Posts Tagged ‘Minneapolis business lawyer’

Should you take advantage of a deferred compensation plan?

Monday, July 3, 2017 @ 11:07 AM
Author: Peter Brehm

Deferred compensation plans are a way for highly paid employees to save more money than their 401(k)’s typically allow for.  By deferring earned income, the employee is able to defer taxes until after retirement, when the employee’s tax bracket is more favorable.   This allows for individuals to supplement their income after retirement. The plan, however, comes with risks. While 401(k)’s are protected if the company faces financial struggles, nonqualified deferment plans are not.  If the employer goes bankrupt, the employee becomes an unsecured creditor of the company. Less than 50% of employees enter into this type of deferment plan. Each employer and employee must consider the risks and benefits carefully before establishing a deferred compensation plan.

off

Increased Estate Tax Exemption

Thursday, June 1, 2017 @ 06:06 PM
Author: Peter Brehm

The new state budget has increased the estate tax exemption from $1.8 million to $2.1 million retroactive to January 1stof this year. This increase will continue to $2.4 million in 2018, $2.7 million in 2019, and $3 million for 2020 and later. The wealthiest 1,000 estates in Minnesota will see a significant tax cut over the next few years.  Call Peter Brehm at Business Law Center (952-943-3904) to discuss estate tax law changes.

off

Alternative Financing for Small Businesses

Saturday, May 27, 2017 @ 10:05 AM
Author: Peter Brehm

Metropolitan Consortium of Community Developers (MCCD) is a network of nonprofits that provide small loans and financial advisement to small business owners in the metro area, in addition to affordable housing development. MCCD has loaned over $6.7 million to over 550 entrepreneurs for start-up and expansion projects. There are five focus areas that MCCD works with. The programs include advising, lending, emerging leaders, and owning a home. Requirements for each program and possible membership can be found at www.mccdmn.org. The website also provides ways for community members to get involved or receive the weekly “Rundown” newsletter.

 

off

Succession Planning Workshops

Monday, January 16, 2017 @ 11:01 AM
Author: Peter Brehm

SCORE-Workshop-Succession Planning Series flyer

Together with SCORE and Northeast Bank, on March 2, 2017, and March 16, 2017, Business Law Center will be hosting two seminars geared towards helping small business owners protect their business, and improve the value of their business.

In Session 1, Succession Planning – Preparing to Leave Your Business, you will learn:

• Why should I have a plan?
• What happens to my business when I die?
• What happens if my partner dies, gets disabled, or divorced?
• How to get my business ready to sell?
• Could I sell my business now? And retire?
• How do I protect my family?
• How do I minimize taxes?

In Session 2, What’s Your Business Worth? you will learn:

• How can I determine the value of my business?
• What is the value of my goodwill?
• How do I decide how much insurance I need?
• What are my partners’ shares worth?
• Can I buy them out?
• Can my employees afford to buy me out?

For more information, and to register, you can go to SCORE’s website HERE or you can contact our office.

Peter Brehm

952-943-3904

off

Preparing Your Business for Sale

Thursday, January 12, 2017 @ 10:01 AM
Author: Peter Brehm

I have been working with small businesses for nearly 20 years, and I can’t say how often I have seen sellers leave money on the table because they hadn’t prepared their business for sale.  People buying small businesses are usually looking to buy a job, and are seeking confidence that they can make your business work for them.  The more turn-key the business, the better it will be for the buyer.  Which is why franchises are so successful. 

If you think you will be selling your business one day (and you probably will), here are some basic steps you can take to help make your business easier to sell, and make it more valuable.

1.      Eliminate the Black Box.  Obviously, buyers want to know if your business is making money, but presenting a potential buyer with historic EBITDA, revenue, or cash flow numbers is not enough. Buyers aren’t buying your profits from last year, they are buying the profits they might earn in the future.  If they don’t feel confident that they will be able to replicate what you earned, they will pay less for your business.  Be prepared to explain not just what your business made, but exactly how sales, marketing, equipment, suppliers, customers, intellectual property, and labor contributed to your profits.  You are, after all, the world’s foremost expert on your business, and should be able to explain how it runs in detail.  When buyers can see how your business makes money, they will be more confident that they can make money too. 

2.      Eliminate You from Your Business.  Think about your business as a money printing engine.  If a buyer purchased that engine, would it run efficiently without you, or are you the only one that knows how to prime it, or where the throttle is?  As a small business owner, of course you are vital to your business, but you must take steps demonstrating to a potential buyer that the engine will run efficiently without you.  Help you buyer visualize your business without you.  Identify key employees, and start delegating responsibilities to those people.  Prepare a transition plan that explains how you will help train and mentor your buyer in your business.  Communicate to your buyer exactly how he will be able to retain your key customers, vendors, and employees. 

