In a recent meeting with a new client prospect, the business owner mentioned an "official notice" that he had received from the State of Minnesota. The notice was a call to action and required that he fill out a form and submit it by mail, along with a check for services. He was all set to do just that when he was referred to me by a friend of his who just happens to be a Safe Shield client. Fortunately, he contacted us before taking any action and I believe that he is extremely glad he did.
You see, he was very surprised to learn that the State of Minnesota does not provide the services in question, nor do they send out solicitations. The company that had sent him the notice is merely one of many companies who use less than ethical tactics to try to make money. They realize that if they make their soliciations appear official, many people will just assume that it is a legitimate notification from the government.
We have a number of clients who report receiving these types of notices each year and I am always appreciative when they contact us to verify whether or not they are legitimate, prior to taking any action. Typically these notices will imply that they are from the Secretary of State's office, or in some extreme cases even the Federal Government. As I always tell people, the Secretary of State's office does not send out solicitations.
While this may not be new information to some of you, it is still a good reminder. As many of you already know, unethical business practices including credit fraud and identity theft have never posed a greater threat to business owners than they do today. There are many people out there who would gladly take the money or business that you have worked hard for.
As 2012 comes to an end and we all gear up for 2013, I want to encourage you to be vigilant in operating your businesses. Look to your trusted advisors to provide you with proper guidance and, as always, please feel free to contact Safe Shield if you receive suspicious notifications or other questions arise. We would love to hear from you!
Sunday, December 9, 2012
Wednesday, November 14, 2012
Are You Trusting Good Information?
I was visiting with a client recently and she shared some very useful information with me, based on her own experiences. The issue that we discussed involved our children and it was such a blessing for me to have the opportunity to gather relevant information from someone who had been through similar situations, particularly since it was someone whom I trust and respect.
This conversation got me thinking about all of the resources that we have available to us today as business people. With the advancement of technology and social media, there is litterally an endless supply of information that a person can access with very little effort. For example, LinkedIn is a great tool to connect with other business professionals and also provides a wonderful forum for information sharing. However, is there any kind of guarantee that the information we are receiving is good information?
Several months ago I happened to be on LinkedIn and saw that a prospective entrepreneur was searching for resources regarding starting a business and entity formation. One of the first responses that I read was from someone who had been in that same position a few months prior. This person went on to say that there were not a lot of good resources available so she had "figured it out on her own and found that the process was really rather simple". She went on to lay out the steps that needed to be taken to complete the process. However, not only was her list grossly inadequate, but it was completely inaccurate as well.
My guess is that the person asking the question probably liked the response initially, because it was "simple" and that is usually the path of least resistance. You see, the person sharing the bad information had obviously received bad information and simply passed it on to others. The problem is that she made herself sound like an expert and to someone possessing less knowledge than she did (and looking for an easy answer), it became pretty obvious to see the matter going in the wrong direction.
Fortunately I have expertise in that area and I responded by citing MN statutory requirements that directly contradicted the "expert steps" that the first responder had laid out. Because everything I had stated was 100% verifiable, it didn't take long for the person asking the question to recognize that there is a lot of information out there and not all of it is good. She realized the importance of sifting through the information and that establishing a proper vetting process was paramount to the success of her future business.
The point that I would like to make is that we have never had greater access to information than we do today, and that can be a wonderful thing. However, it is just as easy to share bad information as it is to share good information so it is crucial for us to make sure that the informatinon we gather is the right information.
I hope this article will be useful to you as you continue to operate your business. As always, please contact me with any questions that you might have.
This conversation got me thinking about all of the resources that we have available to us today as business people. With the advancement of technology and social media, there is litterally an endless supply of information that a person can access with very little effort. For example, LinkedIn is a great tool to connect with other business professionals and also provides a wonderful forum for information sharing. However, is there any kind of guarantee that the information we are receiving is good information?
Several months ago I happened to be on LinkedIn and saw that a prospective entrepreneur was searching for resources regarding starting a business and entity formation. One of the first responses that I read was from someone who had been in that same position a few months prior. This person went on to say that there were not a lot of good resources available so she had "figured it out on her own and found that the process was really rather simple". She went on to lay out the steps that needed to be taken to complete the process. However, not only was her list grossly inadequate, but it was completely inaccurate as well.
