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Monday, January 30, 2012

When Do You Really Need a Business Lawyer to Start a Business or Review Contracts?

I receive several calls a week asking for business law support. Specifically, there are two categories that come up most frequently -- contracts and "starting a business". The question is -- do you really need to pay for a lawyer in either case? Now, obviously, if you have a voluminous contract with complicated contingencies and difficult to follow clauses, a business lawyer is key. But what about the standard two pager? How can you tell?

First, you don't always need a lawyer. At least half the folks I speak with end up not needing legal assistance. Part of my job as a good attorney is to not only recommend the proper course of action, but also be willing to indicate when you should not pay for legal services. Sound counter intuitive? Not really. A good lawyer is honest about services, and should always be upfront with what's best for the client. Period.

In terms of contract law, the rule of thumb is NOT how long a contract is (I have seen some one page contracts that bring tears to experienced lawyer's eyes...namely mine), but rather, what is at risk. In a good business contract, the following terms are always spelled out clearly:
  • name and contact information for each of the parties involved
  • what service or good is being offered (what you promise to do)
  • what is agreed to in return for the service or good
  • what time frames and conditions are there on performance
  • what happens if something goes wrong (how do you get out of this deal)
  • how will you handle disputes

While there are obviously many other possible clauses and items to cover, these basic items form the backbone of every contract, no matter how complicated or long. When these items are present in your contract, and the risk of loss to you if something goes wrong is negligible (or -- acceptable), then no additional review is needed. However, if you have significant exposure, then contact us -- you need a business lawyer! Exposure is defined on a sliding scale -- the more risk there is that you could have to pay more money than you have to cover a loss, the higher the exposure. (For example, you have "high exposure" if the value of the contract is significantly more than you could afford to pay if things went wrong). The cost for reviewing a contract is $50 per page -- that's a small amount to pay when you could have $1000's or even $10000's worth of exposure on a contract.

Starting a business is an entirely different matter. Usually, an incorporation service can help you, and lawyers will merely be a more expensive alternative. Except in rather unusual circumstances where you are starting partnerships, or require special incorporation documents to cover different classes of shares, etc. -- retaining a business lawyer to help you start your company is overkill. If you aren't sure -- call us! If you don't need to hire a lawyer from Hanover Law, we'll let you know, and point you in the right direction so you can do it yourself.

Remember -- this law firm will always act in your best interest. It services us no purpose to take your money for something you can do on your own -- we want you to contact us when you really need legal help with business law. For that, you have to trust us -- and I assure you, you can.

Sean R. Hanover, Esq

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Friday, January 27, 2012

S-Corporation (and Partnership) Tax Filing Date Cometh...

While IRS Publication 509 calls for tax submission no later than the 15th day of the 3rd month after the end of the corporate year, for most S Corporations, that means March 15th. In the frenzy to file personal taxes, sort receipts, business expenses, and general mish-mash of taxable items, it is easy to forget the filing of an 1120S. You'll need the K1 from this filing in order to complete your own personal taxes, and any shareholder will need them, too.

What happens if you forget? The IRS will assess you a fine of up to $195 per shareholder, per month. This is galling, not only in the price tag, but also because for most of us, this is merely an "informational return". Information returns are to (surprise!) inform the IRS of tax status, or distribute such forms as K-1's of partnership notices. No taxes are paid.

Sub S corporations are generally automatically eligible for a 6 months extension (file IRS form 7004), although I have never seen this done. If you failed to file a timely 1120S, and have been notified by the IRS of an impending late fee, contact us! We often can get those fees reduced or completely removed.

Sean R. Hanover, Esq

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Tuesday, January 24, 2012

Same-Sex Couple Married in DC and Moves to VA...and Files State Taxes Jointly. Uh oh....

The problem is that Virginia does not recognize same sex marriages. In fact, it gives no comity to same sex marriage performed in sister states. This presents a rather difficult legal pickle. The whole idea behind comity is to prevent an impossible mish-mash of laws between the states; and ensure fairness -- you agree to my laws, I'll agree to yours (admittedly simplified). So..what happens when this breaks down? In the example from the title, a lesbian couple legally married in DC has no rights as a couple in Virginia. They could not file a joint tax return claiming married, filing jointly. If the couple did, they would be filing a fraudulent return, as VA specifically disclaims same-sex partnerships, and affirmatively denies them the right of married couples (such as joint filing of taxes).

But is this legal? Arguably, it is not. This is genesis of a really interesting lawsuit.

If you argue the Constitution grants the right (via a "penumbra" emanating from the 1st Amendment) to citizens to choose their marriage partner (see Zablocki v. Redhail where the Supreme Court indicated that the right to marry is "of fundamental importance" and "significant interference" by the state gives rise to "critical examination" (compelling interest test/strict scrutiny)), then the 14th Amendment would be the perfect vehicle for enforcing the rights of the DC couple under VA law. While states may make such determination and statutes to protect the welfare of their people and ensure laws are not broken (incest, and mental capacity, for example), the removal of free choice in the sex of the partner a man or woman wishes to marry is a mangling of the due process afforded any citizen of the US, and badly skews the degree a state may interfere in the welfare of its citizens. The argument could also be made that VA is violating the Equal Protection clause of the 14th Amendment by failing to treat male or female citizens equally merely as a result of their private sexual preferences. The choice of sexual preference, or activity, has now long been recognized as protected under the constitution and inviolate by the states (see Lawrence v. Texas). If the state has no right to constrain the conduct overtly, then it is arguable that denying marriage to the same population is merely a pretext for attempting to constrain the conduct again (and therefore violative of substantive due process and Equal Protection).

