Regulatory – Dickinson Law's Inside Entrepreneurship Law Blog

What Exactly Are You Selling?: Disclosing Advertisements in the World of Social Media

By: Nicole M. Chew

Tic Tok, Instagram, Twitter (now X), Facebook, & YouTube. To say that the world of social media is expansive would be an understatement. The boom of the virtual world, exacerbated by the COVID-19 pandemic, has created jobs that no one would have dreamed of 10 years ago: social media advertising specialists, social media managers, and an ever-increasing number of content creators and influencers. Numerous companies have taken advantage of this new world, and ground is constantly being broken in the field of marketing and advertisements. The Federal Trade Commission is responsible for regulating fair advertising practices, and more companies than one have run into federal regulations pertaining to social media marketing and product endorsements.

Celebrity product endorsement is nothing new, companies like Nike and Under Armour have long-since sponsored athletes. Celebrity personalities like the Kardashians have been present in television ads for cosmetics for years. It’s easy to see that these athletes and personalities are being paid for their time and testimonials. The question gets more complicated when you look at “small-time” social media influencers like makeup artists, and fitness gurus who posted the majority of their content Instagram and Tic Tok. These influencers will often recommend makeup brands like MAC or Fenty Beauty, and fitness equipment like Peloton Bikes or clothing brands like Gym Shark. Are these influencers being paid to recommend these brands? What obligation do these companies have to make sure that consumers know that these influencers are being paid to recommend these products and brands? What obligation do these influencers have? Not knowing the answers to questions like these can cause your company to get investigated by the Federal Trade Commission (FTC), resulting in damage to your company, both in financial and in reputation.

Playing it safe

The Federal Trade Commission (FTC) is responsible for regulating commercial activity in the United States. This agency regulates advertisements made by companies, and endorsements made by individuals, celebrity or not. Specially, section 5 of the FTC Act prohibits deceptive advertisements, and endorsements fall underneath that very broad umbrella. There are specific rules for endorsements, and the FTC makes it clear that the larger corporation is responsible for keeping their “endorsers” in line with the these regulations, and they adopt liability for the failure of their endorsers to comply with the FTC’s Endorsement Guidelines.

To play it safe in the social media marketing sphere, here are 5 simple steps to make sure that you’re in compliance with the FTC Guidelines:

Make sure that your endorser is using the product that they are endorsing, and they continue to use it for as long as they are endorsing it.
Make sure that your endorser shares their HONEST opinions of the product (even if they are the same as yours).
Make sure that your corporation is checking up on your endorser that the endorsements they are making are not misleading.
Make sure the partnership between you and the endorser is CLEARLY disclosed (it needs to be obvious to every viewer that your company is giving some benefit to the endorser).
Take action to correct any non-compliance of an endorser to these guidelines.

These steps are not a safe harbor, but they are a good step into ensuring that your corporation stays in compliance with the FTC Guidelines. The FTC is aware of the ambiguity of the Endorsement Guidelines, and as such, they have taken steps to make it easer for you to find out from them directly if your business and endorsement practices fall under their guidelines.

But what if i have questions about what is allowed?

The “What People are Asking” page has been developed so that you can bring your questions and concerns to the FTC directly, and while the answers given here are not official, they can certainly provide some guidance. Quite simply, you can’t go wrong by asking. This page is set up in an easy Q&A format that easy for someone unfamiliar with the FTC to navigate and understand.

You can get to that page here.

The FTC has also provided access to their enforcement policy for deceptive advertisements (or endorsements). Having access to the enforcement policy statement made by the FTC can provide you with an official answer to any of your questions. Reading over this brief document can help set you up for success in advertising your brand in accordance with the FTC guidelines. Falling under these guidelines can help ensure that you never get investigated, keeping your brand well respected and saving the money involved in lawsuits and settlements.

You can access that document here.

what happens if i don’t abide by the rules?

There are several companies that have failed to abide by the Endorsement Guidelines set forth by the FTC. One of the main criticisms of the FTC is that it relies too much on self-enforcement by corporations, but this does not mean that these guideline violations go unchecked. Companies like Lord & Taylor, Cole Haan, and CSGO Lotto have violated these guidelines and engaged in unfair or deceptive advertising practices as a result of their endorsers failing to disclose the relationship between themselves and the company. The ramifications of such conduct include recurrent monitoring by the FTC, tarnish of a brand name, fines, and the cost of lawsuit settlements.

