Month: July 2021

A How-To Guide to Starting a Business in Pennsylvania

By: Cameron Crowe

So you think you’re ready to start a business. You’ve settled on a name. You have your business plan and chose Pennsylvania as your state of operation. You’re confident in your idea, and you know your business can succeed if you play your cards right. That’s the easy stuff. Now it’s time to get serious. But you’ve never formed a formal business before, and the steps to do so seem daunting. What forms are required? Where are they filed? How much does it cost? These are the questions every new entrepreneur must face and overcome. Today’s goal is to guide you through that process so that you can be confident that you’ve formed a legitimate legal entity that is prepared to do business, hire employees, pay taxes and, most importantly, make money!

This blog will focus on setting up an LLC, or limited liability company, in Pennsylvania. Pennsylvania is a great place to start a business, with a robust economy, a high business survival rate, and a relatively low cost of living. You should do your own research on the advantages and disadvantages of forming an LLC, but for the purposes of this blog, let us assume you have decided to form an LLC in Pennsylvania and are ready to hit the ground running!

What’s in a Name?

Before officially registering your business with the Commonwealth, it is a good idea to use the Pennsylvania business name search tool available online. It is essential to make sure that your desired business name is available for use. The business entity search function will bring up any existing entities with that name, whether they are an LLC, a corporation, or otherwise. If you’re lucky, your first choice will be freely available to you. It is often a good idea to make a list of acceptable names and search for each one. There are currently over 2.6 million entities registered to conduct business in Pennsylvania, so if your first choice is taken, don’t be discouraged!

Forms for Formation

The next step is to start working on the necessary forms. First, you want to fill out a Certificate of Organization, which carries a cost of $125. To be properly filed, the Certificate of Organization must contain specific information, including your entity’s chosen name, the location of its registered office, the name and address of the organizer(s), and an effective date. A “registered office” is the official address of any legal entity. Registered offices can be your home address, commercial office space, or even your attorney’s business address if you have one. The key is that the Commonwealth be able to reach you or your registered agent at that address if necessary. Unlike many states, Pennsylvania does not require LLCs to file an Annual Report which often comes with an additional annual fee.

New entities are also required to file a supplemental document called a Docketing Statement alongside their Certificate of Organization. The docketing statement acts as a cover sheet, providing the Commonwealth with a quick reference to the most critical information they need. First, there is a box that must be checked to determine if you are operating a foreign or domestic business. The docketing statement must also include the entity’s name, the name and address of the owner who will be responsible for tax correspondence, and a short description of the business activity your new entity will engage in. If you want to manufacture and sell snowboards, for example, you may want to describe your business activity as a “winter sports retailer.” This would allow you to sell not only snowboards, but any clothing or equipment potential customers may want for a variety of winter sports. Or perhaps go broader and leave room for sports of any season! Keeping your business activity flexible will you more freedom down the road without the need for consent from other members or additional paperwork to file.

Dealing with IRS Concerns

Believe it or not, these are the only two forms that are required for official recognition of your business with the Pennsylvania Department of State. However, there are many other things to consider, and some necessary steps for filing with the Federal Government. If you plan on hiring employees or there’s more than one owner of the LLC, you will need to obtain an EIN, or an Employer Identification Number, from the IRS. The SS-4 is used to assign your business a tax identification number for submitting the entity’s tax returns. There are other tax situations where an LLC may be required to register for certain excise tax activities, but that falls outside this blog’s intended scope.

Now that you’ve registered with the Commonwealth and obtained an EIN, you are now officially licensed to do business in Pennsylvania. Congratulations! However, please keep in mind that this blog is far from exhaustive regarding all the steps that may be critical to the success of your business. Outside of formal entity filings, it is always smart to create a  governance document such as an Operating Agreement. Such an agreement helps solidify the entity’s structure and provide guidance for how to properly handle difficult situations that are bound to arise as your business grows. Additionally, an Operating Agreement will be required by most banks if you want to set up a business bank account – which you do.

As there is an almost limitless number of questions you may have or scenarios worth preparing for, it is often a good idea to consult an attorney specializing in entrepreneurship or start-up law. Despite the relative ease of starting an LLC, having access to a knowledgeable attorney can prove valuable to owners looking to focus on operations without getting overwhelmed by technical legal considerations.

This post has been reproduced with the author’s permission. It was originally authored on February 10, 2021, and can be found here.