To be fair, the afore mentioned is merely a rough sketch of a constitutional argument concerning same sex marriage. A significant amount of additional research and case law would be needed to support the position. But I do believe it is completely supportable.

Sean R. Hanover, Esq

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Monday, January 23, 2012

Do Immigration Lawyers "Matter"?

This seems to be a season of lost spouses.

Today, I had the privilege to chat with another potential client regarding her spouse who appears trapped overseas. I discussed a similar situation in an earlier post. In this case, a gentleman went overseas to take care of family business in Nigeria. He is married to an American here in DC. He was gone for 9 months. BAM -- no return entry permitted. Now here is the debate: Is it better to pay less (at least in terms of legal fees; filing with USCIS is expensive regardless)and file your own SB1, K3 or appeal, and hire an attorney to draft the paperwork and send it to your spouse overseas? Honestly, the results are mixed in my opinion.

Assuming the party to whom you are providing legal serves is competent and savvy, they may be able to handle the drafting of the requisite USCIS/Consulate forms themselves (or with minimal advisement and review by counsel). However, where I DO find legal assistance is really critical -- time. My experience, and the stories told to me by clients who have tried it on their own seem to corroborate this, is that a bar license and attorney oversight on a USCIS case has the effect of speeding the review process (by the government) by almost 30% on average -- sometimes as much as 50%. This is especially true on citizenship applications.

My conclusion? If you are not comfortable making cogent arguments on paper and filing government forms -- get a trusty lawyer! Even more importantly, if you want your application processed in a reasonable time-frame -- definitely retain counsel!

Sean R. Hanover, Esq

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Nothing Like Arguing By Yourself -- or -- What Happens When Your Client Changes Positions Without Telling You...

I really enjoy contract negotiations.  The repartee can be invigorating, and the opportunity to make a huge difference is immediate.  However, from time to time...a client will really catch you off guard and the results can be either frustrating...or humorous.  I was negotiating on behalf of a business client who was concerned about her interests in a business venture she owned.  She had brought in investors and executed share trade and invest agreements in return for money, and was quickly learning she ought to have hired counsel when doing those agreements.  Regardless, she was concerned she would be pushed out of the business if the group of investors "ganged" up on her and voted her out (she had not split share classes or protected her interests in this regard).  Initially, she had taken quite a hard stance...and we had pursued a vigorous "do what I say or I will buy back your shares and kick you out" type approach.  At one of our final meetings, when all seemed to be going our way, and after three hours of really "un-fun" posturing and puffing...she completely changed her mind. She decided she did not think they (investors) were trying to hurt her, and she merely wanted to live trouble free (think butterflies) and make money from the company via residuals -- without a care in the world for the number of shares she owned or who had control of the company.

I was left standing there more than a little surprised.

I later learned she had taken a "buy-out" offer made behind closed doors (or at least outside of MY earshot). Turned out to be a bad move (and I strongly suggested it would be). The company has not done well without her leadership, and her profits have been quite slim.

Moral of the story -- make sure you have good representation BEFORE bringing in investors or spreading shares to other parties. Mistakes at the beginning seem trivial when a company is small and not successful...yet. But after a surge in growth and productivity, poorly designed share and/or control plans can cost you big!

Secondly -- don't waste the time of your lawyer. If you are willing to take a buy-out, or just are tiring of the fight, be frank about it. It's humiliating and frustrating to waste a lot of time...for nothing.

Sean R. Hanover, Esq

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Lost in a Foreign Country -- K3 or SB1?

So I was chatting with a potential client the other day regarding an interesting problem.  He was a citizen, and his wife was a permanent resident alien (aka green card holder).  The wife had left the country several years prior to take the the offspring back to Indonesia so they could receive a "proper" education (one daughter).  You guessed it!  Violation ensues.

For those of you unfamiliar with this type of case, it is a lot more common than you might think.  Green-card holders often forget that they are not permitted to leave the country for more than 6 months or risk not being permitted to re-enter.  This individual was the second person to call me on this same topic in one week -- so it seemed like a perfect blog topic.

There are really only two methods for fixing this problem.  One -- apply for an SB1 visa and pray you can convince a rather surly consulate officer that your "overstaying the 6 month period was due to critical, unforeseen, exigent circumstances" and then re-up your green-card when you get back to the States -- or scrap the current green-card and come back on a K3 spouse visa and re-apply for a green-card from scratch.

There are tricks for both -- but that's a discussion for a different blog!

Sean R. Hanover, Esq

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