There has been a trend of the FTC going after the corporation partnered with the endorser, and holding them liable for the statements made by the endorser. As such, it is of the utmost importance that you follow the above steps to keep your company in good standing with the FTC and that your budget can be spent on corporation development, not lawsuits and settlements.

the big picture takeaway

Overall, the FTC incorporates a huge aspect of self-regulation amongst companies. This is in part due to effective allocation of resources, but also because regulation between companies embodies some of the main ideas behind the U.S. economy – free enterprise and capitalism, where the consumer is the one who wins out by finding the best product for the best price. False or misleading endorsements deceive consumers, which undermines their ability to find the best product. By following these simple steps, you can make sure that your company stays free of investigation, establishing the integrity of your company and the integrity of your endorsers and your products.

Nicole Chew is a rising second-year J.D. candidate at Penn State Dickinson Law. She is from Montgomery County, Maryland, and holds a B.S. in Psychology from Frostburg State University. She plans to pursue a career in criminal law litigation, as her background in psychiatric care has given her a unique insight into how the field of psychology interacts with our legal system.

Sources:

16 C.F.R. & sect; 255.0-2

15 U.S.C.A. & sect; 45 (West)

Ashley Luong, All That Glitters Is Gold: The Regulation of Hidden Advertisements and Undisclosed Sponsorships in the World of Beauty Social Media Influencers, 11 Wm. & Mary Bus. L. Rev. 565, (2020).

Aimee Khuong, Complying with the Federal Trade Commission’s Disclosure Requirements: What Companies Need to Know When Using Social-Media Platforms As Marketing and Advertising Spaces, 13 Hastings Bus. L.J. 129, (2016).

Image Sources:

Influencer Marketing – https://www.google.com/imgres?q=influencer%20marketing&imgurl=https%3A%2F%2Fwww.legalandcreative.com%2Fwp-content%2Fuploads%2F2019%2F03%2Finfluencer-marketing-596×300.jpg

Khloe Kardashian Image – https://oscwebdesign.biz/social-media-influencer-marketing/

FTC Logo Image – https://www.google.com/imgres?q=federal%20trade%20commission&imgurl=https%3A%2F%2Feconomie.fgov

Online Seller’s Guide to Sales and Use Tax

By: Aaron Holland

Hands coming out of computer screens to exchange money for an item.

Only two things in our lives are certain: death and taxes. One occurs at the end of our lives, and the other occurs throughout our lives wherever there is an exchange of money. Sales and use tax is a specific tax that affects every purchaser, from the middle-aged person buying a new Corvette to the 10-year-old buying a Coke from the local convenience store. All entrepreneurs, especially those selling goods online, need to understand sales and use taxes in the state(s) that they are legally connected to.

Basics of Sales and Use Tax

There are two types of taxes that every purchaser is subject to. Purchasers pay sales tax on certain goods and services when buying products within a state that imposes the tax. On top of that, purchasers may be subject to taxes even when they purchase goods in a jurisdiction that does not charge tax. Specifically, a purchaser may be required to pay a use tax to a taxing state when they use or consume taxable items they obtained from a non-taxing jurisdiction. For example, if a consumer buys manufacturing goods in Delaware (a state without sales tax) and then uses those goods to create a product in Pennsylvania, the consumer owes a use tax. In this situation, the use tax forces the consumer to pay the Pennsylvania Department of Revenue the appropriate amount since they never paid tax on the item in Delaware.

A Link Between States

Sales and use taxes are not federally adopted. Instead, individual states and their local jurisdictions decide whether these taxes will be imposed and collected. Due to the localized nature of these taxes, the United States showcases a variety of tax percentages and collection methods. As examples of the varied tax percentages, Pennsylvania has a flat 6% sales and use tax, with a few local jurisdictions, such as Philadelphia and Alleghany County, adding 1% or 2%, respectively. This percentage varies in other states, for example, California taxes 7%, Maryland taxes 6%, New York taxes 4% with an additional average local sales tax of 4%, Florida taxes 6%, and Oregon taxes 0%.

