Category: Business & Corporate

By Ted J. Schneider, Esq.

Each year, approximately 30,000 new restaurants are opened in the United States. Most restaurateurs understand the great risk that comes with these ventures; in fact, some sources estimate as many as 18,000 of the 30,000 restaurants opened this year will fail within the first three years in business. Despite the risk, many chefs and hospitality professionals dive right in. If you’re a hopeful restaurateur, legal planning is an absolute necessity to ensure you don’t fall victim to many of the common mistakes that cause these businesses to fail. Consider the following:

Business Entity

All restaurant owners must carefully consider the best corporate structure for their businesses. Generally speaking, there are four types of structures: a sole proprietorship, a partnership, a limited liability company (LLC) or a corporation. In the case of a restaurant, most owners will want to limit liability, and protect personal assets, should there be a lawsuit filed by a customer or employee. An LLC or corporation is often recommended for restaurants since these limit personal liability. A qualified business law attorney can help you identify which structure is best for your new restaurant, and help you prepare and file all required documents.

Zoning

As any successful restaurateur will tell you, a good location is key to a profitable restaurant. In considering the location of your restaurant, you will want to take into account the local zoning laws. Some areas are restricted to residential dwellings while others may be zoned for commercial use. Do you want to have outdoor seating in the summer? That too may be subject to zoning restrictions. Be sure to carefully outline how you plan to use the space and then identify possible locations accordingly.

Leasing a Space

If you don’t have the capital to buy a space for your restaurant, you’ll likely have to rent one. In many cases, costly renovations are required (especially if the space was not previously used for a restaurant). When a significant amount of money is put into the space upfront, it’s absolutely essential that you take steps to protect your tenancy and ensure your business can afford to stay there for an undetermined amount of time. This might mean negotiating a favorable a long-term lease, and including specific clauses pertaining to rent increases. A lawyer with experience in the restaurant industry should be consulted early in the process to ensure your best interests are protected.

Licenses and Permits

Unlike many other types of businesses, restaurants often require a number of licenses and permits from local governing bodies. For instance, you might be required to obtain a license to handle food. If you want to have a bar, you will need a liquor license. Even if you plan to have patron dancing, you may be required to obtain a special permit. An attorney can help you identify exactly what you will need and help you complete all applicable paperwork.

Patron & Employee Safety

To ensure the safety of all patrons, your local governing agency may require your restaurant to undergo regular inspections from the health department. To ensure the well-being of all employees, you should also review all Occupational Safety and Health Administration policies.

Insurance

If you frequent restaurants, you’ve likely witnessed an accident or two – a server spills a hot cup of coffee all over a patron or a bartender slips on some water from the ice machine. With the risk of injury high, it’s absolutely critical that all restaurant owners select an insurance policy which protects the business against lawsuits. In selecting the best policy, speak with an insurance agent and knowledgeable attorney who have restaurant experience to ensure you are protected.

Intellectual Property

You have probably thought long and hard about your restaurant’s name, signature recipes and even your tagline. Since these components are all critical to your branding and long-term success, you should take steps to protect them. An attorney can help you register the name of your restaurant or food creation as a trademark.

Franchises

If you are purchasing a franchise, you will have even more legal considerations including the time consuming review of the disclosure document and the often daunting franchise agreement.

Opening a restaurant has its fair share of challenges, especially when compared with many other types of small businesses. By addressing potential legal pitfalls, restaurateurs can focus on operational aspects of their business and enhance their chance of success. It’s absolutely essential that you consult an attorney with experience in the restaurant industry early on to reduce risk and expense down the road.

The attorneys at Schneiders & Associates, L.L.P. are experienced restaurant attorneys, representing many food-service businesses in and around Ventura County. If you are planning to open a new restaurant, relocate a restaurant, purchase a franchise or purchase an existing restaurant, please contact us for assistance navigating the process and to avoid the pitfalls discussed above.

By Roy Schneider, Esq.

