Tuesday, April 30, 2013

Protecting Your Corporation (Part 2)


PART TWO - WHAT RECORDS DO I NEED TO KEEP (aka RECORD KEEPING 101)?

This is the second installment in a three part series on how to maintain the protection of your corporation.

In our prior segment we talked about the consequences of failing to maintain proper corporate documentation, known as your corporate formalities. In a nutshell, the failure to do so makes it easy for your enemies/creditors to pierce your corporate veil and hold YOUpersonally liable for any actions taken by your corporation. Let's now examine what are the record keeping requirements/corporate formalities that the law says I must follow?
SHAREHOLDER MEETINGS

California law requires that certain of the business affairs of the corporation be approved by the shareholders.

     1.         Annual Meeting. California law requires that an annual meeting of the shareholders be held for the election of directors for the ensuing year and for other business that may come before the meeting.

     2.         Interim Meetings or Necessary Authorizing Resolutions. Apart from annual meetings, the following are examples of significant transactions which may occur throughout the course of the year which require an authorizing resolution by the shareholders:

(a)        Election/replacement of directors;
(b)        Amendment of Articles of Incorporation;
(c)        Transactions/agreements between the corporation and a director;
(d)        Loans made to an officer or director;
(e)        Indemnification of director, officer, employee or agent;
(f)         Sale/lease/transfer of substantially all corporate property outside the regular course of business;
(g)        Corporate reorganizations or dissolutions; and
(h)        Modifications or waiver of various shareholder rights or obligations under the Bylaws.

With respect to transactions which require action by the shareholders, such action may be taken at annual or special meetings of shareholders or by the written consent of shareholders without a meeting.

BOARD OF DIRECTOR MEETINGS

California law also requires that the business affairs of the corporation be managed and all corporate powers be executed by or delegated under the direction of the Board of Directors. In essence, the decisions pertaining to the day-to-day business operations of the corporation are made by its officers and management level employees. The directors are responsible for the policy guidelines under which the officers or management employees must act.

   1.         Annual Meeting. California law requires that an annual meeting of the directors be held for the purpose of appointing new corporate Officers (i.e., President, Vice President, Secretary and Treasurer) to represent the corporation during the current year and to approve and ratify the acts of its officers during the current year.

   2.         Interim Meetings or Authorizing Resolutions Needed. Apart from annual meetings, the following are examples of significant corporatetransactions out of the ordinary course of business whichrequire an authorizing corporate resolution
by the Board of Directors:

(a)        Changes in managerial work force;
(b)        Changes in compensation or bonuses to managerial level corporate employees;
(c)        Amendment of Articles of Incorporation;
(d)        Adoption of employee fringe benefit plans;
(e)        Purchase/sale of real property;
(f)         Leasing of new office space;
(g)        Purchase/lease of equipment or sale of equipment;
(h)        Corporate borrowing of money from financial institutions;
(i)         Loans made to or from corporate employees;
(j)         Transactions between the corporation & directors, officers or shareholders;
(k)        Indemnification of a director, officer, employee or agent;
(l)         Declaration of dividends or distributions to shareholders;
(m)       Acquisitions or modification of any corporate insurance program or policy;
(n)        Applications made to regulatory agencies;
(o)        Opening, closing or major remodeling of corporate business locations;
(p)        Purchase/lease of company vehicles;
(q)        Opening of new corporate bank accounts;
(r)         Hiring of legal counsel or tax and accounting professionals;
(s)        Filings made to transact business in another state;
(t)         Filing a Subchapter "S" election with the Internal Revenue Service; and
(u)        Documentation of capital invested into business by investors and issuance of stock certificates.

For transactions requiring action by the Board of Directors, the written record may consist of minutes kept at the meeting by the Secretary and approved by the Chairman of the Board. Alternatively, all directors may consent in writing to the action taken by the Board by preparing a signed resolution. The latter approach gives the directors some flexibility in those instances where a formal meeting cannot be held and where the action taken by the Board will be unanimous approved by all Board members.

Having drawn attention to what the corporate record keeping requirements are, the next question is what is the easiest way to accomplish this task to be compliant under California law?  We will address that question in our next installment.

To contact our office for assistance with your corporate record keeping, please call us at (949) 453-7979 or email us info@kleinlawcorp.com . Our staff is standing by to help you.