These tax percentages are important for businesses to know as they must pay sales tax to the state(s) in which they operate. For the traditional brick-and-mortar business, the state in which the business operates is easy to understand. However, determining a legal connection to a state can be more difficult when your business operates online. Typically, creating, selling, or packaging goods in a state forms a legal connection between your business and that state. Notice that a business can form legal connections to multiple states and may, therefore, be required to pay sales tax to all those states. Understanding the states that your business has connections with is especially important if your business (1) has workers that work remotely from different states or (2) utilizes a fulfillment service, such as Amazon, that houses your products and ships them from a different state. Situations like these may make your business responsible for paying sales tax to those states.

Responsibility for the Taxes

The business or individual selling goods or providing services is responsible for the sales and use tax that the taxing state charges. The sales and use tax, as seen when buying a new iPhone, is often passed on to the customer during purchase and tracked by the seller for end-of-the-year tax purposes. For certain small businesses or individuals selling goods in low amounts, not passing the tax on to the customer may be a business decision to keep the cost of your goods low. If you choose this option, you should calculate the sales tax at the end of the year to determine how much you owe your connected states.

Failing to pay owed sales and use tax to your connected states can lead to financial penalties, interest accumulation, and other fees. For example, in Pennsylvania, penalties are assessed for late filings, understating the amount of sales tax owed, and other major understatings in the filing. These penalties can account for excessive amounts levied against a business when the business fails to pay the correct sales and use tax to the state.

Is it Time to Pay?

Businesses can be required to file their sales and use tax reports at different frequencies, depending on the type of business, the goods sold, and the rules of the taxing state. Pennsylvania requires sellers to file monthly, quarterly, or semi-annually. Keeping an eye on the tax timeline is helpful as there may be discounts for filing and paying these taxes early.

There are many exemptions to the requirement to pay sales and use tax to connected states. In many states, an exemption applies to certain items, such as groceries and wearable clothing, freeing those items from sales tax. Purchasers may also be exempt from sales tax. For example, certain manufacturers and non-profit organizations are exempt from paying sales and use taxes. Common resellers of goods are also usually exempt from sales tax upon the purchase, but not the sale of, the goods they resell. Therefore, if your business sells goods to resellers, the sales tax may not apply to those sales. Reviewing the exemptions to the sales and use tax can save your business time and money if you or your purchasers fall into one of the many exemptions states provide.

Final Thoughts for Entrepreneurs

- Keep track of the sales and use tax your business owes
- Learn what states your business has a legal connection to
- Know those states’ requirements for sales and use tax
- Understand your state’s exemptions and utilize all that may apply
- Receive legal assistance for specific sales and use tax advice

This post has been reproduced and updated with the author’s permission. It was originally authored on February 10, 2022 and can be found here.

At the time of this post, Aaron Holland was a 3L student at Penn State Dickinson Law. He had an interest in all things business law, especially in the assistance of start-up businesses and new entrepreneurs. He previously spent 6 years with the United States Marine Corps as a Military Police Officer.

Preventing Problems: A Trademark Guide

By: Tessa Brandsema

For many nascent entrepreneurs caught up in the many layers of starting their business, building an intellectual property portfolio is not at the top of their priority list. In light of fundraising capital, navigating the real estate market for the ideal property, and building initial inventory, thinking about intellectual property filings might stay on the back burner. However common this scenario may be, it is a mistake—one of the most critical elements of any business is its name (and subsequent branding!), and ensuring that your preferred name is both available and enforceable should be a main prerogative.

What’s in a name?

When you think about the marketplace giants that we interact with every day—like Apple, Amazon, and Google—you will notice that their names are concise, unique, and recognizable. Entrepreneurs brainstorming a name for their product or business should try to emulate this blueprint, and not just because it is a smart marketing strategy, but because these names are likely to be more easily trademarked.

A trademark is a form of intellectual property protection used to protect a name, logo, slogan, or trade dress, and they are used to identify a source for a specific good or service. The goal of trademark registration is to protect consumers from confusion by source identifiers that are too similar or are likely to be confused by the average customer. This preserves the integrity behind a brand and prevents third parties from profiting off the goodwill and quality associated with another’s products or services.