My guess is that the person asking the question probably liked the response initially, because it was "simple" and that is usually the path of least resistance. You see, the person sharing the bad information had obviously received bad information and simply passed it on to others. The problem is that she made herself sound like an expert and to someone possessing less knowledge than she did (and looking for an easy answer), it became pretty obvious to see the matter going in the wrong direction.
Fortunately I have expertise in that area and I responded by citing MN statutory requirements that directly contradicted the "expert steps" that the first responder had laid out. Because everything I had stated was 100% verifiable, it didn't take long for the person asking the question to recognize that there is a lot of information out there and not all of it is good. She realized the importance of sifting through the information and that establishing a proper vetting process was paramount to the success of her future business.
The point that I would like to make is that we have never had greater access to information than we do today, and that can be a wonderful thing. However, it is just as easy to share bad information as it is to share good information so it is crucial for us to make sure that the informatinon we gather is the right information.
I hope this article will be useful to you as you continue to operate your business. As always, please contact me with any questions that you might have.
Saturday, September 29, 2012
No Corporate Formalities, No Loan!
I've often written about the risks business owners face due to the Piercing of their Corporate Veil for failing to observe the necessary Corporate Formalities. I speak with business owners about this frequently as more and more of this activity occurs every day, but there is more to this story than that.
Did you know that the failure to observe Corporate or LLC Formalities can also hinder, or negate, your ability to qualify for a bank loan? I am contacted regularly by bankers whom I work with because they are going through the loan process with a customer and the business owner does not have the proper Corporate or LLC documents that establish them as the business owner, officer, or director who has the authorization to enter into such an agreement with a bank or other financial institution.
Often times the Corporation or LLC was not properly formed and the foundational paperwork is a mess, or in many cases does not even exist, so there is no formal documentation to reflect the ownership of the entity, how it was acquired, who is authorized to represent it, and what the rules and guidlines are that the company operates under.
Just last week I spoke with a business owner who is in the midst of the loan process and his bank is requesting that he provide them with documents that do not exist. He assumed that since he filed Articles of Organization with the Secretary of State's office that he has a fully established entity and that is simply not the case (in fact it's far from it). He has no operating agreement, organizational resolutions, contribution agreement, membership certificate, membership ledger, tax id number, etc. He has a huge gap and is trying to finalize the loan process, but the process has stalled and cannot move forward without a fair amount of work being completed. The most interesting aspect of this is that he is financially sound and should have no problem qualifying, provided that he has all of his ducks in a row.
I believe that the concept of "No Corporate Formalities, No Loan" is valuable information that many business owners are completely unaware of. If you fall into this category, I hope you will review the information and do a self-check of your business. You may also want to consider sharing this information with other business owners that you know. As always, you should feel free to contact Safe Shield for more information.
Did you know that the failure to observe Corporate or LLC Formalities can also hinder, or negate, your ability to qualify for a bank loan? I am contacted regularly by bankers whom I work with because they are going through the loan process with a customer and the business owner does not have the proper Corporate or LLC documents that establish them as the business owner, officer, or director who has the authorization to enter into such an agreement with a bank or other financial institution.
Often times the Corporation or LLC was not properly formed and the foundational paperwork is a mess, or in many cases does not even exist, so there is no formal documentation to reflect the ownership of the entity, how it was acquired, who is authorized to represent it, and what the rules and guidlines are that the company operates under.
Just last week I spoke with a business owner who is in the midst of the loan process and his bank is requesting that he provide them with documents that do not exist. He assumed that since he filed Articles of Organization with the Secretary of State's office that he has a fully established entity and that is simply not the case (in fact it's far from it). He has no operating agreement, organizational resolutions, contribution agreement, membership certificate, membership ledger, tax id number, etc. He has a huge gap and is trying to finalize the loan process, but the process has stalled and cannot move forward without a fair amount of work being completed. The most interesting aspect of this is that he is financially sound and should have no problem qualifying, provided that he has all of his ducks in a row.
