This year will be the first to see the implementation of new filing deadlines for many forms. The first new deadline, that will occur shortly, is for filing W-2’s, which is now January 31 instead of the previous February deadlines. March 15 is the new deadline for Form 1065 (partnership returns) and Form 1120 (S-corporation returns). This includes the K-1s. Each is extendable to September 15.
Next comes April 15. Forms 1040 continue to be due on this date, but FINCEN 114 (Report of Foreign Bank Account) is now due at the same time instead of June 30, as in the past. Form 1041 (Income Tax Return for Estates and Trusts) and Form 1120 (Corporate Tax Return) are due on April 15 and are extendable to September 30 and September 15, respectively.
Other forms, such as Form 5471 (Report of Foreign –Owned Corporations), that are due at the same time as some of the income tax returns, will change their due dates to correspond to the new due dates of these returns. Caution is advised in checking all deadlines and not simply relying on past experience.
When business owners are looking to sell or buy a new business the most common question we get is whether the transaction should be structured as an asset sale or a stock sale. The below is a brief summary of the differences between the two transaction types.
An asset sale is when a company sells substantially all of their assets in the business to a third party. Assets will include customer list, all intellectual property, and relationships with vendors, etc. It is usually negotiated whether the company or buyer will receive certain assets such as the cash, accounts receivable and accounts payable related to the business. Once the asset sale is completed the company will most often dissolve and then distribute the consideration received in the asset sale to its shareholders. Buyers most often prefer an asset sale because the company remains liable for all business activities prior to closing and except for a few items (such as sales taxes or other liabilities the buyer agrees to assume) that liability cannot be transferred to buyer. Buyers also prefer the tax treatment they receive from an asset sale because they can depreciate or amortize the purchase price they paid for the assets based on how the purchase price is allocated to the assets. An asset sale could cause higher taxes to seller because the allocation of the purchase price to certain assets, such as equipment, real estate and accounts receivable could be taxed at higher ordinary income rates or depreciation recapture rates (compared to capital gain rates). These tax possibilities should be analyzed before seller agrees to structure the transaction as an asset sale. One big consideration on whether or not an asset sale structure will work is the assignability of the company’s major contracts. If those contracts cannot be assigned without undue hardship then an asset sale should not be the choice for the transaction structure.
A stock sale is where the shareholders of a company sell all of their stock in the company to a third party. A seller most often prefers a stock sale because the company the shareholders are selling remains liable for all pre-closing business activities but since they are no longer shareholders that ultimate liability falls on the new owners. Buyers will often mitigate this risk in the stock purchase agreement by requiring indemnification by the selling shareholders for certain pre-closing liabilities. This is often times a major negotiating point between buyer and the selling shareholders. Sellers also prefer the simpler capital gain tax treatment they will receive in the stock sale. The company’s major contracts still have to be reviewed to make sure there is no change of control provision that could trigger a default but in general there are less issues with contracts to deal with when the transaction is structured as a stock sale.
Stay tuned for a future blog on a tax election that can be made that can combine the liability benefits of the stock sale for the seller with the tax benefits of an asset sale to the buyer.
ShuffieldLowman’s four downtown offices are located in Orlando, Tavares, DeLand and Daytona Beach. The firm is a 34 attorney, full service, business law firm, practicing in the areas of corporate law, estate planning, real estate and litigation. Specific areas include, tax law, securities, mergers and acquisitions, intellectual property, estate planning and probate, planning for families with closely held businesses, guardianship and elder law, tax controversy – Federal and State, non-profit organization law, banking and finance, land use and government law, commercial and civil litigation, fiduciary litigation, construction law, association law, bankruptcy and creditors’ rights, labor and employment, environmental law and mediation.
Corporate clients should be aware that Florida companies have a public presence in the database of the State’s Sunbiz website, and as a result, their information is open to any who may want to seek it. Third parties may try to take advantage of their access to this public information.