For example, the United States Patent & Trademark Office (also known as the USPTO) is almost certain to refuse a trademark application for a search engine called Gaggle. This is a rather obvious attempt by the applicant to align themselves with Google’s search engine and be associated with the goodwill already stored in their brand, therefore drawing in customers who may think that their product is associated with Google. Furthermore, Google could be harmed by this likelihood of confusion if Gaggle puts out a poor product, causing consumers who believe the two companies to be related to hold Google in low regard due to the faulty new search engine.

On the other hand, trademarks that are identical but represent different goods and services are allowed to coexist on the federal register. Delta is a prime example of this: two large companies with the same name, but one is an airline, and the other makes appliances like kitchen sinks and faucets. The chance of a consumer mistaking the source of these goods or services for the other is incredibly low, and thus the two trademarks are permitted to coexist peacefully.

Performing Research

These nuances are important to keep in mind as an entrepreneur selecting a name for their new business. If you would like to explore what options might be taken already but have not yet retained an attorney to assist with your start-up, you can go to the USPTO website and use their Trademark Electronic Search System (TESS) to research what trademarks exist and may conflict with the one you have selected. After all, why get attached to a name and make plans based upon it, only to later find out that it is not a viable option for your business and need to start over unnecessarily?

Keeping in mind that the USPTO may issue refusals based on multiple grounds, including but not limited to identicality, likelihood of confusion, phonetic equivalents, and foreign language translations, it may be in your best interest to have an intellectual property attorney help with your search. Many law firms utilize special trademark search engines that are not accessible by the public, and these searches are much more sophisticated than the one available on the USPTO website. These comprehensive results can give you a better understanding of your name’s likelihood of success if you choose to file a trademark application. While some entrepreneurs may balk at yet another cost in the beginning stages, ensuring that your ideal company or product name is both available and protectable is invaluable down the road.

Policing & Prevention

Trademarks are not only useful because they allow the enforcement of rights in the event of an infringement but they can act as a deterrent before that even occurs. Think back to the preliminary searches mentioned just a few moments ago; if you found a conflicting preexisting mark, what would your course of action be? When a unique and protectable name is the goal, a business owner is more inclined to shift gears and turn to an alternative name that is more likely to afford their company an enforceable registration with the USPTO. The same is likely to be true for other parties searching the register and coming across your trademark—rather than continuing on with the name they originally selected, they will steer clear of anything too close to yours in an effort to avoid any confusion or potential litigation.

While common law trademark rights can be established just through use, obtaining a federal registration has many benefits for the owner. A federally registered trademark notifies the public that rights are reserved within the mark, acting as a deterrent for potential infringers who stumble across it, whether through a search of the USPTO website or by seeing your mark with the ® symbol next to it. Trademarks work hard to protect your brand by proactively discouraging infringement, making them a worthwhile investment for any entrepreneur. Starting a business is hard enough as it is—make sure your investments and branding are safeguarded by a trademark registration that can provide some peace of mind.

This post has been reproduced and updated with the author’s permission. It was originally authored on January 31, 2023 and can be found here.

Tessa Brandsema, at the time of this post, is a 2L at Penn State Dickinson Law. Tessa serves as an associate editor of Jus Gentium and the vice president of the Women’s Law Caucus. She is a former graduate from Millersville University, where she studied communication and media, political science, and international relations. Before law school, Tessa spent two years as an intellectual property paralegal.

Sources:

https://www.uspto.gov/trademarks/basics/what-trademark

Chad Jalandoni, How to Conduct a Proper Trademark Search, Gerben Intellectual Property, https://www.gerbenlaw.com/blog/how-to-conduct-a-proper-trademark-search/.

Small Businesses Incentivized to Go Green

By: Lisa Dang

Small business and start-up companies incur a variety of costs to operate their businesses. However, no matter the size of a business, energy consumption ranks among the top five business expenses. The primary use of energy includes operating vehicles, heating and cooling, and operating equipment. The ability to cut down on fixed costs such as utilities may significantly improve cash flow. According to the U.S. Energy Information Administration (EIA), the average monthly utility bill for commercial buildings is $650 per month with the northeast region averaging a higher cost of $727 per month. The cost of electricity and natural gas is only expected to rise in the coming years and remain volatile. Whether your company has been in operation for years or is beginning to get off the ground, managing and saving on energy costs is not only beneficial for the business but also for the environment. With the recent enactment of the Inflation Reduction Act (IRA), small businesses are incentivized to deploy clean energy technology to reap significant cost-saving benefits.