I believe that the concept of "No Corporate Formalities, No Loan" is valuable information that many business owners are completely unaware of. If you fall into this category, I hope you will review the information and do a self-check of your business. You may also want to consider sharing this information with other business owners that you know. As always, you should feel free to contact Safe Shield for more information.
Sunday, September 9, 2012
Beware Of Commingling Funds
The practice of commingling funds is a dangerous one and I strongly advise business owners to avoid it at all costs. When a business owner commingles funds it means that income and expenses are mixed together, either between business and personal accounts or from one business account to another.
I know that many of you would never even consider doing something like this, but I can promise you that it happens all too frequently. Unfortunately, far too many business owners don't think it's a big deal and therefore do it without giving it so much as a second thought. The problem with this behavior is that the separation that a legal entity is supposed to provide can be completely washed away due to commingling.
The primary reason that people utilize LLCs and Corporations for their various business ventures is to create separation between their business and personal activities and assets, as well as separation between their individual businesses. When the business owner commingles funds, it creates a rock solid paper trail intertwining everything that they had hoped to keep separate.
Recently I came into contact with a business owner who found himself in serious trouble due to commingling funds. It wasn't necessarily an intentional action, but rather ignorance about what he could and couldn't do. This cost him dearly when the business had to be dissolved in order to settle a judgment against him. Because things like fuel, cell phones, and other personal expenses had been paid out of the business account it ultimately had to be treated as additional income and other benefits. It was such a clearly defined example of commingling that the court was required to rule against him, regardless of his "lack of intent" to break the law. This business owner learned a very costly mistake and it was one that could have been avoided.
Remember, the risks associated with commingling far outweigh any of the percieved benefits and I would encourage you to keep that in mind when assessing your internal business practices.
I know that many of you would never even consider doing something like this, but I can promise you that it happens all too frequently. Unfortunately, far too many business owners don't think it's a big deal and therefore do it without giving it so much as a second thought. The problem with this behavior is that the separation that a legal entity is supposed to provide can be completely washed away due to commingling.
The primary reason that people utilize LLCs and Corporations for their various business ventures is to create separation between their business and personal activities and assets, as well as separation between their individual businesses. When the business owner commingles funds, it creates a rock solid paper trail intertwining everything that they had hoped to keep separate.
Recently I came into contact with a business owner who found himself in serious trouble due to commingling funds. It wasn't necessarily an intentional action, but rather ignorance about what he could and couldn't do. This cost him dearly when the business had to be dissolved in order to settle a judgment against him. Because things like fuel, cell phones, and other personal expenses had been paid out of the business account it ultimately had to be treated as additional income and other benefits. It was such a clearly defined example of commingling that the court was required to rule against him, regardless of his "lack of intent" to break the law. This business owner learned a very costly mistake and it was one that could have been avoided.
Remember, the risks associated with commingling far outweigh any of the percieved benefits and I would encourage you to keep that in mind when assessing your internal business practices.
Friday, August 3, 2012
Do You Understand Your Role?
I recently met with one of my clients for the annual business meetings of their company. As I visited with different members of the Board of Directors before the meeting, I grew curious about the level of understanding that many of them had regarding their roles as directors and shareholders.
As I observed the participants during the meetings, it became quite clear that they had minimal experience with Corporate Formalities and overall Corporate Structure. During the lunch recess I inquired with two or three of them as to whether or not they understood the differences between being a director and shareholder and what their responsibilities were. I was met with blank stares and the ultimate responses were "I have no idea". I then asked if they had ever read the Corporation's ByLaws, and the answer was a unanimous "No".
While this may seem unlikely to many of you, it is actually quite common. There are a number of businesses that consist of Directors and Shareholders that have no real understanding of Corporate Structure and the Corporate Formalities that are required of them (this is especially common in the world of Nonprofit businesses).