Saturday, April 27, 2013

Protecting Your Corporation (Part 1)


DID YOU KNOW THAT AN ESTIMATED 90% OF ALL CORPORATIONS WOULD FAIL TO PROTECT THEIR OWNERS IN THE EVENT OF A LAWSUIT OR AN IRS AUDIT DUE TO INADEQUATE CORPORATE RECORDKEEPING!  

This is the first installment in a three part series on how to maintain the protection of your corporation.

As a business owner you may be sitting on a personal liability time bomb!  You may say “I’m not worried about that since I incorporated my business”. When you set up your corporation you did so with the expectation that you would have liability protection by creating a barrier between your personal and business worlds.

The problem is that many attorneys who form corporations fail to adequately inform their clients that simply forming a corporation does not give you benefits you think if you do not from that point on walk, talk and act like a corporation. 

CALIFORNIA CORPORATIONS CODE §1500 STATES: “Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the proceedings of its shareholders, board and committees of the board ...”

Are Your Personal Assets At Risk?  Failure to maintain the proper corporate documentation makes it easy for creditors to pierce your corporate veil and hold YOU personally liable for any actions taken by the corporation. 

This means that the Larry Parkers of the world could sue you and go after your HOME, BANK ACCOUNTS, CARS, and OTHER PERSONAL ASSETS to pay off their client’s judgments. Since the average person is sued 5 times during their lifetime, it is not a matter of if, but when, you will be sued!   

Furthermore, the IRS could disallow certain business deductions making you subject to back taxes, penalties and interest, which can survive bankruptcy. In fact it has been reported that they have hired 16,000 new auditors to go after corporations!

So the question is: what exactly are my recordkeeping duties required by California lawWe will address that question in our next installment.

To contact our office for assistance with your corporate record keeping, please call us at (949) 453-7979 or email us info@kleinlawcorp.com.  Our staff is standing by to help you.

Thursday, April 25, 2013

American Taxpayer Relief Act of 2012


AMERICAN TAXPAYER RELIEF ACT OF 2012

At the eleventh hour, Congress averted the tax side of the ominous "Fiscal Cliff" that it faced as 2012 drew to a close. The end result of the intense negotiations was the American Taxpayer Relief Act of 2012 (ATRA).
The most publicized part of ATRA prevented scheduled federal tax rate hikes from going into effect for most taxpayers in 2013, while raising taxes on America 's highest earners. ATRA also keeps in place many expiring income tax breaks and revives some tax increases that had expired over the past several years.
Individual Tax Rates
For tax years beginning after 2012, ATRA makes permanent almost all of the federal income tax rates first put into place in 2001. Those rates otherwise would have increased in 2013. For high income taxpayers, a new top tax rate of 39.6%, as opposed to the previous 35%, applies beginning for tax years after 2012.
The new 39.6% rate applies to taxable income above a specified threshold (subject to future adjustments for inflation): $450,000 for married taxpayers filing jointly, $425,000 for heads of households, $400,000 for single taxpayers, and $225,000 for married taxpayers filing separately. The rate schedule is graduated, so taxpayers whose income falls within the 39.6% rate bracket still benefit from the extension of the Bush era rates in the lower rate brackets.
Capital Gains and Dividends
In recent years, individual and other noncorporate taxpayers have benefited from a maximum rate of 15% on net capital gains (net long term capital gains minus net short term capital losses). To the extent the net capital gains would have been taxed at the 10% or 15% tax rate if they had been ordinary income like wages, the net capital gains tax rate has been 0%.
These net capital gains rates for noncorporate taxpayers had been scheduled to be replaced after 2012 by rates up to 20%. ATRA operates to make the 2012 net capital gains rates of 0% and 15% permanent for most taxpayers. A new 20% maximum net capital gains rate applies to taxpayers whose income exceeds the levels mentioned above concerning the 39.6% income tax rate.