Buying a franchise can be a great opportunity for an entrepreneur to start a business using a successful operational structure of a proven model. Despite all the resources that a franchise provides, not all are successful. Unfortunately, with most franchises, you can’t just shut your doors and cut your losses; getting out of a franchise agreement can be difficult, leaving a once hopeful entrepreneur stuck in a business that may not be profitable or enjoyable to operate.

If you are looking for a way out of a franchise agreement, it’s absolutely imperative that you contact an attorney who has experience with franchise law and understands the many complexities of the franchisor-franchisee relationship. In determining whether you can terminate the agreement, you will need to carefully review the contract which should clearly outline the circumstances which must be met for either party to terminate it. If the franchisor has not met all of its duties, such as failing to send you the marketing plan and materials for the spring line, you will likely have a much stronger case for ending the relationship. Be sure to document any shortcomings or errors made by your franchisor and keep records of any correspondence which have expressed these concerns.

Even if you are able to close shop and terminate the franchise agreement without any substantial fees or legal ramifications, you may still be adversely affected by non-compete and/or confidentiality clauses contained within the agreement. Very often, franchise agreements prohibit franchisees from starting a similar business within a certain period of time and within a certain number of miles from the franchise location. Also, they may prohibit you from contacting any customers from your former franchise, severing long-time business relationships and limiting your ability to be successful with a new venture.

An experienced attorney can help you understand your rights, serve as your advocate in discussions with the franchisor and protect your best interests so you can confidently move on with your entrepreneurial aspirations. Whether you are considering purchasing a franchise, closing up shop, or simply severing ties with the franchisor, it is worthwhile to review your options with an attorney well versed in franchise matters. The business attorneys at Schneiders & Associates, L.L.P. are available to assist you in maximizing your investment and minimizing the risks associated with your franchise.

By Roy Schneider, Esq.

In starting a business, entrepreneurs are inundated with paperwork, legal requirements and numerous planning meetings. While most of these activities seem burdensome, many business owners cite financial management and record-keeping as the most daunting task of daily operations. With some businesses having thousands of transactions each day, coupled with expenses and employee payroll, it should come as no surprise that business financials can be overwhelming. With so many documents and figures, it can be difficult to stay organized and leads many business owners to question what they are required to keep and what they can simply discard.

The Basics in Understanding Your Business’ Financial Health

While it may be tedious, maintaining organized and balanced financial records isn’t an option for businesses, it’s a requirement. Not only may you have to produce these records if you are audited by the IRS but it’s likely that creditors, your bank and future stockholders will want to see these records for insight into the health of your business. Having a solid record-keeping plan early on will save you a great deal of time and energy down the line when you are asked to produce financials for your company. As a general rule of thumb, business owners should produce, and regularly review, the following:

Balance Sheet – Simply defined, this statement summarizes your company’s assets, liabilities and shareholders’ equity at any given time. It is in essence a snapshot of your company’s financial health, showing the net worth of the business.

Profit and Loss Statement – This statement summarizes the revenues, costs and expenses incurred during a set period of time (most businesses do this on a quarterly basis but some even do a monthly report). It indicates how well the business is doing in terms of buying and selling inventory (or services) and ultimately showcases profitability.

Cash Flow Statement – This document reports the cash generated and used during a set time frame. Some business models are based upon cash flow and in these cases, this report may be paramount in understanding the well-being of the business.

Financial Record Retention

While certain types of business require that special records be kept, most are not required by law to maintain a definite set of documents. As a general rule of thumb, the IRS recommends that businesses keep the following records:

Gross Receipt Documentation

• Cash register tapes
• Bank deposit slips
• Receipt books
• Invoices
• Credit card charge slips
• Forms 1099-MISC

Purchase Documentation

• Canceled checks
• Cash register tape receipts
• Credit card sales slips
• Invoices

Expense Documentation

• Canceled checks
• Cash register tapes
• Account statements
• Credit card sales slips
• Invoices
• Petty cash slips for small cash payments

Travel, Transportation, Entertainment, and Gift Expenses (only if you plan to deduct these)

Asset Documentation

• A record of when and how you acquired the assets.
• Purchase price
• Cost of any improvements
• Section 179 deduction taken
• Deductions taken for depreciation
• Deductions taken for casualty losses, such as losses resulting from natural disasters
• Documentation on how the asset was used
• When and how you disposed of the asset
• Selling price
• Expenses of sale
• Employment taxes

There are specific employment tax records you must keep for at least four years. It’s important that all business owners, and their accounting teams, review IRS guidelines for more information on these records.