It is my opinion that many people view serving on the Board of Directors of a Corporation, whether it be Forprofit or Nonprofit, as a privilege and a great opportunity. While that certainly can be true, it is also an enormous committment that comes with great responsibility. Sadly many people accept this responsibility without doing the necessary due diligence to understand their fiduciary responsibilities to the organization, nor the substantial liabilities that they inherit when they accept the position.
If you are serving on a Board, or considering that prospect, my recommendation is a simple one. Request all of their Corporate documents so that you can understand the structure of the Corporation, what the ByLaws require of you, and the fiduciary responsibilities that you will be accepting...
As I observed the participants during the meetings, it became quite clear that they had minimal experience with Corporate Formalities and overall Corporate Structure. During the lunch recess I inquired with two or three of them as to whether or not they understood the differences between being a director and shareholder and what their responsibilities were. I was met with blank stares and the ultimate responses were "I have no idea". I then asked if they had ever read the Corporation's ByLaws, and the answer was a unanimous "No".
While this may seem unlikely to many of you, it is actually quite common. There are a number of businesses that consist of Directors and Shareholders that have no real understanding of Corporate Structure and the Corporate Formalities that are required of them (this is especially common in the world of Nonprofit businesses).
It is my opinion that many people view serving on the Board of Directors of a Corporation, whether it be Forprofit or Nonprofit, as a privilege and a great opportunity. While that certainly can be true, it is also an enormous committment that comes with great responsibility. Sadly many people accept this responsibility without doing the necessary due diligence to understand their fiduciary responsibilities to the organization, nor the substantial liabilities that they inherit when they accept the position.
If you are serving on a Board, or considering that prospect, my recommendation is a simple one. Request all of their Corporate documents so that you can understand the structure of the Corporation, what the ByLaws require of you, and the fiduciary responsibilities that you will be accepting...
Saturday, May 5, 2012
Piercing The Corporate Veil - Revisited (Part 2)
I published an article a few weeks ago that was centered around Piercing the Corporate Veil and while I did share quite a bit of information at that time, I also promised to share more in future posts. Based on some recent conversations that I have had with new clients and some trusted advisors from my contact sphere, I think now is a great time to revisit this.
In my previous article, I shared a number of areas that can place a business (and its owner) in serious jeopardy if they are not properly addressed. I would like to take a few minutes today to expand on some of those areas...
In my previous article, I shared a number of areas that can place a business (and its owner) in serious jeopardy if they are not properly addressed. I would like to take a few minutes today to expand on some of those areas...
- It is not uncommon for a business owner to overlook some key management aspects of the business, particularly so in closely held small businesses. Designating proper officer titles and ensuring that each officer is fully aware of his/her roles and responsibilities is crucial. I recently heard about a small business owner who found himself in a fair amount of legal trouble because he had created a number of "shell" businesses for various real estate and investment ventures, reflected his wife as an officer and governor, and in some cases had her listed as the sole owner of the business. The problem is that his wife had no idea how many companies existed, nor was she aware that she was an owner/officer in many of them. Ultimately, the LLCs were peirced and it cost the business owner a substantial amount of money.
- Mismanaging or commingling funds is another common mistake. I cannot tell you how many times I have encountered small business owners who pay personal expenses from their business account and believe it doesn't matter or is justified because they are the sole owner. Not only is the business owner blurring the lines between what is legal and ethical with practices that may not be legal or ethical, buth they are also setting themselves up to have their Corporate or LLC Veil pierced. The whole purpose behind creating an entity is to demonstrate separation between business and personal activities and create a liability shield for the owner and their personal assets. Paying personal expenses from the business account is basically disregarding that separation and exposing the business owner personally. It could also lead to tax avoidance issues if the business owner is attempting to "write off" personal expenses by paying for them through the business and treating them as deductible expenses.
- Another area that is worth mentioning is when a business owner (or owners) have multiple businesses that work together without proper documentation of the relationship(s) between the businesses. For example, a business owner may own a number of investment properties in several different LLCs and then have another separate entity act as the management company for those properties. While there is nothing wrong with this, and in fact is actually a good idea, it is important to have some clearly defined agreements in place between the entities so that funds that are passing back and forth between them can be clearly linked to the service or management agreements that are in place to support these activities.