I. The inflation reduction act

The Inflation Reduction Act (IRA) is a landmark piece of legislation, representing the largest climate and energy spending package in U.S History.^[3] The IRA mandates a nationwide reduction of carbon emissions of roughly 40% by 2030 and includes an investment of $369 billion in energy and security climate change programs. Here is how the IRA can help your business reduce energy costs and foster a cleaner environment.

1. The Deploying Solar

Small businesses and start-up companies can reap significant tax breaks from purchasing and deploying solar energy systems. The IRA expanded the Federal Tax Credit for Solar Photovoltaics (PV) systems. There are two available solar tax credit options available for businesses:

- - - Investment tax credit (ITC): provides a tax credit that allows businesses to deduct a percentage of the cost of installing a solar energy system from their federal income tax liability
    - Production Tax Credit (PTC): provides a per kilowatt-hour (kWh) tax credit based on the amount of electricity generated and sold by qualified energy projects

Under the IRA, the ITC enables business owners to receive a one-time 30% tax credit for PV system installation. In contrast, the solar PTC can be claimed every year over the 10-year credit period at the current rate of 2.6 cents/kWh for commercial projects (adjusted for inflation). The size of the system must be under 1 megawatt (MW) to claim an ITC or PTC, and project owners cannot claim both credits for the same property. Projects may qualify for additional bonus credits of 10% if located in a low-income area.

It is important to note that these tax credits are only available for solar systems placed in service from 2022 or later and begin construction before 2033. These credits are designed to phase out after 2032, thus it is critical that small businesses begin strategizing how to support the deployment of solar technology sooner rather than later.

A. Which is Better for My Business: ITC or PTC?

The decision to choose an ITC or PTC depends on multiple variables. Start-up companies or small businesses that may be cash-strapped may benefit from opting for the ITC, providing upfront credit against the capital expense used to install the solar systems. In most cases, the ITC is a great option for small businesses that require only a small PV system to help save money on energy bills. In contrast, larger-scale PV projects should opt for the PTC because they provide an attractive cash flow since credits are earned over time. Ultimately, PTCs and ITCs provide competitive incentives and cash flow opportunities for many small businesses and start-up companies.

B. What if My Business Does Not Have the Capital to Invest in Solar Technology?

In cases where your business does not have the capital to invest and own a solar system, it is still possible to reap significant cost-saving benefits on utilities through power purchasing agreements (PPA). For many businesses, entering into a third-party PPA is the best option to help reduce energy costs with little to no startup investment associated with the solar installation. A solar PPA is a financing agreement in which a third-party developer purchases the solar system, installs it on your workplace building, and charges a reduced fee for the electricity generated. While your business may not claim the tax credit under a PPA, the developer may claim the tax credit and may use that tax credit to help lower your monthly payment.

2. Electric Vehicles

For the first time in the U.S., the IRA provides a tax credit for businesses purchasing qualified electric vehicles (EVs). The credit is up to $7,500 for new EVs and the vehicle must be used for business purposes, not for resale, and primarily used in the U.S.

For a vehicle to qualify for the tax credit, the vehicle must:

- - - Have an external charging source
    - Have a gross vehicle weight rating of less than 14,000 lbs
    - Be made by a qualified manufacturer

If you are unsure whether your vehicle will qualify for a tax credit, the Department of Energy has made it easy by simply entering your vehicle identification number (VIN). Check it out here.

II. Conclusion

All businesses must factor in the cost of utilities and energy consumption. With energy prices rising and fluctuating at unpredictable rates, the switch to solar energy can save small businesses and start-up companies significant money. Now, more than ever, businesses are incentivized to go green with the recent enactment of the Inflation Reduction Act. Businesses that take advantage of the solar opportunities and EV tax credits are situated to not only save money but help save the environment.

This post has been reproduced and updated with the author’s permission. It was originally authored on January 31, 2023 and can be found here.

Lisa Dang, at the time of this post, is a 3L at Penn State–Dickinson Law. Dang hails from Richmond, Virginia, and graduated from the College of William and Mary with a BS in Neuroscience and Philosophy. Before coming to law school, Dang worked as a Research Assistant in the division of Hematology, Oncology & Palliative Care at Virginia Commonwealth University. Dang has a wide-range of interests and has been exploring many different classes and areas of law. In between work and school, Dang plays competitive Ultimate Frisbee.