In 2012, qualified dividends from domestic corporations and certain foreign corporations were subject to the same maximum rates as net capital gains in 2012 (15% for most taxpayers, 0% if the income would otherwise be taxed in the 10% or 15% income tax brackets). These dividends were to have been taxed as ordinary income starting in 2013, resulting in substantially higher taxes, but ATRA intervened to retain the 2012 dividend rates of 15% and 0% for most taxpayers. As with capital gains, higher income taxpayers whose income exceeds the thresholds set for the 39.6% income tax rate now have a maximum rate of 20% on qualified dividends.
Personal Exemption Phaseout and Limitation of Itemized Deductions
Before 2010, the personal exemptions available to higher income taxpayers were gradually reduced when their adjusted gross income (AGI) exceeded a specific threshold amount. Those higher income individuals also had their allowable itemized tax deductions for the year reduced by up to 80%. By law, the personal exemption phaseout and itemized deduction limitation were gradually reduced, until they were completely removed in 2010. The exemption phaseout and deduction limitation were set to return in 2013. ATRA revives them, at higher threshold levels than had been in place. The end result is that the personal exemption phaseout and itemized deduction limitation will likely affect many more people than just those in the new 39.6% top tax bracket.
ATRA also includes extensions of a variety of individual tax benefits that either expired at the end of 2011, or would have at the end of 2012. Just a few examples of these many benefits are the Child Tax Credit, the State and Local Sales Tax Deduction, the Earned Income Credit, the Coverdell Education Savings Accounts, IRA Distributions to Charities (by persons age 70-1/2 or older), and the Energy Credit.
Estate and Gift Tax
For 2012, the maximum federal estate tax rate was 35%, with an exclusion amount of $5.12 million ($5 million indexed for inflation) that shelters an aggregate amount of transfers at death and lifetime gifts from estate and gift tax. But for ATRA, this top rate and exclusion amount were set to expire after 2012, resulting in a highest tax rate of 55% and an exclusion amount of only $1 million (not indexed for inflation).
ATRA permanently sets the top federal estate tax and gift tax at 40% with an exclusion of $5 million (inflation adjusted) for decedents dying and gifts made after 2012. ATRA also permanently allows "portability" of a decedent's unused exclusion between spouses.
Included among the other parts of ATRA are provisions that extend the estate tax deduction for state estate taxes, qualified conservation easements, and the installment payment of estate tax on closely held businesses. ATRA repeals the 5% surtax on estates larger than $10 million.

For more information on this topic or help with other legal concerns please email us or visit our website.
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Mark D. Klein, Esq. is a senior attorney at Klein Law Corporation, a Southern California-based law firm providing legal assistance to businesses and individuals alike. Klein Law Corporation provides an extensive range of legal services aimed at helping clients with issues involving corporate law, business law, intellectual property matters and estate planning while actively working with entrepreneurs starting business ventures and those purchasing or selling businesses.



The foregoing information is presented by Klein Law Corporation as a news reporting service to clients and friends of the firm and is distributed with the understanding that Klein Law Corporation is not rendering legal advice and assumes no liability whatsoever in connection with its use. If you have questions about the subject matter presented or desire to obtain more information on legal issues related to your business, please contact us at mark@KleinLawCorp.com 

Friday, April 5, 2013

Interview Do's and Dont's


INTERVIEW DOS AND DON'TS


Recruiting good employees is a difficult job, and if not done properly, the process can create liability for discrimination claims. Most employers are aware of the blatant discriminatory questions that you are not supposed to ask, but many get in trouble by asking apparently innocent questions in the wrong way. Here are some suggestions for both verbal interviews as well as written job applications:

SUBJECT:
Name:
HOW NOT TO ASK:
“Why was your name changed?”
“What’s your maiden name?”
“What is the name of your spouse, children, parents?”

AN ACCEPTABLE WAY TO ASK:
“Have you ever used any other names so that we may conduct the appropriate background checks?”
“If you are a minor, please provide the name and address of your parents or guardian.”


SUBJECT:
Birthplace:
HOW NOT TO ASK:
“Where were you (your spouse, parents) born?”
“Can you provide a birth certificate or naturalization papers?”

AN ACCEPTABLE WAY TO ASK:
“Where do you reside?”
“How long have you lived in the city where our company is located?”


SUBJECT:
Residence:
HOW NOT TO ASK:
“Do you own your own home?”
“Do you rent an apartment?”

AN ACCEPTABLE WAY TO ASK:
“What is your address?”
“In what city do you live?”


SUBJECT:
Creed and Religion:
HOW NOT TO ASK:
“What is your religious affiliation?”
“What church, parish, synagogue do you attend?”
“Will any of your religious beliefs prevent you from working on certain days?”

AN ACCEPTABLE WAY TO ASK:
“ Here are the regular work days and hours for the job position in question as well as a list of holidays which our company observes and any other time-off policies…”

SUBJECT:
Race, Color, Physical Appearance:
HOW NOT TO ASK:
“What is your race?”
“What is the color of your skin, eyes, hair, etc.?”
“What is your height, weight?”
“Can you provide us with a photograph along with your application or upon hire?”

