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Law in the Marketplace: Managing business risks

For the Monitor
Published: 10/30/2021 6:12:38 PM

If you’re a New Hampshire business owner, making good business decisions may only be your second-most important job. Your first is probably to manage your business risks.

The starting point in doing so is simple: Write down a complete inventory of these risks and for each, write down the best way to avoid it. If you’ve never done this task, consider doing it ASAP. When it comes to thinking things through comprehensively, there’s no substitute for writing.

Here are a few basic questions that your inventory should address. Maybe you’ve long since thought about all of them. But maybe one or two will be new to you.

-- Do you have the right business structure? If you’re the only owner of your business, it should almost certainly be structured as a single-member LLC, not as a state-law sole proprietorship. If your business has two or more owners, it should almost certainly be a multi-member LLCs, with a carefully designed written operating agreement, and never a state-law general partnership. Otherwise, you won’t have a statutory liability shield if you ever get sued. And this lack could be a disaster for you and your family.

-- Do you have the right federal tax structure? Before 2018, lots of New Hampshire businesses were one- or multiple-owner state-law corporations or LLCs that were taxable as S corporations. Subchapter S is still OK in 2021 if you file separately and if your 2021 taxable income will be at or over $164,925 of if you file jointly with your spouse and your joint income is at or over $329,800. But if your 2021 taxable income will be less than these amounts, you may be missing out on a potentially enormous federal income tax deduction under Internal Revenue Code section 199A — 2% of your income. January 1, 2018 was when section 199A became effective. If your taxable income in 2021 is under the above amounts, you’ve got to convert your business structure to a single- or multi-member LLC and your federal tax structure to sole proprietorship or partnership taxation. If you don’t, you could miss out on thousands of dollars of deductions. And you should take out all your income from your LLC as distributions, not as compensation.

-- Are all of your insurable assets — e.g., real estate, inventory, tools, vehicles, equipment—fully insured? You won’t know for sure unless you talk to a commercial insurance specialist.

-- What if any of your key assets are intellectual property assets — i.e., trade secrets, items of confidential information that aren’t trade secrets but that are still valuable to you, copyrights, patent rights? These assets may not be readily insurable, but there may be other effective ways to protect them. To find out, check with an intellectual property lawyer.

-- What if any of your key business assets are not property, but rather, employees? If so, think about entering into carefully drafted employment agreements with them. You may prefer the freedom and flexibility you’ll have if they are employees “at will” — i.e., if, under New Hampshire law, they can quit at any time for any reason but you can fire them at any time for any reason. But maybe, because of their importance to your business, this freedom is actually less a blessing for you than a curse. Ask an employment lawyer if, at least for one or two of your employees, employment agreements will make sense.

-- Are any written contracts between you and third parties important in your business — e.g., supplier or customer contracts? Make sure these contracts are well written and that they address every issue they ought to address. And if any of them is absolutely indispensable in your business, think about reviewing it with a contract lawyer even if it’s been in effect for years and has worked just fine for all parties. A really good business contract means no future contract problems — ever. Not every business contract meets that test.

-- If your business is subject to any kind of federal or state business regulation, make sure you’re complying with that regulation. You might be thinking that, thank goodness, your business is subject to no such regulation. But there is one type of regulation that every New Hampshire business, big or little, is subject —COVID-19 regulation. Are you aware of all of the federal and state COVID rules to which your business is subject, and are you sure you’re comply with all of them? You’d better be.

 

-- Finally, your inventory should identify all of the various types of business lawsuits to which you’re potentially subject. These may include product liability suits, negligence suits, suits by employees, tax suits, intellectual property suits, COVID suits — your list is likely to be long. But with a little work, and with even a brief consultation with a business litigator, you can at least identify the main ones and take reasonable steps to prevent them.

Here’s a reason to do so: Even if you win, dealing with lawsuits is often sheer torture.

 

 

John Cunningham is a lawyer licensed to practice law in New Hampshire and Massachusetts. He is of counsel to the law firm of McLane Middleton, P.A. His practice is focused on LLC law and tax, LLC formations and the handling of LLC disputes and lawsuits. His telephone number is (603) 856-7172. His email address is lawjmc@comcast.net. His website is: llc199a.com. For access to all of his Law in the Marketplace columns, visit concordmonitor.com.




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