Making It Legal:

Today’s Basic Training question can be answered simply with a Sarah Palin-esque answer:  “You betcha!”

Q: Are you required to add state taxes to online business?

A: Even though online businesses don’t have the same physical “presence” as their bricks-and-mortar counterparts, they are still required to charge sales tax (and remit it to the local authorities) on all sales within their state. Generally, you’re not required to charge sales tax for sales made to out-of-state residents. But all that can change in a heartbeat, especially in a tough economy where legislatures are looking for ways to fill the public treasury (in other words, raise taxes). Because the rules and the tax rates can change, make sure to stay in touch with your accountant to get set up properly and stay apprised of new developments.

In my practice, I’m finding that the IRS and Department of Labor are getting more aggressive about enforcing the proper classification of workers. Essentially, they want to be sure that you’re not hiring a worker as an “independent contractor” (thus avoiding the payment of employment taxes), yet treating him/her as an employee by micromanaging every aspect of how the work gets done. 

There are subtle nuances between an independent contractor and a part-time employee, largely centering around the issue of “control.” How much control do you have over how the work gets done, when and by whom? Getting on the wrong side of that balance could cost thousands of dollars in unpaid employment taxes, plus interest and penalties.

Bill Bischoff’s article in the Wall Street Journal online sets out some handy distinctions, in addition to suggesting you look at IRS Form SS-8, which lets you know the factors the IRS considers in making its determination.  For more on the issue of control, check out my article, “Walking The Employee-Independent Contractor Tightrope,” available at GreatBusinessLawTips.com.

When leaving a business partnership, entrepreneurs often overlook the fact that untangling the details of the business can go on for months after the date of departure. Here’s one of the problems that can arise if you haven’t worked the appropriate safeguards into the exiting process:

Q: We separated from our former business partner in the 3rd quarter 2008, at which time he took over the entire company. Earlier this year he told us he would need to file an ‘08 tax extension for the company because he wasn’t able to pay any amount owed at filing time AND he still owed the CPA from the last year’s services. We also found out that he has not provided the CPA with any of the company’s tax documents from ‘08 and has missed the corporate extension deadlines. 

Even though we filed for an extension, paid an estimated amount and have submitted all our personal tax documents to the CPA (we all use the same guy), our personal tax filing is in limbo pending information from the company’s filings.

How can we move forward and what can we do to force our ex-partner to get the paperwork in?

A: Assuming you have the right provisions in your business separation agreement, your former partner is in breach of contract. The next step is to send a lawyer’s letter demanding copies of the company’s financial statements and possibly threatening a lawsuit to compel him to turn over the documents. There’s no reason he can’t run basic P&Ls, balance sheets, etc., to at least give you a baseline (unless, of course, he hasn’t done any bookkeeping since you left him). That said, you may have the ability to amend your tax returns once you get this information, so all is not lost–but it is inconvenient. It might be worth exploring with your accountants whether you can “extrapolate” the company’s earnings (bearing in mind that you were only present for three quarters of the year) from what you knew of the company’s financial situation as of the date you parted company. Ideally, the ex-partner should be held liable for any costs and fees you may have to incur if he didn’t meet his contractual obligations.

You may also want to reach out to an independent accountant for guidance, just to be sure that your CPA is giving you fair and unbiased advice, and isn’t tainted by any conflict of interest.

My colleague Rush Nigut recently posted a piece in his blog about a little-known provision of Iowa law that could invalidate shareholder agreements after 10 years.

Think about it: You’re humming merrily along with your business partner, thinking you’re covered (because of COURSE, you hired an attorney and worked out an agreement), and your partner gets hit by a bus and dies. Your partner’s spouse (whom you’ve never really gotten along well with) looks at the agreement, and sees that it’s invalid because you signed it 12 years ago. Brings a lawsuit to get hold of the “dearly departed’s” share of the business. All of the careful buyout formulas and procedures you’ve thought through go down the toilet.

Your state might not have this law on the books . . . but maybe it does. Have you checked?  Have you dusted off that agreement to make sure that it still meets your needs after time has passed? Are the same owners involved in the business? Does the valuation formula make sense in light of changes to your business? These are issues you should revisit periodically with counsel.

And there are a number of other legal issues that may be due for a checkup.  To have a good sense of what they are, get your copy of my Legal Health Checklist, available at GreatBusinessLawResources.com–and make sure that your business records and practices are fortified against potential claims and lawsuits.

Q: Is there is a way for one to tell whether or not one is personally liable for a business credit card?

A: If the card is in your name along with a company name and the credit card statements are addressed to the company, that c-o-u-l-d be an indication that the account is in the company name alone. But that still wouldn’t answer the question of whether there’s a personal guaranty underlying it.

The best way to check is just to call the credit card company and ask. And see if it will provide you with a copy of the initial credit agreement that you signed. In the future, make sure you keep a copy of all credit card applications so that you know for sure.

