Business and Tax Lawyer Blog

While practicing law in northeast Florida, Wood, Atter & Wolf is often contacted for business advice regarding forming, operating and dissolving corporate entities, partnerships and limited partnerships by businesses operating outside of Florida – from just across the Florida border or, due to the reach of the internet, by businesses located many states away. Matters involving the creation or dissolution of businesses “created” within another state are often referred to attorneys located in the business’ home state. Why is this? It is because a business entity is considered a “creature” of the state in which it is created–with its governance, creation, operational restrictions and dissolution established and governed by the rules of that state. A Florida Corporation operates under the rules established by the Florida legislature. Further, as the establishment of partnerships is an area fully given to the states, each state and the District of Columbia has its own statutes and common law principles that govern partnerships, both their establishment and dissolution.

The formation and operation of Florida partnerships is governed by Chapter 620, Florida Statutes. The Florida Revised Uniformed Limited Partnership Act was enacted in 1986. In 1995, the Florida Legislature completely rewrote Florida partnership law and repealed numerous sections of the Uniform Partnership Act. The Florida Legislature also adopted the Revised Uniform Partnership Act, as well as authorized limited liability partnerships. As of January 1, 1998, the Revised Uniform Partnership Act governs all Florida Partnerships.

Dissolution under the Revised Uniform Partnership Act: Pursuant to the Revised Uniform Partnership Act, a partnership is dissolved and its business must be "wound up" upon the occurrence of certain events:

1. Withdrawal of a partner other than a dissociated partner;

2. Express will of all the partners;

3. The occurrence of a specified event or expiration of the term or completion of the particular undertaking set forth in the partnership agreement;

4. Expiration of 90 days after a partner's dissociation by death, wrongful dissociation or as otherwise set forth under applicable Florida Statutes (unless the majority of the remaining partners, including rightfully dissociated partners, agree to continue the partnership business);

5. The occurrence of an event making it unlawful to continue the partnership, unless the illegality is cured within 90 days after notice to the partnership and the cure is effective retroactive to the date of the event; or

6. A judicial determination that the economic purpose of the partnership is frustrated, it is not reasonably practical to carry on the business of the partnership or that it is equitable to wind up the partnership business.

Continue reading "Dissolving a Partnership" »

So you've taken a great idea, formed a plan, created a blueprint for how to get the attention of your customers and acquired the appropriate amount of start-up funding. Now you face your next big decision - what type of business organization is best for you? Possible organization structuring can include partnerships, corporations, sole proprietorships and limited liability companies. There are key differences between these structures that can impact your business' management, your taxes and your day-to-day operations.

Sole Proprietorship:
A Sole Proprietor is, basically, you. You may elect to operate your business under your own name or under a descriptive "new" name. The descriptive new name can be linked to you by the filing of a Fictitious Business name with Florida's Secretary of State. While the Sole Proprietorship structure is the simplest and least bureaucratic form under which to operate a business, it fails to protect your personal individual assets from litigation/claims by unhappy business customers, vendors or guests or from the debts of the business.

Partnerships:
A "partnership" is typically an agreement between two or more people to finance and operate a business. The "creation" document is generally referred to as a Partnership Agreement. Partnerships, unlike sole proprietorships, are a legally separate entity from the partners themselves. Contractual obligations are made with the entity, not the individual partners. Taxation does not occur at the entity level, but rather is passed through to the partners. With regard to liability for claims by unhappy business customers, vendors or guests, or claims against you for business debts, the partnership structure does not protect the partners from personal liability for the obligations and debts of the business. The partners share responsibility and authority regarding operating the business. However, partners have the flexibility to define their relationship among one another and are permitted to split the ownership and profits of the partnership in the way they desire. Partners can also share equity interests - ownership interest in the partnership, which helps in building capital. As partnerships are based on a shared ownership concept, the actions of one partner can bind the whole partnership.

Corporations:
Florida corporations are created under Florida law and basic "creation" documents generally include the Articles of Incorporation and the Bylaws. The basic attributes of a corporation and what distinguishes a corporation from other business organizations include: (1) limited liability of the corporation's directors, officers and managers and (2) a corporation's potential for perpetual existence (the corporation exists independent of the lifetimes of its directors, officers, etc.). The corporation can initiate a legal suit, as well as be sued. The corporation may also have the status as a separate tax payer. Many of these attributes are considered advantages of this form of business organization. However, the multiple levels of management (shareholders, directors and officers) will present certain administrative requirements for you in operating the business.

