC employees in the same manner as a Corporation.

Effects of a Sale of an LLC:

When the assets of a business are sold with a pass thru entity like an LLC, the gains realized on the sale of the assets are taxed to the owners in proportion to their interests in the business. When Members sell their interests in an LLC, the proceeds are taxed as Capital Asset gains except for the sale of 'unrealized receivables and inventory' which are taxed as ordinary income.

S-Corp Election:

An LLC may elect an S-Corp Election to lower the Self Employment Tax (currently 15.3 up to 102,000) and 2.9 above the base level. The S-Election allows the the taxpayer to take an income tax deduction of one-half of all self-employment taxes paid.

For more information on LLC, contact a Kirkland Business Formation Attorney.

Choosing Your Washington Business: Sole Proprietorship

2009-10-01T15:33:00.000-07:00

Basic Considerations:

This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vaccum. Consideration as to how this decision may impactfuture alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a professional advisor’s analysis and recommendations based on your individual fact situations when establishing your business.

A. Selecting the Form of Business Organization:

No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.

The characteristics of a Business are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs.

In my last post, Corporations were discussed. This post will focus on the least formal type of Washington Business: A sole Proprietorship.

When an individual operates a business on his own, the individual and business are treated as one. No statutory filings are required. A sole proprietor faces enormous risks in liability of business. Creditors can pursue all of the individuals assets.

Taxation: Income from a Sole Proprietorship is taxed as personal income on a 1040 Tax Form.

Because of its nature, borrowing is typically the only method to raise capital for a Sole Proprietorship, and the costs associated with forming sole proprietorship is minimal.

See a Kirkland Small Business Attorney for more information on the risks/ benefits associated with this type of business entity.

Choosing Your Washington Business: Corporations

2009-10-01T14:08:00.000-07:00

Basic Considerations:

This series of article describes certain basic considerations and costs involved in forming a Washington business. Please note that choosing a business form should not be done in vaccum. Consideration as to how this decision may impactfuture alternatives is critical. For example, converting a LLC into a Corporation immediately before the business is acquired, rather than at an earlier time, may prevent the transaction from being tax-free.This article is only an overview, particularly as to tax issues and should not be substitute for a Business Attorney’s analysis and recommendations based on your individual fact situations when establishing your business.

A. Selecting the Form of Business Organization:

No single factor is controlling in determining the form of business organization to select, but if the business is expected to expand rapidly, a corporation will typically be the best alternative because of the availability of employee incentive stock plans; ease of accommodating outside investment and greater long-term liquidity alternatives for shareholders. A corporation also minimizes potential personal liability if statutory formalities are followed.

The characteristics of a corporation are described below, followed by an overview of other traditional forms of business organizations. Each of the following factors is described for comparison purposes: 1) statutory formalities of creation, 2) tax consequences, 3) personal liability of owners, 4) ease of additional investment, 5) liquidity, 6) control and 7) legal costs.Compare LLCs.

1. Corporation:

A Corporation is created by filing articles of incorporation with the Secretary of State Washington. Corporate status is maintained by compliance with statutory formalities. A corporation is owned by its shareholders, governed by its Board of Directorswho are elected by the shareholders and managed by its officers who are elected by theBoard. A shareholder’s involvement in managing a corporation is usually limited to voting on extraordinary matters. In Washington, a president/CEO, chief financial officer/treasurer and secretary are the officer positions generally filled in a startup. All officer positions may be filled by one person.

Incorporation in Delaware?:

The reasons for using a Delaware corporation at startup are the ease of filings with theDelaware Secretary of State in financings and other transactions, a slight prestige factor in being a Delaware corporation and avoiding substantial reincorporation expenses later, since many corporations which go public reincorporate in Delaware at the time of the IPO. Delaware corporate law benefits are of the most value to public companies.

Taxation of Corporation:

A corporation is a separate entity for tax purposes. Income taxed at the corporate level is taxed again at the shareholder level if any distribution is made in the form of a dividend. The S- Corporation election described below limits taxation to the shareholder level but subjects all earnings to taxation whether or not distributed. The current maximum federal corporate tax rate is 35%. In Washington, there is no Income Tax, however, Corporations are faced with a 'Business and Occupation' (B&O) Tax, and Corporations suffer from the higher than average Sales tax in Washington Tax.

If the corporation is notproperly organized and maintained, a court may “pierce the corporate veil” and impose liability on the shareholders. The company can raise additional capital by the sale and issuance of more shares of stock, typically preferred stock when an angel or venture capitalist is investing. Though rare, the power of a court to look through the corporation for liability underscores the importance of following proper legal procedures in setting up and operating your business.Filing fees, other costs and legal fees through the initial organizational stage usually total about $3,500 to $5,000. These can be performed by an experienced Kirkland Small Business Attorney.