Here’s an encouraging story about how someone fought back against a Twitter-jacker–and won!  StartUp Nation founder Rich Sloan outlines how he found out that someone had co-opted StartUp Nation’s identity on Twitter and the steps he took to resolve the situation . . . and without incurring huge legal fees.  Read through the comments, too, as they provide sound advice about the need to monitor your company name and trademarks on a regular basis.

Inspirational, thought-provoking and handy is this list of 101 Tips from 50 Small Business Bloggers, compiled by Gregory Go.  I particularly liked fellow attorney Anthony Cerminaro’s comment:  “If you don’t like what you’re doing, try something else.”  Kinda reminds me of the comedian Henny Youngman’s comments:  “If at first you don’t succeed … so much for skydiving.”

“She Takes on the World” is not just a glowing compliment my husband gives about me (and, frankly, could pertain to many of you)–it’s the name of the award-winning blog by Natalie MacNeil, media producer, entrepreneur, former ambassador and Stevie Award finalist. Listen in as we cover why she felt a code of ethics was necessary for her growing business, and how she made the choice to take on a business partner for her new venture after years of solopreneurship.

Q: Does an S Corporation protect your personal assets?  It has become obvious I need help with this.  Any ideas you have would be very much appreciated.

A: Generally, yes, a corporation will protect the business owner’s personal assets.  The “S” in “S Corp” is merely a way of designating the way in which the corporation will be taxed.

However, there are circumstances where people can come after the business owner personally, despite operating as an S Corp.  They include:

• Payment of payroll taxes
• Payment of sales taxes
• Failing to maintain certain corporate formalities–for example, not having a separate bank account for the business, not preparing annual minutes for the corporation, not issuing stock certificates, inadequate capitalization or siphoning the assets from the corporation in a way that leaves it unable to pay its debts.

There are other entities (like an LLC) that can protect your assets, too–again, provided you follow the formalities. But asset protection is not the only reason to choose an entity.  Speak with your attorney and your accountant to figure out which form would best meet your needs.

Inc. magazine swears that there’s still angel investment funding out there for the right businesses.  Well, OK, maybe “swear” is too strong a word.  Still, the articles “Angels Are Still Interested” and “Angel Investing 2009” paint the picture that, while perhaps not quite roaring like a mighty river, angel investor financing is more than just a pathetic trickle.

Because angel investors are being far more cautious than in years past, entrepreneurs need to put far more thought into how they attract angels.  You need to:

• Have experienced people on your management team, preferably ones who have weathered economic volatility
• Revise your game plan to reflect the changed economic realities
• Do some soul-searching to see if you’re really passionate about your business idea
• Demonstrate an expert knowledge of your market and the discipline to follow thought

For more information on where to find these angels, check out Inc.’s guide to angel-investor networks, available in the hard copy of the magazine (sorry, folks), where you’ll also get more tips (like the ones above) from Kasey Wehrum about choosing the right angel . . . and getting chosen .

With so much stuff on the internet available and ripoff-able, what steps can we take to fight back?

Q: I have several blogs, and I wrote several articles that I have published to article directories. Doing research on my topics I found my article posted on another website and another author put his name to it. I e-mailed the author and he said he didn’t put that there, he never saw the article, and I asked him to take it down. Well, it’s still there.  What should I do?

A: If the article is still there, it could be for a couple of reasons: 1. Either the “author” is telling fibs, thinking you won’t do anything or 2. there’s a technological glitch somewhere that the “author” doesn’t have access to correct.

Under Section 512 of the Digital Millennium Copyright Act, you can write to the website/blog service provider to alert the provider to the situation.  Be sure to include the following information:

1. Your name, address and electronic signature.
2. The infringing materials and their internet location or, if the service provider is an “information location tool” such as a search engine, the reference or link to the infringing materials
3. Sufficient information to identify the copyrighted works (e.g., the title and link to the article)
4. A statement by the copyright owner (you) that you have a good-faith belief that there is no legal basis for the use of the materials complained about, and
5. A statement that the notice you’re sending is accurate and, under penalty of perjury, that the complaining party is authorized to act on the behalf of the owner (e.g., the “owner” may be your company and you’re the president; or if you’re one and the same, say that you are bringing the complaint individually and you are the individual owner).

Once you send the notice, the service provider is required to remove, or disable access to, the material.

Here’s an example of not-so-smart tax planning:  doing nothing.

It doesn’t take a lot to sit down with an accountant to explore the deductions and credits you’re entitled to as a small-business owner.  For a great overview of the top issues, visit Wells Fargo’s newly released webcast on Smart Tax Planning for Your Business, part of the bank’s series of webcasts for small-business owners.  Moderated by Rich Sloan of StartUp Nation, the panel features Carol Sanchez, CPA, Bruce Willey, JD/CPA, and moi.