It has been reported that fraudulent notices and solicitations have been recently distributed to Florida companies. These solicitations ask for money in return for a certificate of status, which the solicitors say is required to be considered a valid business entity with the State of Florida. Be aware that these notices are NOT from the Department of State, the Division of Corporations or any other state or federal agency. Once an entity is properly formed, incorporated, organized or registered on the records of the Division of Corporations, it is not required to purchase or receive a certificate of status to be considered a valid business entity or registration. DISREGARD ANY NOTICES OR SOLICITATIONS YOU MAY RECEIVE TO THE CONTRARY.
Businesses may also begin to receive solicitations regarding “Annual Minutes” or “Annual Corporate Record Forms” for a fee of $125. The solicitations which companies may receive regarding these annual minutes may request confidential ownership information. These mailings are not from the ShuffieldLowman office and they are not from the Department of State or any other state or federal agency. DISREGARD THESE NOTICES.
There is a warning on the State of Florida’s Division of Corporations website reiterating this information. Clients who have questions about materials received in the mail regarding their company, are urged to call the firm’s offices to confirm the validity of the material.
Orlando: (407) 581-9800 Deland: (386) 736-9225 Tavares: (352) 253-2222
How the SEC Lifting the Ban on General Solicitation for Certain Private Offerings Opens up Additional Source of Capital for Small Businesses
Small businesses in recent years have been dealing with very tight lending markets that have affected their ability to grow or in the case of startup businesses develop at all. Another alternative to bank financing for these small businesses is raising capital through a private investment offering. However, until recently this may have been a difficult process for small businesses because of the ban on being able to solicit and advertise a private investment offering which left the small business owner only able to look for capital from their family and friends. Congress recognized the issues small businesses were facing with regard to raising capital and in April of 2012 passed the Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act directed the SEC to amend its rules within 90 days of the act to remove the prohibition on general solicitation and general advertising in securities offerings conducted pursuant to rule 506. These rules were finalized in July 2013. The newly adopted rule adds a new and separate exemption, Rule 506(c), which is available to an issuer that wants to use general solicitation and advertising to offer securities that are ultimately sold to accredited investors. For individuals, accredited investors are defined as persons whose net worth exceeds $1,000,000 (not including any equity in the individual’s primary residence) or whose income exceeds $200,000 per year (or $300,000 for joint income with spouse) in each of the past two (2) years. The newly adopted rules do require that an issuer take “reasonable steps” to verify that a purchaser of its securities is an accredited investor. Reasonable steps would include reviewing financial statements and tax returns of the investor to confirm accredited investor status. If an issuer chooses to use the Rule 506(c) exemption no non-accredited investors could invest in the offering.
Rule 506(c) presents a new offering exemption but it is important to note that the current 506 offering exemption remains in place. Therefore, if an issuer does not need to generally solicit and advertise the issuer can sell to an unlimited number of accredited investors without the “reasonable steps” verification process and up to 35 non-accredited investors.
If you are a small business in need of capital or an entrepreneur looking for capital to start a new business please contact us to explore the possibilities of raising capital using this new private offering exemption or under the current 506 offering exemption. Given the newness of the JOBS Act and the new 506(c) offering exemption there will be continuing amendments made to the rules so it is very important to discuss the possibility of any offering with a qualified securities attorney.
It is well-known that in Florida, a great way to own your home is in your individual name so that the home can qualify for homestead protection. Florida’s homestead laws are among the broadest in the country, and exempt homestead property from levy and execution by judgment creditors.
However, homestead laws extend only to your principal, permanent residence. What happens if you want to purchase a beach condo, an office building, or a piece of land to potentially build on in the future? How you title this property can have a significant effect on your business and your other assets.
Generally, holding each piece of real property in a separate limited liability company (“LLC”) owned by a revocable trust is an effective way of ownership with a number of business and estate planning advantages:
- Asset Protection. Owning property through an LLC maximizes the protection for your personal assets. Because there is an inherent risk of liability that goes along with property ownership, you, as a property owner, could potentially be subject to tort claims stemming from activities that occur on the property. If the property were held in your individual name or in the name of your revocable trust at the time a tort claim was made and the claim resulted in a judgment against you or your trust, your personal assets or the assets of your revocable trust could be attached to satisfy the judgment. However, if the property is held in an LLC and is the only asset of the LLC, only this property can be used to satisfy the judgment. The same principal applies if you hold a number of real properties, each with a significant value. Generally, each such property should be placed into a separate LLC for these purposes.
