Small Business Questions and Answers » Industry: Financial services

Does my side job get tax breaks?

fsbquest — Fri, 05 Sep 2008 14:56:34 +0000

Tom Day, Baker, La.
I'm 66 and will be self-directing an IRA to generate income. I understand the IRA cannot be a business. But, I will need a computer, software, travel to attend investing seminars, and a host of other expenses in order to self-direct it. Can any of these be business deductions?

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Road map for a merger

arlittle — Tue, 12 Aug 2008 13:39:34 +0000

What to do first if you're thinking of merging your company with another.

Michael Pruet, Birmingham, Ala.
I want to merge my accounting firm with another firm. Where do I start? What should I be asking? What does the final structure look like? How do I do it? Will I need a lawyer?

By Shara Rutberg, Fortune Small Business contributor
Dear Michael: Start by finding some good advisors, says Jason Brauser, a corporate attorney in the Portland office of Stoel Rives and past chair of the executive committee of the business law section of the Oregon State Bar.

“Yes, you should have an attorney, but as you begin thinking about merging you should also talk to people such as an investment consultant and someone from a business valuation firm,” he says. They can help you set realistic expectations from the outset.

Your lawyer can help you determine what type of merger would be in your best interest. “They can help you answer questions such as: Should I do pure merger or a statutory merger? Should I just sell my assets? Should I close up shop and transfer my people?” says Suzanne Saxman a partner in the Chicago office of Seyfarth Shaw and vice chair of the middle market and small-business Committee of the business section of the American Bar Association. “There are so many ways to do it."

It’s a good idea to create a term sheet to review with the owners of the company you plan to acquire or merge with. A single document that spells out issues such as goals, timing and payment plans “can be a meeting of the minds to determine whether there is enough agreement between parties to go forward,” says Saxman.

“In a service firm, the biggest assets are the employees, the talent,” adds Brauser. “You want to make sure you’re in agreement about the terms in which they will be transferred and how they will be treated."

The final structure will most likely be an LLC or an LLP, says Saxman. Reaching that final structure might take longer than you bargained for. “The biggest misperception among small-business owners entering mergers is that they’ll be complete within 10 to 20 days,” he says. Depending on the companies, 60-90 days is more realistic.

This column provides general information only and is not intended to replace the services or legal advice of an attorney. Always consult a lawyer regarding any specific legal concerns, as laws vary from state to state.

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fsbquest — Tue, 05 Aug 2008 15:33:22 +0000

Kelly, Eugene, Ore.
I'd like to start a real-estate investment business. I don't want to fund it with my own credit/name. I'd like an LLC or S-corp. I started an LLC in 2003, but let it expire. I can renew it for $250 or start a new one for about $50. Would it be worth the extra money to renew? Would I have a better chance in getting funding from a lender since the start date was five years ago?

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arlittle — Tue, 29 Jul 2008 19:34:04 +0000

For a moonlighting techie, a second business necessitates more licenses.

Lacy Taylor, Charlotte, N.C.
I have a business license for PC repair. I have been making small loans to some of my customers and charging interest. Do I need another license for this in Mecklenburg County, North Carolina?

By Myrlande Davermann, Fortune Small Business contributor
Dear Lacy: While your clients may delight in both of your talents – who wouldn’t love a computer doctor who doles out cash? – you’re going to have to differentiate the endeavors in the eyes of the law.

According to Bob Edwards, an economic developer with the North Carolina Business License Information Office, you’ll need to take several steps in order to operate your side business legally. Otherwise, he says, “You’re going to get in trouble for charging for loans without a license.”

First, inform the Mecklenburg County Register of Deeds that you have a second business operation in which you charge interest on loans. Obtain documentation from them if you’re a sole proprietor. If you’re running the loan business as a corporation or LLC, contact the Secretary of State instead.

Ha Nguyen, a public information officer for the North Carolina Office of the Commissioner of Banks, says you’ll also need to procure a license with her organization if you charge over 16% interest. If you’re making direct loans or cash advances and charging under 16% interest, you don’t need an NCCOB license.

She notes that you have the option of choosing what type of license you want, depending on the size of the loans you’re making and their interest rates. You should file for a 53-173 license if you intend to lend up to $3,000 at up to 36% interest; if you want to make loans of up to $10,000 with interest rates of up to 30%, you’ll need a 53-176 license. Nguyen adds that you may need other documentation depending on the type of loans you’re making, and she encourages you to read the North Carolina Consumer Finance Act and contact the NCCOB for more specific advice.

Nguyen also advises you to seek counsel from yet another government agency: the North Carolina Department of Revenue. Sounds like an excess of red tape? Just think of the legal tangles you’ll avoid in the future – and the profits you’ll ring up as a two-business entrepreneur.

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What an LLC does – and doesn't – protect

arlittle — Thu, 17 Jul 2008 15:36:46 +0000

LLCs shield their members from legal claims, but the company itself still carries liability risks.

Angela J. Thomas, ATM Investments, Baton Rouge, Louisiana
I am just starting out in the investment world and am still a bit green in understanding certain things. I purchased two investment properties in 2004 and am renting them out. This year, I created an investment LLC for them. My questions is, although I have the LLC with its “limited liability,” do I still have to put insurance on the company?

By Shara Rutberg, Fortune Small Business contributor
Dear Angela: You don’t have to, but it would definitely be wise.

Forming an LLC shields the owners, called “members,” from liability, but the firm itself is still liable, explains David Sokolow a senior lecturer at the University of Texas at Austin School of Law whose areas of expertise include corporations. In this respect, an LLC is similar to a corporation, in that shareholders aren’t liable but the firm itself is.

“You should purchase the same kind and amount of insurance you would if you were operating the business as a corporation. Although you may not be personally liable, third parties may not want to deal with your LLC if it doesn’t have insurance,” he says.

Peter Bennett, chairman of the American Bar Association section of tort trial and insurance practice, agrees.

“The selection of a form of a business is not a replacement for insurance,” says Bennett, who is also president of The Bennett Law Firm, PA in Portland, Maine. “You need coverage to protect against liability.”

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