There are different requirements when it comes to how long records must be retained. In determining the best financial management and record-keeping solution, it’s imperative that you contact a business law attorney to discuss your options and ensure compliance. 

The business law attorneys at Schneiders & Associates, L.L.P. can help you set up a Document Retention Policy to assure your compliance with State and Federal laws and to protect you and your business during an unexpected audit by the taxing authorities.   Please feel free to contact us today for a convenient appointment.

By Ted J. Schneider, Esq.

The difference between a C-Corporation and an S-Corporation is in the way each is taxed. Under the law, a corporation is considered to be an artificial person. Shareholders who work for the corporation are employees; they are not “self-employed” as far as the tax authorities are concerned.

The C-Corporation

In theory, before a C-corporation distributes profits to shareholders, it must pay tax on the income at the corporate rate. Then, leftover profits are distributed to the shareholders as dividends, which are then treated as investment income and taxed to the shareholder. This is the “double taxation” you may have heard about.

C-Corporations enjoy many tax-related advantages :

• Income splitting is the division of income between the corporation and its shareholders in a way that lowers overall taxes, and can avoid or significantly reduce the potential impact of “double taxation.” By working with a knowledgeable tax advisor, you can determine exactly how much money the corporation should pay you as an employee to ensure the lowest tax bill at the end of the year.
• C-Corporations enjoy a wider range of deductible expenses such as those for healthcare and education.  
• A shareholder can borrow up to $10,000 from a C-Corporation, interest-free. Tax-free loans are not available to sole proprietors, partners, LLC members or S-Corporation shareholders.

S-Corporation

S-Corporations pass income through to their shareholders who pay tax on it according to their individual income tax rates. To qualify for S-Corporation status, the corporation must have less than 100 shareholders; all shareholders must be individual U.S. citizens, resident aliens, other S-Corporations, or an electing small business trust; the corporation may have only one class of stock; and all shareholders must consent in writing to the S-Corporation status.

Depending on your situation, an S-Corporation may be more advantageous:

• Electing S-Corporation tax treatment eliminates any possibility of the “double taxation” referenced above.  S-Corporations pay no federal corporate income tax, but must file annual tax returns.  Because losses also flow through, shareholders who are active in the business can take most business operating losses on their individual tax returns.
• S-Corporations must still file and pay employment taxes on employees, as with a C-Corporation. An S-Corporation may not retain earnings for future growth without the shareholders paying tax on them.  The taxable profits of an S-Corporation pass through to the shareholders in the year they are earned.
• S-Corporations cannot provide the full range of fringe benefits that a C-Corporation can.

If you are thinking of starting a business, or currently operate a sole proprietorship, call the corporate attorneys at Schneiders & Associates for a consultation about the best way to structure your business.

By Roy Schneider, Esq.

If you have a family business or are thinking about starting one, kudos to you! There are few better ways to create tradition, meaning and bonds within a family, and a family business can be a gratifying way by which to build wealth.

Family enterprises, however, can bring conflict, legal challenges and financial distress when simple preventative steps are not taken. A business law attorney can assist you with the following issues commonly faced by family businesses:

• The absence of a succession plan. If the leader of a business dies, sells or becomes incapacitated, the business he or she leaves behind will appoint a leader, somehow, by necessity. The succession process at that point, however, will likely be complicated, and the result may not be optimal for the business or your family. An attorney can assist in identifying all of your options, and help you select one that works best for you and your business. For instance, if the business belongs exclusively to you, you can simply leave it to the person you feel should own and run it. If the business is professional in nature, such as a medical or legal practice, you can identify an outside buyer/successor and prepare him or her using a process agreeable to both of you. If the business belongs to two or more family members or other individuals, a contractual succession plan can be devised, lessening stress both now and at the time the succession occurs.
• The lack of employment agreements. It’s rare that families who start businesses together are initially comfortable discussing the particulars of vacation and sick days, wages, raises and absenteeism.  Yet these issues affect every business and will affect yours. The time for all parties to discuss expectations and rules is now, before issues arise, not later, when issues have already led to resentment and confusion.
• The failure to acquire a business license. Often, small business start-ups skip the step of acquiring a business license that may be required in a particular industry, perhaps choosing instead to wait and see whether the business will succeed. It’s important, though, not to avoid this step. By not acquiring a business license and necessary zoning permits and by not meeting other legal requirements, you expose your business not only to penalties but also the possibility of being shut down with financial and reputational consequences that accompany an unexpected closing.
• Mixing personal and business funds. The separation of personal and business funds isn’t just good business; it can save you money. When personal money “disappears” into a business owned by you and others, you’ve lost at least part of those funds regardless of how successfully they’re put to use by the business. An issue related to separating personal and business funds is that of separating personal liability from that of the business. By housing the business in a legal entity, such as a corporation or limited liability company, you can shield yourself from liabilities faced by the business.

Drafting contracts, obtaining needed licenses, negotiating with municipal entities and selecting and creating a business entity can involve complex legal issues.  If you are contemplating starting a family-owned business and you wish to ensure its success and to protect your interests and those of your family, please contact the business law attorneys at Schneiders & Associates, L.L.P. to answer your questions and to work with you in this most exciting endeavor.

Most Legal Issues Can Be Resolved Before They Even Arise. Here’s How.

By Roy Schneider, Esq.

Most people are familiar with the idea of “preventative” legal action. The term refers to anticipating legal issues and conflicts and working to prevent them, rather than solving them or “winning” them once they occur. Companies can benefit from implementing preventative legal strategies as this approach is often less expensive than litigation, mediation, arbitration, and local, state and federal fines. By working with an attorney early on in the creation of your new business, you can build a sound foundation for your company while likely saving money down the road. The following steps can serve as a great starting point for sound legal planning:

1. Establish a relationship with an attorney who can assist you with the legal issues your new business will face early on in the start-up process. When an attorney is familiar with your firm from the onset, he or she can more effectively anticipate and address legal challenges and provide solutions. Also, many business law attorneys will allow for a flat-fee relationship that enables you to address legal issues as they arise without incurring any additional expenses.

2. Determine what you want, negotiate it and memorialize it in proper legal documents. Businesses encounter disagreements with vendors, landlords, employees, partners and others. To minimize the number of conflicts, it’s important to establish written contracts for all important agreements, arrangements and accommodations.

A business law attorney can help you identify all key concerns regarding employee compensation and benefits, property usage and maintenance, relationships with suppliers and responsibility and profit sharing with partners. An attorney can ensure that, when a question, disagreement or conflict arises, your interests are written down, clearly stated and legally protected by a mutual agreement with the party in question.

3. There are many exciting steps in starting a new business venture; selecting the type of legal entity the business will be is rarely one of them. Yet, it’s important to select a business structure early. Corporations offer numerous advantages but also require officers, boards, articles of incorporation and other formalities. Partnerships and sole proprietorships are simpler than most other business structures but open owners to potentially costly liability. Limited liability companies offer a middle ground for many, providing a liability shield and comparative simplicity. A business attorney can help you determine which business structure will work best for you by taking into account tax planning, location and other key considerations.

Even with preventative legal planning, a lawsuit may arise. If it does, it’s important to approach it from a business, not a personal standpoint. This strategy can help you make decisions that are best for your company’s future, keep your focus on the day-to-day needs of your business and avoid unnecessarily disclosing information.

For legal advice and hands-on assistance during the formation and continued operation of your business, and to develop a strong relationship with a solid business-centered law firm, contact the attorneys at Schneiders & Associates, LLP for a consultation.

