The Purpose Clause in Not-For-Profit Articles of Incorporation

Most not-for-profit corporations opt to incorporate under state law. This step is taken prior to seeking the very valued 501(c)3 status. Initially, drafting the certificate of incorporation can seem fairly easy and New York State offers examples to help guide people forming not-for-profits. Most of the information the creators need to provide are fairly self-explanatory and include things like the name and addresses of a minimum of three board members. Those who chose to draft these articles on their own should be aware of the importance the “purpose” section is, however.

The purpose clause is probably the trickiest part of the certificate. Although businesses in New York are allowed to use all encompassing language, allowing the business to participate in “all lawful activity,” not-for-profits must be more specific than this. Additionally, even if the state approves the purpose, when the not-for-profit goes to apply for its 501(c)3 status (which is granted by the IRS, not the state) the IRS will carefully review this purpose before ruling on the exemption request, so all purposes need to be drafted with the IRS standards in mind. The goal is to be as specific and as broad as possible in the purpose. The purpose clause should be drafted so as to avoid the need to amend it later should the not-for-profit wish to expand to a different kind of business, but not be so expansive that the not-for-profit needs to obtain a large number of consents from state agencies.

All in all, it is wise to carefully review your purpose clause on multiple levels before submitting it to the Department of State.

Who Owns Those Tweets?

No one can deny that social media has become an amazing way to promote small and start-up businesses.  Facebook and Twitter accounts are free for the taking and the majority of American are spending significant amounts of time on social media everyday. Before you ask someone to take on the task of tweeting for or about a business, business owners should consider putting a contract in place.

A recent federal case demonstrates how valuable tweets and twitter followers can be.  In PhoneDog v. Kravitz, Kraviz, a tech reporter who was formerly employed by the news site PhoneDog, left his job with PhoneDog and took his 17,500 twitter followers with him by refusing to release the password to his account.  A federal judge refused to dismiss PhoneDog’s suit and the case will likely be in court for another year.  To read the decision, click here.

Small business owners should keep this case in mind when asking someone else to tweet for them.  Business owners can protect themselves and ensure that tweets and other social media avenues concerning their businesses belong to the business by putting a specific contract in place with anyone who is tweeting or posting statuses about the business.  Setting out the terms of tweets in writing prior to asking others to take on this task will protect businesses from potential disputes in the future.

Hiring Independent Contractors

Start-up and small businesses often begin by hiring independent contractors instead of full fledged employees.  Independent contractors can be an amazing solution to a small business working with a budget and a specific project because an employer is not responsible to pay for or withhold the independent contractor’s payroll taxes or provide benefits.  If your business is planning on hiring an independent contractor, you should be aware that there is more involved than just calling the person an independent contractor.  Businesses can get in trouble with the IRS if they call someone an independent contractor who is in fact an employee.

Although there is no exact definition of what constitutes an independent contractor, there are certain factors that the courts consider when deciding if an individual is an independent contractor or an employee.  Here are some key questions to ask to determine if the person working for you is an independent contractor:

1) Does the individual work exclusively for the company or is he permitted to work for others at the same time?  Allowing the individual to work for others suggests an independent contractor status.

2) Does the business have a written agreement with the individual stating that the individual is an independent contractor and thus the individual  must pay all taxes?  A written agreement that clearly states the terms of the arrangement is always useful.

3) Does the individual control his own work schedule and the number of hours he works for your company?  If you require the individual to work a specific number of hours a week, as opposed to hiring him to complete a project, this may suggest to the court that he is an employee of your business.

4) Does the individual operate from his own workplace and use his own supplies or does he come to an office leased by your business?  If the individual works in his own space and uses his own supplies, as opposed to your company’s space and supplies, the courts are more likely to see him as an independent contractor.

There is not a single, easy answer to whether an employee is an independent contractor or not.  Instead, you should consider your situation in its entirety.

Starting Small – The Differences Between a Sole Proprietorship and a Single LLC

One of the first choices an entrepreneur has to make when she decides to start a business is choosing which business entity is right for her.  If she is opening a business by herself (meaning without any additional partners or business owners) then she has four options to choose from:  a sole proprietor, a single LLC (or PLLC), an “S” corporation or a “C” corporation.  Because starting a corporation involves greater paperwork and cost, solo business owners with limited funds and resources often choose between a sole proprietorship and a Single LLC (or PLLC).

These two choices are similar, and in both cases the entity is taxed as an individual, but it is important to be aware of the differences when deciding if one of these options is right for you.

What are the differences between these two options?

Paperwork and Fees

Sole Proprietors do not have to fill out any paperwork or pay any fees to begin doing business under the name of the individual business owner.  The business owner can simply hang a shingle outside her door and begin operating.  Individuals doing this should, of course, be aware if there are any licensing requirements for the type of business they are undertaking.

To form a Single LLC the individual business owner must file with the Secretary of State, publish notice in two newspapers, and pay a fee to the State of New York.

Liability

In the case of a Sole Proprietorship, both the business and personal assets of the individual owner are exposed and could be accessed in order to pay off outstanding business debts.  In other words, the sole proprietorship offers no protection of the business owner’s assets.

The personal assets of the owner of a Single LLC are protected in commercial matters, and only the assets of the LLC are exposed to commercial liability.

Liquidation/Merger of the Business

A Sole Proprietor may simply cease doing business and does not need to alert the government.

The owner of a Single LLC must terminate the LLC by filing a notice with the State in order to dissolve the entity.

Being aware of the differences between these two common choices allows a solo entrepreneur seeking to start a small business the power to decide what is right for her organization.

Online Legal Websites for Non-Lawyers

There was an interesting article in Forbes magazine in October about the rise of LegalZoom and other legal websites.  LegalZoom has been around for about ten years now, and some lawyers are starting to feel the heat.

For those of you who don’t know, LegalZoom (and other websites like it) have been popping up on the web.  They aim to customize typical legal forms such as wills and incorporation papers for people who are not hoping to spend a lot of money on a lawyer.  The article reports that LegalZoom charges $69 for wills and as little as $99 for articles of incorporation.  Many old school lawyers who still bill by the hour could charge thousands for these services.  Websites like LegalZoom seek to remove the middle man and help intelligent people manage simple legal matters on their own.

The reality is that you don’t need a law license to draft your own will or incorporation papers.  Many people can and do take on these tasks without the aid of an attorney.  Hiring an attorney can provide some benefit, however.  For instance, attorneys may be aware of nuances or differences in your particular situation that a legal website that spits out the same document for every person with the same information.  Is this knowledge worth thousands of dollars of additional money?  Often the answer is no.

Instead of fighting websites like LegalZoom, attorneys should be exploring new pricing schemes that reflect the value of the service they are providing.  An attorney’s expertise, knowledge, and advice can and should be reflected in the cost of legal services, but not at the great expense of the client.  The legal community should embrace these alternatives and use it as an opportunity to explain why what they provide is worth any additional funds.  Hopefully, these legal sites will help lawyers to rethink the billable hour and offer fixed fee services for work when the amount of time and energy required can be easily estimated.