Cameron Crowe, at the time of this post, is a rising 3L at Penn State – Dickinson Law in Carlisle, PA. Before coming to law school he worked for many years as a licensed real estate professional in the Pittsburgh area. His focus in law school has been on corporate and entrepreneurship issues with an aim to work in the business transactions sector of law after graduation. Cameron is also interested in mergers & acquisitions and energy law & policy. He has a passion for public service and recently interned at the YWCA Harrisburg Violence Intervention and Independence Blue Cross in Philadelphia, PA. 

 

Sources:

https://www.legis.state.pa.us/cfdocs/legis/LI/consCheck.cfm?txtType=HTM&ttl=15&div=0&chpt=88

https://www.harborcompliance.com/information/advantages-disadvantages-of-an-llc

https://www.corporations.pa.gov/search/corpsearch

https://www.dos.pa.gov/BusinessCharities/Business/Documents/Business%20Guide.pdf

https://www.dos.pa.gov/BusinessCharities/Business/RegistrationForms/Documents/Updated%202017%20Registration%20Forms/Domestic%20Limited%20Liability%20Company/15-8821%20Cert%20of%20Org-Dom%20LLC.pdf

https://www.dos.pa.gov/BusinessCharities/Business/Resources/Pages/Fees-and-Payments.aspx

https://www.dos.pa.gov/BusinessCharities/Business/RegistrationForms/Documents/Updated%202017%20Registration%20Forms/Docketing%20Statements/15-134A%20Docketing%20statement%20creation.pdf

https://www.dos.pa.gov/BusinessCharities/Business/Pages/default.aspx

https://www.irs.gov/charities-non-profits/employer-identification-number#:~:text=To%20apply%20for%20an%20employer,the%20U.S.%20or%20U.S.%20territories.

Photo Sources:

https://howtostartanllc.com/start-a-business-in-pennsylvania

https://www.lynda.com/Web-Design-tutorials/Getting-started-name-your-LLC/163952/184267-4.html

https://online.findlay.edu/how-to-start-an-llc/

https://fcw.com/articles/2017/10/17/irs-infosec-johnson.aspx

The Corporate Transparency Act: What Is It and How Does Your Business Need to Prepare?

By: Phil J. Petrina

Are you a current small business owner, or in the process of forming a new corporation or LLC? If so, you need to be aware of a new federal reporting requirement, which could affect your small business beginning in January of 2022. In 2020, Congress passed the Anti-Money Laundering Act, which was part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”). The NDAA included the Corporate Transparency Act (“CTA”) which became effective on January 1, 2021. However, beginning on January 1, 2022, the CTA will begin being enforced, requiring many small business owners to ensure they are in compliance with its reporting requirements or face criminal and/or civil penalties. The remainder of this article will provide an overview of what the CTA is, who it applies to, and how small business owners can ensure they are in compliance with these new federal reporting guidelines.

What is the Corporate Transparency Act?

In an effort to crack down on anonymous shell companies, money laundering, terrorism financing, and other illegal financial activities through the use of corporate structuring, Congress passed the Corporate Transparency Act. This Act will require corporations, limited liability companies, and other similarly formed entities to disclose information about their beneficial owners to the Financial Crimes Enforcement Network of the Department of Treasury (“FinCEN”). The CTA creates a private federal database of beneficial ownership information within FinCEN which will not be available to the public except in very limited circumstances.

In fact, the CTA states that FinCEN will only be allowed to disclose the data to the public if requested by (1) a federal agency engaged in national security or law enforcement, (2) state or local law enforcement, (3) the federal government on behalf of a judge, prosecutor, or law enforcement of another country, (4) a financial institution with the consent of the reporting company, or (5) a U.S. federal function regulator. Such records will be kept by FinCEN for “not less than five years” after a company terminates or ceases to exist.

But, Who is a “Beneficial Owner,” and Who do the Reporting Requirements Apply to?

The CTA defines a beneficial owner as a “natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (1) exercises substantial control over such company, or (2) owns 25% or more of such company.” If your company has a beneficial owner, your company will be required to report to FinCEN the following identifying information about the beneficial owner:

      • their full legal name
      • their date of birth
      • their current residential or business address; and
      • their unique identifier numbers such as a passport, driver’s license number, or social security number.

However, the CTA expressly exempts many large companies, those already heavily regulated by the SEC or other federal regulators, and charitable, religious, and political organizations from the reporting requirements. Specifically, if your company employs more than 20 full-time employees, reports over $5 million in gross revenues on your most recent tax return, and has an operating presence with physical offices in the U.S., the CTA exempts your company from its reporting requirements. This specific exemption exists because, as mentioned previously, the CTA was passed in an effort to crack down on the illegal activities which tend to travel through small shell companies.