- Finally, if you are a business owner who decides to buy a building so that you can run your business out of that building and be your own landlord, do not make the all to common mistake of ignoring the need for a Lease Agreement. I understand that you may be the sole owner of Company A, the operating business, as well as Company B, the property owning business, but they are still distinct and separate entities so it is very important that they conduct themselves in that manner and sign a valid Lease Agreement, just as any other tennant would be required to sign.
Sunday, April 1, 2012
Spring Cleaning
I recently posted a blog article surrounding Piercing the Corporate Veil, a topic that I reference frequently and definitely want to dig deeper into in the near future. However, today is April 1st and while we have been enjoying beautiful Spring-like weather for weeks, the calendar verifies that Spring is now officially here. With that in mind, it seems appropriate to address the topic of Spring Cleaning within your business!
If you are a typical business owner, time is in short supply and the finer details are often over-looked as you scramble to keep up with all of the other important responsibilities that are on your plate. While this is a common predicament, it can also set you up for extreme disaster. Let me encourage you to set aside some time to address the following key areas:
- Review financial statements to verify that you have been operating within your budget for the 1st quarter of 2012, and expenses are trailing income (versus the other way around). If you find that you have been living outside of your budget, analyze the trends to determine why and devise a plan to turn it around in the 2nd quarter.
- I will assume that you have taken care of all tax matters and that your returns have been filed on time, but don't forget about other necessary filings that need to be handled. These might include Secretary of State filings for annual renewals or assumed names, filings with the Attorney General's office, or filings for licenses or certifications that you may be required to carry within your designated industry.
- Conduct a review of your business and make sure that you document the review in great detail and that the review documents are recorded and added to your Corporate/LLC Record Book. It is a common mistake to ignore these Corporate or LLC Formalities and yet it can create big problems for you, and your business, over the course of time.
- Assess your HR situation and take a hard look at shoring up your HR practices so that you meet the growing HR Compliance requirements. Have your employees been reviewed in a timely manner? Do you have completed employment applications and I9 forms on file for all employees? Has your Employee Handbook been reviewed, updated, and posted? These are all very important questions that should be addressed.
I realize that Spring Cleaning isn't the most exciting task on your priority list, but it is paramount in order to preserve the long-term health and viability of your business. While this may not be an exhaustive list, it is an excellent place to start and I would encourage you to take action quickly...
Friday, March 2, 2012
Piercing The Corporate Veil - Revisited
March has just arrived and brought our first real dose of "winter" with it. I don't know about you, but January and February have flown by for me and 2012 has been off to a very busy start. I have been working with many new clients, many of which are starting new businesses and pursuing a new idea (or life long dream). With all of the new excitement I am seeing, I felt that now is a good time to revisit the concept of Piercing the Corporate Veil...
- Because this concept may be new to some of you, a quick explanation may be in order. Quite simply, the act of Piercing the Corporate Veil means that the liability shield that a business owner's Corporation or LLC provides to them is rendered useless and their personal assets are ultimately exposed in some type of litigation against the business. While this may sound ridiculous to you, and in most cases the typical business owner is completely unaware that this can happen, I assure you that it is entirely possible.
- The most common scenario of Piercing the Corporate Veil is that the business owner failed to establish the entity with a firm foundation (perhaps because they took the "do it yourself" approach), did not properly review and document business activities on a regular basis, or allowed other "harmless" actions to blur the lines between personal and corporate separateness.
- In the past few weeks, I have had conversations with multiple attorneys who have had first hand experience with this type of activity and it rarely ends well for anyone. While we all agree that forming the entity with a firm foundation is crucial, it is equally important to maintain it properly on a regular basis through reviews and documenation. I will dig deeper into this in an upcoming blog post.
- I will leave you with this... If you have never taken the time to fully understand the foundation of your business, or what is required to properly maintain it, please contact Safe Shield. We provide a free review of your Corporate documents as well as a plan of action to repair any holes and keep your Corporate Veil secure going forward. More on this in the coming weeks, but feel free to contact Safe Shield today...
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