AN ACCEPTABLE WAY TO ASK:
Unless there is a bona fide occupational requirement, do not ask these questions.

SUBJECT:
Education:
HOW NOT TO ASK:
“When did you receive your degree, diploma?”
“What were the dates of attendance of high school, college, etc.?”

AN ACCEPTABLE WAY TO ASK:
“Please list the schools you have attended and degrees, diplomas received.”

SUBJECT:
Age:
HOW NOT TO ASK:
“What is your date of birth?”
“What is your age?”
“When did you graduate from high school/college?”

AN ACCEPTABLE WAY TO ASK:
“Employment with our company is subject to verification that you meet the legal age requirement.”
“ If hired, can you furnish proof of age?”
“ Are you over 18 years of age?”
“ If under 18, can you submit a work permit once employed?”
“ If under the age of ___, you may not qualify for participation in our retirement plan.”


SUBJECT:
Citizenship:
HOW NOT TO ASK:
“Are you or do you intend to become a citizen of the United States ?”
“Can you produce naturalization papers or a green card?”

AN ACCEPTABLE WAY TO ASK:
“Once hired, can you furnish verification of your legal right to work in the United States ?”

SUBJECT:

Natural Origin & Ancestry:
HOW NOT TO ASK:
“What is your lineage, ancestry, national origin, descent, parentage, nationality?”
AN ACCEPTABLE WAY TO ASK:
“Our company has client who speak French/Russian/Spanish. Do you speak that language?”
SUBJECT:
Relatives:
HOW NOT TO ASK:
“What is the name and/or address of a relative we may contact as a reference or in case of an emergency?”
AN ACCEPTABLE WAY TO ASK:
“What is the name and/or address of a person we may contact as a reference or in case of an emergency?"
“What are the names and job positions of any relatives that currently work for our company?”


SUBJECT:
Military Experience:
HOW NOT TO ASK:
“Have you served in any military other than the U.S. Armed Forces?”
“Are you a member of the National Guard or the Reserves?”
“What is your draft classification?”
“Are you eligible for military service?”

AN ACCEPTABLE WAY TO ASK:
“Do you have any experience in the U.S. Armed Forces? What relevant skills have you acquired?”
“Have you received any notice to report for duty in the U.S. Armed Forces?”


SUBJECT:
Sex, Marital, or Family Status:
HOW NOT TO ASK:
“What is your sex?”
“What is your marital status?”
“How many children do you have?”
“Have you made provisions for child care?”
“Are you pregnant, when do you plan on having children?”
“With whom do you live?”

AN ACCEPTABLE WAY TO ASK:
“Our company pays for medical insurance for employees only. Anyone with dependents may cover those individuals by paying the additional premium cost.”
“Here are the regular work days and hours for the job position in question. Are you able to work at those times on a regular basis?”
“If you are a minor, please provide us with the name and address of a parent or guardian.”


SUBJECT:
Sexual Orientation:
HOW NOT TO ASK:
“With whom do you live?”
“What is the relationship between you and your emergency contact person?”

AN ACCEPTABLE WAY TO ASK:
“What is the name and/or address of a person we may contact as a reference or in case of an emergency?”

SUBJECT: 
Arrest Record:
HOW NOT TO ASK:
“Do you have an arrest or conviction record?”
“Do you have any misdemeanor convictions for possession of marijuana that are more than two years old?”

AN ACCEPTABLE WAY TO ASK:
“Have you ever been convicted of a felony or misdemeanor? Have you had any such charges brought against you that were later reduced, dismissed, or not adjudicated due to pre-trial intervention? (YES answers may be relevant if job-related, but do not necessarily bar you from employment).”

SUBJECT:
Mental / Physical Disability or Medical Condition:
HOW NOT TO ASK:
“What is your general medical condition?”
“Do you have any physical or mental disabilities?”
“Have you ever filed for workers’ compensation?”

AN ACCEPTABLE WAY TO ASK:
“Are you able to perform the essential functions of this job?”
If the applicant voluntarily discloses a disability, you may then ask, “Can you perform the essential functions of this job with reasonable accommodation?”
“Employment with our company will be contingent upon passing a job-related physical exam.”


SUBJECT:
Organizations / Activities:
HOW NOT TO ASK:
“Please list the names of any organizations, clubs, societies to which you belong.”
AN ACCEPTABLE WAY TO ASK:
“Please list all the job-related or professional organizations to which you belong. In this list, please omit any organizations whose name would identify you as a member of a protected category.”