Limited Liability Companies:
The basic "creation" documents for a Florida Limited Liability Company (or "LLC") will include the Articles of Incorporation and the Operating Agreement. The management structure of the entity is designated in the Operating Agreement. The owners of the LLC are called members. Liability of members of the LLC is generally limited to each member's investment in the LLC. An exception to that protection from personal liability can arise in the event an individual member engages in unlawful actions in relation to a claim against the LLC.

If you are thinking about starting a business, contact Wood, Atter & Wolf, P.A., to speak with a business attorney and discuss the advantages and disadvantages of the various business organizations.

All kinds of business-related areas saturate financial news, especially stocks and bonds. However, many novel investors start out by investing in projects involving real estate or small business-start ups. These same investors typically choose to fund their new projects or small business start-ups with family members or close personal acquaintances - thus, forming a partnership. Partnerships usually start off well, everyone being optimistic about the future or the new project or business. A harsh reality is that business partnerships can dissolve for a variety of reasons - including, but not limited to, a falling out between the partners to a change in circumstances for one partner that prohibits him/her from further working with the partnership. Whatever the reason, the outcome is inevitable - the partnership must be dissolved. Dissolving a partnership brings about major changes to the the business structure and to the personal lives of the partners. If faced with dissolving a partnership, certain steps should be taken as early as possible to ensure a smooth transition.

1. Any licenses, permits and certifications there were received in the names of both partners names (or multiple partners) should be canceled.
2. Remove the exiting partner from any joint bank accounts that pertain to the business
3. Notify the IRS and creditors of the split. Also, ensure that all taxes and debts of the business are paid timely regardless if the business survives the dissolution or the partnership.
4. Consult with a Business Attorney in your local area and/or state to ensure there are no legal ramifications for dissolving the Partnership.

Contacting a Business Attorney is critical if considering dissolving a partnership. An attorney is extremely helpful in dissolving a partnership for several reasons. For example, your business may be operating under a certain name and will not continue to operated under that same name after the partnership is dissolved. If you anticipate a possible name change for your business, certain paperwork needs to be filed to the county clerk's office - an attorney in your area will know exactly what paperwork needs to be filed and will do so timely. Also, if a partner is being bought out by other partners, an attorney can draft a contract specifying what are being purchased. If considering dissolving a partnership contact Wood, Atter & Wolf, P.A., to consult with an experienced Business Attorney.

The State of Florida defines a partnership as the association of two or more persons to carry on as co-owners of a business for profit. Under Florida's Uniform Partnership Act ("UPA"), no filing is required to form a partnership. Therefore, people often find themselves in "inadvertent partnerships" as case law holds that "intent" of the parties defines the relationship. Specifically, the requisite intent to the formation of a partnership is not the subjective intent to be partners, but rather if the parties intended to conduct a for-profit business as co-owners.

One fundamental misstep that befalls most partnerships is their failure to put the partnership agreement ("PA") in writing, even though it is not required. The UPA provides much flexibility with respect to the parties' relationship within the PA. In the absence of a writing, or PA, the statute itself attempts to provide a body of default rules that would best serve a small, informal partnership. Therefore, partners should spend time anticipating issues (whether positive or negative) and address them in the partnership agreement.

Other issues facing partnerships pertain to payment of taxes, the difference in payment for employees and business partners, as well as the division of labor between the parties.

One key to a successful partnership is being able to identify each partner's strengths and weaknesses, and adjust to fit each partner in the day-to-day operations. It is also beneficial to hire a skilled attorney to help identify potential issues in order to negotiate a partnership agreement that's main purpose is to avoid conflict.

To learn more about this article, visit Fix a Strained Business Partnership Now.

Continue reading "How Do You Maintain Successful Partnership?" »

With Florida unemployment rates at high levels, many displaced employees – executives as well as workers – are examining opportunities to start their own businesses. Deciding on the right structure for that business is an important step in starting the new business off on the right footing.

The proper structure – LLC, corporation, partnership or sole proprietorship – depends on what kind of products or services your business will provide, the owner's appetite for structure and their financial situation. Here are some factors to consider when choosing a business ownership structure:

Complexity – if you are starting your business without a lot of capital and will be essentially operating on a shoestring in the beginning, you may wish to choose a simple structure, like a sole proprietorship or partnership. Corporations and LLCs are more complex corporate structures and more expensive to maintain, requiring careful record keeping and certain operational formalities.