3.      Clean up Your Books I.  When you own a small business, and there is enough money coming in to cover your expenses and pay expected profits, there is little incentive to keep great looking books.  But your profit and loss statement (P&L) and balance sheet say a lot about your business, and speak volumes about your attention to detail.  When a client presents me with financial statements prepared by a professional accounting firm, my confidence in those numbers goes up.  If all they have are tax returns, or some hastily assembled P&L, my confidence goes down, and I will generally advise my client to either walk away, or make some ridiculously low offer.  With the advent of QuickBooks, and other online accounting packages, there is simply no good reason why you should have bad books.  Hire a good bookkeeper or accountant, and get your books in order.   

4.      Clean up Your Books II.  I get it, you are a small business owner and you want some of the perks of owning a small business.  So, you decide to buy a building and have your company pay (mildly excessive) rent to you.  You hired your son to be your bookkeeper for $75,000 a year in stead of paying a bookkeeper $10,000.  You bought a company condo in Florida, and decided that the company could really use a yacht and a Porsche 918 to run (business related) errands.  I’m not here to judge (well maybe I am a little), but if those expenses are on your books when you present your P&L to a buyer, you are shooting yourself in the foot.  When you are getting ready to sell, stop thinking about reducing your tax bill (and living like a Rockefeller), and clean up your books.  Get a real estate agent to give you’re the market value of your rent.  Reduce salaries paid to family members to market rate (or just hire someone else).  Eliminate all non-business related expenses from your business.  Your books should reflect the most efficient operation of your business to get you a better return.

5.      Make Your Business Shiny.  Quick question:  who has more leverage, a person who looks like they must sell, or a person who looks like they don’t have to sell?  Years ago, I worked with a man who owned a restaurant and decided that he was going leave his business in a couple years.   So, for close to three years he spent next to nothing to fix his equipment, his furniture, his fixtures or anything else.  When buyer came around and saw the mess that was waiting for them (torn carpets, ovens on their last legs, dated furniture, and worn out fixtures), it directly reduced what they were willing to pay.  More importantly, the buyers knew that the seller had to sell, otherwise he would have to absorb the costs of updating the FF&E.  He had painted himself in a corner.  When you present your business for sale, it should look like you could run it for another 10 years if you wanted to.  Operate your business as if you will never sell, until you do.  Keep your vital equipment in good repair, replace worn fixtures, keep employment agreements up to date, enforce non-compete agreements, protect your copyrights and trademarks, and update your vendor and customer agreements. 

There are, of course, more things you can do, and each industry has other steps that might be useful. But, if you can take simple steps that will give potential buyers confidence that they can replicate the success of your business, you will  be more likely to sell your business and get paid fairly for it.

Peter C. Brehm, J.D., LL.M., CVA

off

DOL Overtime Rule Changes on Hold

Wednesday, November 23, 2016 @ 10:11 AM
Author: Steven Ness

U.S. Department of Labor’s new unlegislated rules (to become effective on December 1) regarding overtime pay were indefinitely halted.  On November 22, 2016, a federal judge temporarily blocked the Department of Labor from implementing and enforcing a final rule that would have altered the way workers are classified as exempt from overtime pay under the Fair Labor Standards Act (FLSA).  A temporary sigh of relief for many small and medium sized businesses with “hybrid executives” who perform a variety of tasks/functions.

While this means the implementation of the rule has been delayed, and it will not go into effect on December 1, 2016 as expected, it could easily be implemented in the near future. Proactive employers that already implemented policies consistent with the new rules may have a difficult time reversing those new policies.  It is always prudent, if unsure, to consult legal counsel for additional guidance.

off

New Minnesota Estate and Gift Tax Laws

Thursday, June 6, 2013 @ 10:06 AM
Author: Steven Ness

At the end of May the Minnesota Governor signed a bill into law that will impact people who reside in Minnesota and those who claim their residence in another state but own property in Minnesota.  Minnesota is now the second state (after Connecticut) to impose a gift tax. The new law also imposes a Minnesota estate tax for all property located in Minnesota held in pass-through entities (an LLC, Sub S Corp or partnership). Some key provisions provide:

  1. A Minnesota gift tax of 10 percent will be imposed on certain taxable gifts made by Minnesota residents and non-residents owning property located in Minnesota.

·         Beginning on June 30, 2013, Minnesota residents and non-residents will be subject to Minnesota gift tax on all transfers of real property located within Minnesota and transfers of tangible personal property that is customarily kept in Minnesota at the time the gift is executed. In addition, Minnesota residents will also be subject to Minnesota gift tax on transfers of intangible assets (e.g., cash, securities, business interests).