- Estate Planning. Having each piece of real property in a separate LLC has advantages from an estate planning standpoint in that it makes it simple to transfer ownership to family members. The ownership of real estate held by an LLC is represented proportionately by a member’s shares of an LLC. Rather than filing a new deed, the owners can transfer ownership of the property to their children by simply issuing them membership interests in the LLC. This makes gifting away interest in the real estate very simple and cost effective. Further, the LLC could also be structured with voting and nonvoting units. The owner can preserve control over the property during his or her lifetime and, at the same time, move some of the value of the property out of his or her estate, by gifting only the nonvoting units to family members. The owner could then prescribe how the property is to be controlled at his or her passing by devising the voting interests in the LLC to one or more beneficiaries of the owner’s estate.
- Avoidance of Probate. Owning real property through an LLC that is in turn owned by a revocable trust enables one to avoid the difficult probate process with respect to that property, which in turn eases the administration of your estate in the event of your passing.
A less effective, yet still a better way of owning real property than in your individual name, is placing the property into a revocable trust. This type of ownership does not have the asset protection and estate planning benefits described above, but it does remove the property from the probate process at your passing.
If property has already been purchased, it is still possible to take advantage of some of the protections discussed above by transferring the property into the appropriate holding structure. A major consideration as to whether to transfer the property into a revocable trust or an LLC is whether the real property is encumbered by a mortgage. If the property is unencumbered, it should be transferred into a newly formed LLC to take advantage of the LLC’s asset protection attributes. If there is a mortgage on the property, however, a transfer into an LLC would trigger documentary stamp taxes in the amount of $.70 on each $100 of the mortgage payable to the state of Florida. So, for example, on a $500,000 mortgage, the documentary stamp taxes payable to the state at the time of the transfer would be $3,500, which, for some, may not be worth the benefits of the transfer in the first place. If this property is transferred into a revocable trust, however, nominal documentary stamp taxes would be due on the transfer.
While the Florida LLC is an effective and frequently used vehicle for holding real property, there are other options that may be more appropriate for property owners. The specific circumstances and goals of the property owner must be evaluated before making this decision.
In today’s diverse and dynamic tech industry, strong intellectual property (“IP”) protection is key to establishing and accumulating value in your business. With the Apple, Inc. v. Samsung Electronics Co., Ltd. case inundating the tech news over the past few weeks, understanding that it is difficult to prevent a competitor from attacking your IP, we started thinking about what businesses can do to minimize IP problems from the inside out. We wanted to share a few of these items in today’s blog.
- File for and monitor federal and/or state registrations. Depending on the level of protection desired and the availability of financial resources, you may consider registering some of your IP with applicable federal or state governing bodies. The process can take anywhere from a couple of days (e.g. for certain state trademark offices) to several years (e.g. for issuance of a federal patent), but an issued registration imparts a presumption that your business holds exclusive rights to the registered IP.
- Enforce your rights. Once you have secured registration of your patents, trademarks and copyright, it is critical that you police your industry and enforce your rights. Failure to police your IP will weaken even an issued registration. But beware of sending out poorly researched cease and desist letters, as those can sometimes have the disastrous effect of voiding your registered mark. See Firehouse Subs case
- Check your employment and consulting agreements. Any time a business engages an employee or consultant, the business must make sure that their employment and consulting agreements convey sole ownership of any work product to the company. While there is a legal presumption that the company would own any work product that its employees produce, such a presumption does not exist with respect to independent contractors who, absent a written agreement to the contrary, will be deemed to have sole ownership to any work they produce for you. To be safe, for both employees and independent contractors – get it in writing.
For more recommendations or for a complete assessment of the intellectual property used in your businesss, contact the attorneys at ShuffieldLowman.