The CTA also provides a set of exemptions for individuals who need not report their identifying information to FinCEN. The individual exemptions are: (1) minors, (2) those who are a nominee, custodian, or agent acting on behalf of another, (3) employees, acting within that capacity, whose control over or economic benefit is solely from their employment status, (4) those whose interest(s) in the company is solely through a right of inheritance, and (5) creditors of a company, unless they substantially control, or own more than 25% of the company.

How Can I Ensure My Company is in compliance with the CTA?

If none of the above exemptions apply to your small business, you must be sure to make the above disclosures to FinCEN, or risk facing criminal and/or civil penalties. If your business is formed or registered after January 1, 2022, you must disclose the beneficial owner(s) of the company to FinCEN on the date of formation or registration. If your business pre-existed the passage of the CTA, you must disclose this information in a timely manner, and not later than two years after January 1, 2022. Additionally, your company must update the information provided to FinCEN within one year of any change in such information.

A company that fails to report such information, or willfully provides false information, carries a $500 per day fine and/or a criminal penalty of up to $10,000 and up to two years imprisonment. However, the penalty is even steeper for any government employee or third party who makes an unauthorized disclosure of the beneficial owners’ private information. An unauthorized disclosure by the government or any third party carries a $500 per day fine and/or a criminal penalty of up to $250,000 and up to five years imprisonment. If there was an unintentional mistake made in the reporting, the CTA provides for a 90-day “safe harbor” from any civil or criminal penalties to correct such mistakes.

There are many questions that still remain as to how FinCEN will enforce the CTA, how they define substantial control, how and where a business must file these reports, etc. In accordance with the passage of the CTA, the Secretary of Treasury is mandated to issue Treasury Regulations that shed more light on some of these more nuanced questions by January 1, 2022, when the CTA becomes enforced. All business owners who may be affected by this Act should pay close attention to the release of the Treasury Regulations for guidance on some of these outstanding questions. Overall, if you own a small business you should be sure to understand the Corporate Transparency Act as the deadline for compliance with its reporting requirements quickly approaches.

Phil Petrina, at the time of this post, is a rising 3L at Penn State Dickinson Law, a member of the Class of 2022. Phil is the President of the Student Bar Association, on the Moot Court Board, a member of the Business Law Society, and a Pennsylvania Commonwealth Scholar. He is interested in corporate and commercial litigation, business law, and healthcare law. Phil can be contacted at pjp5327@psu.edu.

 

Sources:

https://businesslawtoday.org/2021/04/corporate-transparency-act-preparing-federal-database-beneficial-ownership-information/

https://www.congress.gov/bill/116th-congress/house-bill/2513/text

https://www.natlawreview.com/article/what-you-need-to-know-about-corporate-transparency-act

https://www.reedsmith.com/en/perspectives/2021/02/an-overview-of-the-corporate-transparency-act

Photo Sources:

https://www.fincen.gov/

https://www.nytimes.com/2019/11/07/magazine/how-to-set-up-a-shell-company.html

Signatories – Who do you trust?

By: Ashli Lyric Jones

Starting a business can be challenging. If you’ve ever thought about creating your own business, there are three crucial things you should always keep in mind to help provide the foundation for your business. First, you will need to establish a business plan. Next, you will need to determine a target audience. Last, you will need to assess your finances to determine profitability. Assessing your finances can help you determine whether or not you need to borrow or raise capital. When accessing your finances, it is important to create separate bank accounts that clearly separate your personal income and your business income.

Creating a business bank account can limit an entrepreneur’s personal liability because it keeps the entrepreneur’s business and personal finances separate. Having separate accounts can help provide the protection of your legal entity, make your accounting easier, and provide more services. When establishing separate bank accounts, it is important to designate authorized signatories. In this article, we will specifically discuss the importance of having signatories for your business bank accounts.

What is an Authorized Signatory?

An authorized signatory is a person who has been given the legal right to sign documents on behalf of the authorizing organization. They do not need to get permission before signing off on a legally binding document or contract, as the employer has already entrusted them with that. They’re expected to make smart decisions based on the company’s behalf that will serve to benefit the company and its employees in the future. Within a company, a signatory may take on many roles. These roles include:

      • Signing and delivering official documents and agreements with third parties and serving as a company’s agent
      • Signing/authorizing goods/product orders
      • Signing/authorizing permits, passes, or timesheets
      • Giving any notices
      • Executing any specific undertakings and approvals

Authorized Signatory for Bank Accounts

When establishing a business bank account, it is important to designate individuals that you trust to manage your account. These individuals will also be known as “authorized signatories.” Authorized signatories are able to do basic functions such as signing checks on the company’s behalf, making deposits, or even doing basic online banking.