 ·         Each person has a lifetime exemption of $1,000,000 from the Minnesota gift tax. The Minnesota gift tax only applies to transfers that are treated as taxable gifts for federal gift tax purposes. As a result, certain gifts that are not subject to the federal gift tax – including transfers falling under the annual exclusion cap ($14,000 in 2013), gifts to spouses, charitable gifts and certain transfers for educational or medical purposes – will not be subject to the Minnesota gift tax.

 ·         This may be particularly important for people who have not yet taken advantage of their $5,000,000 federal gift, estate and generation-skipping transfer tax exemptions (indexed for inflation to $5,250,000 in 2013)

 

  1. Unlike many other states, Minnesota still has an estate tax on taxable estates that exceed $1,000,000 (with a top tax rate of 16%). Beginning in 2013, individuals who die resident in Minnesota or those who own property located in Minnesota will be required to include in their Minnesota taxable estate taxable gifts made within 3 years of death.

 

  1. For people dying after December 31, 2012, who own a pass-through entity (such as an LLC, S Corp or partnership) the location of real or tangible personal property held in the entity will be determined as though the entity does not exist. This means that property located in Minnesota held in pass-through entities will be subject to estate tax.

 ·      Under prior law, a non-resident owner of an interest in a pass-through entity that owned real estate, inventory or equipment in Minnesota was not subject to Minnesota estate tax on that property. The new law will subject such property to Minnesota estate tax, even if the business owner or investor has no other connection to Minnesota and even if the business entity is organized and operated in another state.

·         Non-Minnesota residents who may have previously transferred Minnesota situated property to a pass-through entity, in order to avoid the Minnesota estate tax, should to review these transfers. This is no longer an effective way to reduce or avoid Minnesota estate taxes.

·         Since the new law does not apply to Minnesota-situated property owned by C Corporations people owning pass through entities will want to consider whether a conversion to a C Corporation is appropriate.

At this point in time, the new law does not include a similar provision for Minnesota gift tax. After June 30, non-residents may be able to continue making gifts of interests in pass-through entities owning Minnesota property, without triggering a Minnesota gift tax. It must be remembered that any such gifts made within 3 years of death will be included in the gifting individual’s Minnesota taxable estate. People who desire to complete gifts of Minnesota situated assets should consider doing so as soon as possible.  It is anticipated by many that the Minnesota gift tax provisions will be modified to align with the new Minnesota estate tax provisions in one of the next legislative sessions.

 

 

off

Tax Savings for Companies Selling in Foreign Countries

Friday, February 1, 2013 @ 01:02 PM
Author: Steven Ness

An Interest Charge Domestic International Sales Corporation (commonly called an “IC-DISC”) is a unique tax savings entity, available to U.S. companies that have substantial sales to foreign countries, which includes sales to Canada and Mexico. An IC-DISC reduces tax liability by converting a portion of export income, which is taxable at ordinary income rates as high as 35% into qualified dividends generally taxed at 15%.

In short, an IC-DISC is a tax-exempt, domestic “paper” C corporation set up to receive commissions on the company’s export sales. The IC-DISC must have its own bank account, keep separate accounting records and file U.S. tax returns. But this separate entity need not have an office, employees or tangible assets nor is it required to perform any services.

To qualify as and IC-DISC a U.S. corporation must:

1. Be incorporated in one of the 50 states or District of Columbia;
2. File an election with the IRS to be treated as an IC-DISC for federal tax purposes (the application can be found at http://www.irs.gov/pub/irs-pdf/i1120icd.pdf);
3. Maintain a minimum capitalization of $2,500;
4. Have a single class of stock;
5. Meet a qualified export receipts test and a qualified export assets test;

Meeting a qualified export receipts test and a qualified export assets test indicates that at least 95% of an IC-DISC’s gross receipts and assets must be related to the export of property whose value is at least 50% attributable to U.S. produced content. Some services, such as engineering and architectural services related to construction projects outside the U.S. may also generate qualified export receipts.

The internal processes followed by an IC-DISC can be summarized as follows:

1. An owner-managed exporting company organizes a new C corporation and applies for qualification as a tax-exempt IC-DISC;
2. The exporting company pays IC-DISC a commission;
3. The exporting company deducts commission from ordinary income taxed at 35%;
4. The IC-DISC pays no tax on the commission;
5. The shareholders of the IC-DISC must pay income tax on dividends at a qualified rate of 15%;
6. The result is 20 percent tax savings on commissions.

Steven E. Ness is a busienss attorney with Business Law Center in Minneapolis Minnesota

off

Think Your Business Can Keep A Competitor from Using Your Intellectual Property?

Friday, June 22, 2012 @ 07:06 PM
Author: Peter Brehm

Judge Posner’s opinion in Apple Inc. v. Motorola Mobility Inc. demonstrates here why businesses need to demonstrate something more than the risk of financial loss to justify injunctive relief.   Just having intellectual property rights is not enough to force a competitor to stop using your property.

off