Sources:

The Endangered Species Act, 16 U.S.C. § 1531 et seq.

Id. § 1532.

https://www.federalregister.gov/documents/2022/03/11/2022-05134/civil-penalties-2022-inflation-adjustments-for-civil-monetary-penalties

Choosing a Business Entity for Your HUD Insured Real Estate Investment

By: Emily Ameel

Investing in affordable housing is a necessary step in community development and advancement. The Federal Housing Administration’s (“FHA”) Multifamily Mortgage Insurance program is one of many programs facilitated by the Department of Housing and Urban Development (“HUD”) to secure the advancement of affordable rental housing in the United States. Under the FHA loan program, HUD provides mortgage insurance for loans issued by FHA-approved lenders for the construction, rehabilitation, acquisition, and refinancing of affordable and market-rate multifamily housing. A property must contain five or more rental units to be eligible for the FHA Multifamily Mortgage Insurance Program. FHA Insured properties are not subject to income limits unless the property is operating under an additional state or federal affordable housing program, such as receiving Section 8 subsidies or Low -Income Housing Tax Credits (“LIHTC”).

Under the FHA Multifamily guidelines, the mortgagor (also referred to as the borrower) of any FHA-insured project must be a single asset entity (also referred to as a single purpose entity or “SPE”), meaning that the subject property must be the sole asset of the mortgagor entity. HUD has established entity types that are acceptable forms of SPEs for participation in the FHA Multifamily Mortgage Insurance program, some of which are more popular than others. An investor must weigh the benefits and drawbacks of each entity type to determine which will be best for their real estate investment.

Popular Entity Types for the fha multifamily mortgage insurance program:

The General Partnership (“GP”)

A real estate investor may form a general partnership as the mortgagor for their FHA Insured Multifamily project. A general partnership is composed of two or more general partners who share in the management of the company. General partnerships are known as the “default” business entity, as they can be formed with subjective intent by the partners and do not require formal state filing for formation. General partnerships enjoy the benefits (and sometimes drawbacks) of pass-through taxation, meaning that the income of the entity is “passed through” to the general partners, who must report the income on their individual tax returns.

Drawbacks of the general partnership include the lack of liability protection. All general partners of a general partnership can be held personally liable for the debts of the business. As stated above, general partners share in the management of the business but can also bind each other, making it so that each general partner shares in liability.

The Limited Partnership (“LP”)

The limited partnership is similar to the general partnership. Limited partnerships consist of one or more general partners and one or more limited partners. General partners in a limited partnership control the management and operation of the business and are personally liable for the debts of the business. Limited partners act as investors in the business, have no control over management, and are only liable for business debts up to the amount of their investment. Limited Partnerships are also pass-through taxation entities. The limited partnership is a popular entity for affordable housing developments that receive LIHTC funding, as 99.99% of the interest is typically held for a limited partner tax credit investor.

The Limited Liability Company (“LLC”)

Another popular option for investors is the Limited Liability Company. The LLC is composed of managers and members. Managers have management rights in the LLC, and members are like investors. In a typical HUD transaction, an LLC will have either a manager who is not a member and owns 0% interest in the entity or a “managing member” who is both an interest-holding member and a manager of the LLC. Additionally, LLCs provide liability protections for managers and members. LLCs are popular options for new real estate investors because they can be owned and managed by a single “managing member” individual and provide that individual with liability protection. LLCs are easy to form, with most states requiring only a few documents for formation and registration. Like general partnerships and limited partnerships, the LLC is subject to pass-through taxation. Some states do require annual reporting and fees to maintain active status.

The Corporation (“S-Corp” or “C-Corp”)

HUD also allows corporations to act as the SPE mortgagor. Corporations are composed of corporate officers and owners called shareholders. Corporate officers may also be shareholders of the corporation. Like LLCs and LPs, corporations enjoy liability protections for their officers and shareholders. For taxation purposes, C-Corps and S-Corps are treated differently. S-Corps enjoy pass-through taxation like LLCs and partnerships. C-Corps are faced with “double taxation,” where both the corporation and shareholders are taxed on the business income. Corporations must follow corporate formalities, such as holding regular meetings, recording meeting minutes, and maintaining corporate governance documents.