Authorized signatories typically have the same amount of access to the bank account as the account holder, which is why it is crucial to only choose individuals that you trust as authorized signatories for your business bank accounts. The most common types of permissions that are held by authorized signatories are:

      • The ability to close the account
      • The ability to sign checks
      • Access to transaction history
      • Access to the account balance
      • The ability to cancel payments on checks

Authorized Signatories for LLC(s) and Corporations

A Corporation or LLC is an entirely separate entity from the actual business owner, and the entity itself is the owner of the business bank account. Signature authority can be given by an LLC to one or more individuals for all legal and financial documents, or rights can be approved for only certain accounts or transactions. It is important to be careful who you are choosing as your authorized signatory because banks are not required to verify the underlying purpose of a given transaction. As long as the authorized signer is “on the record” as being authorized, they can complete the transaction.

When choosing your authorized signatory, be clear about what type of access you want authorized signatories to have. If you have more than one signatory, you can require them to access your accounts together.

Adding an Authorized Signatory to Your Bank Account

A bank mandate is a document that lets a bank know who is authorized to access an account. Adding a new authorized signatory can be fairly easy. Typically, only the business owner or an authorized signer can add an additional signatory to a company account. In order to add a signatory to the account, a business owner must:

      1. Call your bank to ask about their requirements for adding a signatory.
      2. Fill out the information the bank requires.
      3. Have all relevant parties sign the forms.

Authorized signatories do not need to get permission before signing off on a legally binding document or contract, as the employer has already entrusted them with that. They’re expected to make smart decisions based on the company’s behalf that will serve to benefit the company and its employees in the future.

The bank must always act in accordance with the mandate. If there are unauthorized transactions, a bank is responsible for any resulting loss. If it can be established that a transaction in breach of mandate benefited the account holder, then generally there is no loss. Sometimes, a bank will not be responsible for all of a loss if a customer has contributed in some way to the breach or failure to mitigate the loss.

Conclusion

When starting a business, it is important to separate your business accounts from your personal accounts to limit liability. When establishing separate bank accounts, it is important to designate authorized signatories. Authorized signatories are able to do basic functions such as signing checks on the company’s behalf, making deposits, or even doing basic online banking. You can determine how much authority the signatory has and include that in the bank mandate.

Be sure to always choose a highly trusted individual as your authorized signatory.

This post has been reproduced with the author’s permission. It was originally authored on March 29, 2021, and can be found here.

Ashli Jones, at the time of this post, is a recent graduate of Penn State Dickinson Law. She is from Long Island, New York, and is a graduate of Spelman College in Atlanta, Georgia. At Dickinson, Ashli earned a certificate in Entrepreneurship with an Intellectual Property and Technology concentration. She is interested in intellectual property within the entertainment law field. Ashli was the President of the Sports & Entertainment Law Society, Mentorship Chair for the Women’s Law Caucus, and Social Chair for the Black Law Students Association.

Sources:

https://www.telleroo.com/blog/what-is-a-bank-mandate-and-should-you-be-using-it#:~:text=A%20bank%20mandate%20is%20a,mandate%20are%20called%20account%20signatories.

https://bankomb.org.nz/guides-and-cases/quick-guides/bank-accounts/account-mandates/

https://www.upcounsel.com/authorized-signatory

https://thejacobslaw.com/do-you-know-your-bank-signatories/

https://www.seacoastbank.com/resource-center/business-insights/business-bank-account

https://www.thebalancesmb.com/why-separate-business-personal-banking-2951179

https://www.sba.gov/business-guide/10-steps-start-your-business

https://smallbusiness.chron.com/add-signatory-bank-account-39144.html

Photo Sources:

https://www.salesforce.com/ca/blog/2019/07/business-benefits-complementary-partnerships.html

https://www.consumerfinance.gov/about-us/blog/denied-bank-account-heres-what-you-should-know/

https://goremote.virtualpostmail.com/article/physical-address-to-open-business-bank-accounts

 

Robert Anderson | Entrepreneur of the Month | July 2021

By: Lauren Stahl

Do you ever wonder how you will manage it all? It all might look different for each of us. Studying law. Teaching law. Practicing law. Having a family. Living a healthy life. Engaging in activities that fulfill you. Keeping your sanity. Just add being an entrepreneur to the mix.

Juggling all of the responsibilities that life brings can be stressful. But at the same time, juggling is simply a part of life. A daunting task, sure. But one that Professor Anderson manages to do as an entrepreneur, law professor, and family man.