Risk – if you are operating an inherently risky business – for example, trading stock or involved in construction – you will probably want a structure that provides personal liability protection to shield your personal assets from the risk of business claims. A multi-member limited liability company (LLC) or corporation provides this kind of protection. The law in this area (especially with regard to the LLC structure) will be in a state of flux for a period of time due to a 2010 case as to a Florida LLC's ability to shield your business from personal claims. Likewise, a standard corporation will also provide protection from liability.

Taxes – taxes on business profits for partnerships, LLCs and sole proprietorships are all reported the same way: on the personal income tax returns of their owners, who must pay income taxes on all net profits. A corporation may file an S-Corp election to receive the same tax treatment; otherwise corporations pay corporate taxes at special rates on any profit at year's-end.

Raising Capital – a corporate structure allows you to sell shares in your business to raise investment capital. You also may raise capital through bank loans, SBA loans and other government loans as well as from entrepreneurial groups investing in your business.

If you are considering starting your own business and need information on your structure options, contact our Jacksonville, Florida business and tax law firm.

Despite the still lagging economy, a tiny Riverside bicycle shop in Jacksonville, Florida opened its doors in February of 2010 – and racked up 100 sales and 500 Facebook fans in its first month of operation. While the store, called ZenCog, considers itself a high-tech business, it sells a very old-school product: steel-framed, single speed, coaster-braked bicycles.

Co-owner Garfield Cooper of Avondale, Florida actually attributes the store's success to the poor economy. He says that people can't afford to spend lots of money on their cars, so bikes make a great alternative. And the old-school type of bikes that he sells are inexpensive to maintain since they don't have gears or brake cables.

Co-owner Clark Schaffer of Atlantic Beach, Florida believes that the store's more durable steel frame bikes are the perfect alternative to what he calls "disposable aluminum high-performance bicycles" that cost a lot more to purchase and maintain.

Shaffer and Cooper say they just want to see more people riding bikes; it is great exercise and doesn't pollute the atmosphere. The store has already attracted a fan base of local residents who come by the shop just to hang out.

This is an excellent example of a business finding a niche that can flourish in current economic downturns and recognizing how to "touch" its market segment. Even though their product may be old-school, their business model isn't. The store has embraced social media marketing, with an active website, blog and Facebook page. They use emailed receipts to cut down on paper waste. They also don't carry any new inventory. They use the internet to help customers customize bikes, which the store then assembles for them when the parts arrive. The only bikes they keep on site are consignment and refurbished.

Find out more about Jacksonville, Florida's newest bike shop at New Riverside bicycle shop cruising along despite economy.

Continue reading "New Jacksonville, Florida Small Business Racks Up Sales Offering Perfect Product for Down Economy" »

The Beaver Street Enterprise Center is a small business incubator that opened its doors in Jacksonville, Florida in 2003. It was established by the nonprofit group, FreshMinistries, to nurture small businesses by providing entrepreneurs with reasonably priced office space, mentoring services and opportunities for networking with other business owners.

In the incubator’s first year, fifteen fledgling businesses provided jobs for sixty two Floridians. By 2007, the center’

s businesses provided almost five hundred jobs to Florida residents, most of them from Jacksonville. The total revenue produced by these businesses has grown to close to $10 million.

Successful businesses to come out of the incubator include A. Harold & Associates, Xeye, Inc., and a Burger King Franchisee who owns six Burger King stores. The University of North Florida’s Small Business Development Center also has a presence there. Most come for the $10 per square foot office rent, but stay for the networking and relationships. Entrepreneurs credit the center with providing them the focus they need to build their businesses, the contacts with other business owners who can provide guidance, and the opportunity to meet local bankers who can help finance their operations.

The Beaver Street Center is currently home to fifteen small business tenants, and has room for two more. The Center also supports fourteen home-based businesses with shared office space, equipment and training. In addition, the Jacksonville Hospitality Institute offers a nine-week course, held in the Center, which prepares students for a career in hotels or restaurants.

Find out more about this small business incubator at Jacksonville small businesses get chance to grow on Beaver Street.

If you live in the Jacksonville, Florida or Orlando, Florida area and run a small business, please contact Wood, Atter & Wolf, P.A. for business legal counsel.