Other Approved Entities:

Although less popular, HUD also allows the following entity types to act as SPE mortgagors:

- - - Trust with beneficiaries and one or more trustees (where the duration of the trust is greater than or equal to the FHA Note);
    - Nonprofit corporations;
    - Joint ventures

Choosing (and forming) a mortgagor entity for your multifamily investment property is one of the many steps required to participate in the FHA Multifamily program. Consulting with an attorney to make an informed decision as to which entity type is suitable for your investment is imperative, as the mortgagor’s entity structure and organizational documents will be subject to lengthy due diligence review in the approval process.

This post has been reproduced and updated with the author’s permission. It was originally authored on February 2, 2023 and can be found here.

Emily Ameel, at the time of this post, is a second-year law student at Penn State Dickinson Law. She has a B.S. in Psychology and a B.A. in Women’s Studies from the University of Georgia. Prior to attending law school, Emily worked on Department of Housing and Urban Development (“HUD”) transactions as a third party consultant. She intends to pursue a career in affordable housing upon graduation. In her free time, she enjoys distance running.

Sources:

https://www.hud.gov/program_offices/housing/mfh/progdesc/rentcoophsg221d3n4

https://www.hud.gov/program_offices/housing/mfh/progdesc/purchrefi223f

HUD Handbook 4350.1 – FHA Multifamily Housing Policy

Gifts That Keep On Giving – The Tax Liabilities of Employees Gifts and Perks

By: Matts Batryn

Like most business owners, you appreciate your hard-working employees.

Without them, you wouldn’t be the business savant you are today. You want to show a little extra bit of appreciation toward your employees where you can, as showing people respect and gratitude pays dividends in the long run. Unfortunately, what you may see as a typical cost of doing business may have severe tax consequences for your employees. Let’s walk through three typical scenarios many businesses see on a day-to-day basis:

You buy several $100 Amazon gift cards for your team of employees to show them love. Innocent enough, right? Wrong. The police roll up and your employees are now all going to jail for failing to declare taxable income. Try again.

Ok, instead of gift cards you decide to give your top performing sales team an award consisting of individualized gold rings. Whoops. Jail time for everyone. That’s taxable income.

Fine, no more gifts. You decide to create a 95% product discount for all your employees to keep them happy. Employee discounts are allowed, right? Well, yes…but no. Do not pass go. Go directly to jail.

While the above scenarios may embellish the severity of the offense, they highlight the fact that these innocuous, everyday gifts or transactions have real-world tax implications for business owners and their employees.

gifts are not gifts

The relationship between a business owner and employee is a sacred one – especially in the eyes of the Internal Revenue Service.

As a general rule for business owners, ALWAYS presume that anything you give to an employee is an exchange for services. Therefore it is taxable income to the employee. Even if you fully believe it to be an innocent gift at Christmas or as a summer treat, the IRS presumes it to be income subject to taxation. Yes, you could make sure your employee declares their $40 iTunes gift card on their tax return, but this isn’t the Price Is Right. Nobody wants to receive a gift they must pay for.

not all “gifts” are created equal

It is vital that business owners and entrepreneurs are aware of what they can and cannot bequeath to their employees free of repercussions. The IRS may see these employer-to-employee exchanges as non-gifts, but they also categorize many common exchanges as benefits of the job not subject to taxation.

To be regarded as a mere benefit of a job and not compensation for services, you need to see if your job benefits fall into one of these common categories:

De Minimis Benefits

These are the most common in a workplace and what most employees consider regular “perks of the job.” A de minimis benefit is something given that is so small it really makes no sense to account for it. Examples include employees utilizing office supplies for allowed personal use, a coffee maker or doughnuts in the break room, and fun trinkets or stationery given to employees. The general rule of thumb is to keep all tangible gifts to $75 or less per taxable year. This means no $100 Walmart gift cards or a new set of fancy headphones.

Many business owners confuse job “perks” to include prizes or rewards for a job well done. This often includes cash prizes for meeting goals, achievement awards, or performance bonuses like vacations or paid outings. These are ALL taxable income to the employee, as they are viewed as compensation for services rendered.

Meals of Convenience

Do free meals and snacks at work every day sound too good to be true? Well, it should. Because it usually is. The new employee cafeteria or daily luncheons may be a great idea to boost morale, but it is taxable to the employee in most cases.