A Traditional Path

Professor Anderson was a 2000 graduate of the New York School of Law. After graduation, Professor Anderson took a stroll down “traditional” law student lane and was associated with Sullivan & Cromwell LLP until 2003.  His practice focused on mergers and acquisitions and financial institutions regulation, which is not exactly where he saw himself. Professor Anderson went on to receive his PhD in Political Science at Stanford University in 2008. Since then, his thirst for knowledge and innovation has continued as a Professor of Law at Pepperdine University Caruso School of Law, researcher, and entrepreneur.

Entrepreneurship as a Side Hustle

Professor by day and entrepreneur by night. Well, not exactly. Professor Anderson does not have a set schedule for creativity. Professorship is not your typical 9-5 job that only leaves time for entrepreneurial endeavors in the evening hours. Flexibility is key because there is no telling when an entrepreneur will have an innovative idea.

Academia creates the flexibility Professor Anderson needs as an entrepreneur and family man. There are days when he works 24 hours a day and days where he does not work at all. There are days where he is grading exams or preparing for class. And there are days when he is focused on ScholarSift—analyzing data, engaging in customer service, or connecting with clientele. There are also days where he has the flexibility to attend a mid-morning school meeting for his children. Creating, teaching, and family. All important. All his worlds. And he knows, most importantly, how to prioritize in the face of life’s demands.

You Sift, We Sift – ScholarSift

Legal technology is his arena. Alongside business partner, Trent Wenzel, Professor Anderson co-founded an analytics technology for transactional drafting. They sold this technological tool—now known as Draft Analyzer—to Bloomberg Law. This tool is now a prominent analytics feature of Bloomberg Law. But they did not stop there.

The duo continued to explore and create technological tools that address the needs of the legal field. Their current endeavor, ScholarSift, is designed for law students, professors and scholars. Though the customer base may be small, Professor Anderson created ScholarSift to solve problems specifically in the realm of legal research.

For authors, ScholarSift provides an analysis of a draft with strengths and weaknesses, automatic search for the most on-point literature, and automated citation formatting. For law reviews, ScholarSift automatically sorts through hundreds of thousands of papers to find the most promising submissions, instantly identifies possible preemption, and automates citation formatting. What more could we want?

Professor Anderson explained why he created this platform. He noted that there are legal information systems designed for lawyers with paying clients. There are technology solutions designed around learning (e.g., studying for the bar exam). But there is not much designed for legal research. This is where ScholarSift steps in to assist authors (such as professors, legal scholars, and law students writing seminar papers) and law reviews, among others.

separate but Equal Worlds

Professor Anderson is not one to impose his entrepreneurial interests on his students. Even though his entrepreneurial work is an obvious source of interesting material for exam fact patterns, his worlds often remain separate.

He lives to create. Finding creative solutions to problems motivates him. He seizes every opportunity to learn new things. This even includes things like reforesting. Professor Anderson is currently reforesting his property in northern California after the Creek Fire destroyed his land. As we speak, he is waiting for the trees to grow. He even has a small timber business that sells Christmas trees. His entrepreneurial mind never sleeps. While his worlds often remain separate, his passion for creating connects them all.

success: Having a Choice

As an entrepreneur, Professor Anderson makes sacrifices. His mind often drifts into entrepreneurial mode, which can be hard to turn off. At the same time, he feels privileged to have the flexibility in his schedule to pursue his interests. All of them. The work he engages in is not forced upon him; he chooses his work. He can spend his time creating and focusing on projects that are rewarding to him and that is what he appreciates most.

Observe First, Create Second

Professor Anderson provided a piece of advice to budding entrepreneurs that I was not expecting. His advice stems from his personal experience with entrepreneurship. He encourages students to pursue traditional paths after law school, or at least not to fear a legal career. He spoke about how the practice of law is extremely inefficient. He believes there is an extreme gap in access to justice that technology has the potential to solve.

Thus, Professor Anderson believes that there are huge opportunities to create businesses around the law. He encourages students to take those traditional jobs where they will have the opportunity to observe what lawyers do and the problems that lawyers face. This observation may lead to a host of innovative entrepreneurial ideas. Those ideas may be related to law or adjacent to law but students will only see these problems by first being lawyers. Be observant, intentional, and take time to step back and survey the efficiency (or lack thereof) in the legal field. You never know what you might come up with.

Social Media

Professor Anderson’s Twitter: @ProfRobAnderson

ScholarSift’s Twitter: @ScholarSift

Lauren Stahl, at the time of this post, is a rising 2L at Penn State Dickinson Law. Formerly a medical researcher at the National Institutes of Health and Penn State College of Medicine, Lauren has interests in health care law and business transactional law. Lauren currently serves as Secretary of the Health Law Society, Philanthropy Chair of the Women’s Law Caucus, and a Research Assistant for Professor Prince.