Schneiders & Associates, L.L.P. is a multi-service law firm located in Oxnard, California with a focus in business related matters.

By Roy Schneider, Esq.

Like most relationships, business partnerships frequently experience highs and lows, with periods of both prosperity and turmoil. When ongoing disagreements cannot be resolved, or one partner decides to leave the business, the remaining partner(s) often seeks to buy out the shares of the departing party. If there is no shareholders’ agreement in place, and the partners are in agreement, the dissolution of the partnership can usually be accomplished with the help of a qualified business law attorney and a CPA.

If the business is a corporation, the purchase would likely be structured as a stock sale. In essence, one party would purchase the exiting partner’s shares of stock in the corporation, in exchange for the purchase price. The purchase price could either be paid up front at the closing, or some, or even all, could be paid to him over a period of time. If any of the purchase price is to be paid over a period of time there normally would be a promissory note that the remaining partner(s) would sign documenting that the departing partner is owed the money, and providing for payment terms. These payment terms would include the interest rate, number of payments, and frequency of payments. Typically the remaining partner(s) stock in the company would be pledged as security for the repayment on the note. If the business is not a corporation the steps would be similar but slightly different.

Prior to the dissolution of the partnership, all parties must consider whether the business has any debt. If it does, all partners will need to carefully review the loan documents to make certain that the partner’s departure from the business does not trigger some type of acceleration of the debt. In a small business it is normal for a lender to require the business owners to personally guarantee the debt. So, if this is the case, the business may need to negotiate with the lenders to get the exiting partner released from the debt.

Another item to consider, which should be explored with the guidance of a qualified tax advisor, is whether the partner’s sale of the business to the remaining partner(s) will trigger any taxes. This may be more so from the departing partner’s standpoint but there may be some capital gains taxes that will have to be paid and all parties should get appropriate advice.

Finally, if there is real estate involved that is used by the business, there may be steps that have to be taken to address that. Perhaps the business leases office space from someone else. The business will need to make certain that the change in ownership does not somehow violate the lease and if it does, the partners should seek the landlord’s consent. If the departing partner has personally guaranteed the lease, the remaining partner(s) may need to negotiate with the landlord to release the exiting party.

The bottom line is there are many factors that come into play when dissolving a business partnership. An attorney should be contacted before any decisions are made to ensure all of the necessary details and consequences are considered in the preparation of a purchase agreement.

Before facing the possibility of dissolution of your business due to dissention among the owners, we recommend a comprehensive buy-sell agreement. If you would like to learn more about such an agreement or have one prepared for your business, please contact Schneiders & Associates, L.L.P.

By Roy Schneider, Esq.

Much like the blueprints that help a contractor build a house, your business plan is an essential component of your start-up activities, helping you define where you want your company to be within a few years and how you plan to get there. Business plans can vary from simple, one-page documents to lengthy tomes.

Once created, your business plan is not set in stone. Your company will naturally evolve over time and be influenced by outside factors. As such, successful entrepreneurs consider their business plans to be a work-in-progress, to be updated to reflect changes in the marketplace. The important thing to remember is that a good plan includes only the information you need, nothing more and nothing less.

Some successful entrepreneurs have abandoned the old notion of lengthy business plans containing extraneous information. As the company evolves, much of a comprehensive document may become obsolete and have to be discarded. Or, worse, you might find yourself so invested in the plan itself that you resist changes that may be beneficial to the company. Instead, think of a business plan as the following four items:

• A description of the business and leadership team
• A well-defined target market
• Competitive advantage(s) of your product or service
• Three years of projected financial statements

When you are in the early stages, attempting to secure the first round of capital financing, investors are most concerned with the leadership team and what they are going to do. In later stages, the financial data takes on a more pivotal role. Care should be taken to focus on your target market and the overall concept, rather than getting bogged down in the details of a complicated business plan. Potential investors will be closely examining many areas of your business plan, including the team, target market, product or service you offer and financial projections.