LLPs allow for all of the partners to share in management, and in case liability arises (for malpractice or negligence only), the offending partner is personally liable. Just like any other partnership, LLPs have pass-through taxation. Forming an LLP requires a certified registration.

The advantages of the LLP are: all partners can participate in the management of the company, no personal liability on any of the individuals (with the exception of malpractice or negligence), and taxation passes through to the individual.

The disadvantage of the LLP is the mandatory state registration.

In a limited partnership, there are two classes of partners: general and limited.

The general partner is the one who runs and manages the business, oversees the day-to-day operations, and incurs personal liability on behalf of the partnership. The limited partner is simply a silent investor who typically has no management functions, and is liable on behalf of the partnership only to the extent of the amounts of money invested.

A limited partnership also features "pass through" tax treatment. For a limited partnership, a certificate of limited partnership must be filed. Limited partnerships can also be formed with a corporate general partner. What this means is that the partnership can be formed between an individual and a corporate entity. When in this form, Florida law allows the limited partners to engage in management, but by engaging in management, the limited partners incur personal liability. When a partnership involves a corporate general partner, a certificate of registration must be filed with the state.

The advantage of a Limited Partnership is that there is no liability to the limited partners for financial shortages outside of initial principal.

The disadvantages of a Limited Partnership are that the general partner is liable for any financial shortages outside of the initial principal, and the general partner bears all the risk but no liability beyond his own assets.

In a general partnership, agency theory applies wherein each of the partners can bind the entire partnership. Each partner also incurs personal liability, but benefits from what is termed "pass through" tax treatment. "Pass through" tax treatment means that although the partnership files an information sheet with the state, income passes through the entity and is taxed via each partner's individual tax return. A partnership requires some form of an agreement (in writing or oral) but this document does not have to be filed with the state.

The advantages of general partnerships include: no individual liability, taxation passes through to the individual and the entity itself is not taxed, flexibility to expand the scope of the business, the ability to spread losses, and no filing formalities involved.

The disadvantages are that the you may be liable for others, management control is divided, and others can speak for you and bind the partnership.

Before registering a business, every new business owner is confronted with the task of deciding what business form/entity to use.

Well, the basic common business forms come in 6 flavors. They are the sole proprietorship, the general partnership, limited partnership, limited liability partnership (LLP), limited liability company (LLC), and the Corporation.

This is the first in a seven-part series, where I will provide a brief introduction to the options that best suits a business owner's needs.

In Jacksonville and northeast Florida we have just about all of them—McDonald's, Starbucks, and Dunkin Donuts; I am talking about the major franchises in the growing business of selling specialty coffee drinks. Recently, I posted a blog on succeeding in difficult economic times by finding a niche (Lucrative Niches +Established Marketplaces =Better Chances for Franchise Success). In that blog I explained that one way to be successful in a tough economy is by finding a niche that separates your company from the other businesses in the same market.

In this blog I would like to show you how the few franchisors I already listed, along with Tim Hortons and Caribou Coffee, a couple of the other major players in the specialty coffee market (neither of which have locations in Jacksonville), use their niches in the coffee and food chain restaurant business to compete. Here is a brief explanation of what helps each of them succeed in garnering a portion of the market share.

McDonald's, the largest franchisor, uses its buying power to provide the product at a slightly cheaper price and sells it along with its wide array of breakfast and burger meals.

Starbucks is probably the originator of the specialty coffee boom, so it can rely on the fact that it was the first in the market and that it is primarily a high-end coffee business.

Dunkin Donuts combines its primary product, donuts, with coffee to reach its particular market, and prior to Tim Horton's entering the marketplace, Dunkin Donuts, was the only one of these businesses offering its customers a wide array of donuts. Dunkin Donuts has recently added breakfast sandwiches in order to compete with McDonald's and Tim Hortons.

Tim Hortons, like Dunkin Donuts, sells a wide variety of donuts, but it also sells breakfast sandwiches and other foods, including soups and lunch sandwiches.

Caribou Coffee, the only other primarily high-end coffee focused chain besides Starbucks, competes by selecting smaller unexploited markets to locate its stores, avoiding direct competition with Starbucks.

Whatever your business is, you can still find a way to compete in a crowded market by finding your niche. Drop me an e-mail and let me know what you think. As always, I look forward to hearing from you