Your Leadership Team

The best start-up business teams include a mix of varied strengths that complement each other. The individual who will be managing the business and developing the products or services offered are of the utmost importance.

The Target Market

Your business plan must describe the target market sufficiently to convince investors that you will have customers and that there is a need for whatever it is you have to sell. Be realistic, and include parameters such as the size of the market and the competition.

Competitive Advantage

What is your competitive advantage? Is it something unique about the product or service your company offers?  And if you do have a killer concept, what prevents a competitor from copying it? What is the barrier to entry? If the product or service itself is not unique, be sure to demonstrate how you intend on marketing it in a way that sets it apart from the competition. 

Financial Projections

Provide a reasonable estimation of what your profit and loss will be over the course of the first few years of business operations. Of course, this estimate is subject to change, but it will provide some guidelines to let investors, and your leadership team, know what milestones you expect to meet along the way.

Share your business plan with your professional advisors and solicit their feedback before you share it with your potential investors. Above all, make sure you demonstrate to would-be investors that you have carefully and realistically thought through your business plan, and that you are prepared to make changes along the way when adjustments are necessary.

A business plan contains sections that pertain to the law and regulations regulating your business. The legal sections of your business plan should be carefully reviewed by a knowledgeable business law attorney.

The business law attorneys at Schneiders & Associates, L.L.P. can assist you in drafting your business plan so that it clearly describes the legal issues that you wish to address with your potential lenders or investors. If you would like us to assist you in this regard, please give us a call.

By Roy Schneider, Esq.

If you are starting a new business venture, it is vital that you assemble your team of advisors immediately. Many entrepreneurs are short on cash during the start-up phase and forego hiring of legal counsel or other professional advisors in order to preserve capital for other aspects of the business venture. But this approach is usually penny-wise and pound-foolish. Especially since many small business start-up lawyers are a lot more affordable than you think.

Your attorney can be an invaluable member of your team of advisors. Business attorneys have seen first-hand the mistakes entrepreneurs make and know how to structure transactions to avoid them. It is best to consult with an attorney early on in the process, before you formally organize the company because the foundational issues are critical to the long-term success of your new venture.

There are many issues to be considered; and the earlier you do so, the better. You’ll want to ensure you choose the most advantageous business structure. From C-Corporations to S-Corporations to Limited Liability Companies and other hybrid entities, you have many options. They must all be carefully considered, in light of your particular situation. How many owners and who they are, liability issues, licensing restrictions, and anticipated profits all play a role in determining what type of entity affords you the most asset protection, and costs you the least in taxes.

During this foundational process, your legal advisors can also help you determine equity splits, which can save you headaches down the road. For example, it is generally advisable to avoid dividing business ownership according to percentages. Doing so can create problems later if additional investors need to be brought in. However, if the appropriate number of shares are authorized at the outset, and issued according to a plan for long-term company growth, you ensure your company can access capital in the future.

Vesting schedules can also be established before stock is issued to the company founders, enabling the initial shareholders to obtain full ownership rights to their shares over a period of time. However, this may not be advantageous in every situation, and must be carefully considered.

Even after your initial formation is complete, there are still a number of legal issues that require your attention. There are agreements to negotiate which may include leases, employment contracts, independent contractor agreements, customer purchase or service agreements and many more.

Steps should be taken early on to protect your intellectual property. Depending on the nature of your business, you may need to obtain and enforce patents and copyrights. If your company has a “brand” you will likely want to obtain a federal or state trademark to protect it for your own exclusive use.

The federal and state employment regulations can be onerous. From verboten interview questions to potential allegations of discriminatory hiring practices, a start-up lawyer can help you avoid the pitfalls and ensure you have a happy, productive work force.

Finally, your attorney can help you identify and secure other professionals and services, such as accountants, recruiters, bankers and even start-up friendly print shops and website development and hosting services.

If you are thinking of starting a new business or purchasing an existing business and would like to know more about the legal ins and outs and how best to structure your organization, please call us for an appointment with one of our knowledgeable business attorneys.