The IRS looks to see if the employee meals are provided as a convenience to the business owner. Are the meals provided because the working conditions do not allow for other food choices nearby? (Think mine workers, oil fields, etc.). Would the employees need to spend extensive time changing outfits and moving between locations? The IRS wants to see that providing meals is a regarded custom of the job and a near requirement of the work being done. If it’s a sales team working 9-5 in a cushy downtown office, then the meals provided are likely to be seen as extraneous and therefore taxable.

Discounts

Many business owners view discounts as their “get-out-of-jail-free” card when it comes to making their employees feel recognized and wanting to remain with the business. However, discounted products and discounted services for employees are heavily scrutinized by the IRS, which can result in more of a “get-in-jail” scenario for those who dodge tax liability.

Employee discounts are when employees get products or services for less than the sale price to regular customers. For services, the rule is that it may not exceed 20% off the regular price. For product discounts, the discounted price cannot exceed the gross profit percentage of the item being sold. For example, if you buy widgets for $70 and sell them for $100, you have a gross profit percentage of 30%. This means the discounts to your widget employees may not exceed 30%. If employees are getting more than the maximum discount, up to the maximum is tax-free. The extra discount is considered pure income to the employee and subject to Uncle Sam.

Only when services are at no additional cost to the business owner may they be completely tax-free to the employee. No additional cost services are only allowed when they are in the regular course of business and are first available to the general public. For example, a plane ticket is free to airline employees if the ticket is standby and doesn’t impede profit or take up resources of the business.

the main take-away for business owners

Business owners must evaluate many moving parts when providing employees with gifts, benefits, or services. The first question to ask is if everyone within the business can receive it. Job perks are seldom part of a hierarchy, so if your senior staff are the only ones who get free food and parking, then the IRS will likely see that as pure compensation. Of course, many other considerations include how often employees receive the perk, is it a required part of operating vs. extra, and how extravagant it is.

The only way to know what must be declared as taxable income (or what you as a business owner are entitled to deduct), is to consult with a reputable business tax attorney in your area. Although you may have many questions with many potential answers, the only accurate answer your business will ever receive without meeting an actual attorney is “it depends.”

This post has been reproduced and updated with the author’s permission. It was originally authored on February 9, 2022 and can be found here.

Matts Batryn, at the time of this post, is a third-year law student at Penn State Dickinson Law. He has interned with The Honorable Judge Marsico in Harrisburg and Civil Litigation Division of the Pennsylvania Office of Attorney General. Matts also worked as a Summer Associate at Stradley Ronon Stevens & Young in Philadelphia and will be joining their 2023 class of First-Year Associates in the Business division.

Sources:

https://www.law.cornell.edu/uscode/text/26/102

https://www.law.cornell.edu/uscode/text/26/61

https://answerconnect.cch.com/document/arp109ce9ded07c571000a8b390b11c18c90202f/federal/irc/explanation/what-is-a-qualified-employee-discount#:~:text=A%20qualified%20employee%20discount%2C%20the,on%20qualified%20property%20or%20services.&text=An%20employee%20discount%20is%20the,customers%20who%20are%20not%20employees.

Using NFTS to Jump Start Your Entrepreneurial Ventures

By: Jeremy Garcia

The year 2021 will be remembered for many reasons: Kamala Harris became the U.S.’s first female African American Vice-President, Netflix’s Squid Games shocked audiences, Omicron arrived, the January 6 Capitol Riots, and the NFT craze began.

Non-fungible tokens or “NFTs” have attracted the likes of Sotheby’s, Snoop Dog, investors, and small business owners. As of December 2021, Pak’s the Merge is the most expensive NFT sold for $91.8 million. Imagine owning a share of that to jump-start your business venture. But how can you make NFTs work for you?

what are nfts and how do they generate revenue for your business?

NFTs are a class of “one-of-a-kind” crypto assets and can be artwork, virtual real estate, music, files, and are created on a blockchain. NFTs are valued on their rarity, making them non-fungible, unlike bitcoins or fiat money which hold the same value (fungible). The advantage of NFTs are that ownership and authenticity can be verified because blockchain technology is hard to hack or modify.

the general overview

You sell NFTs by selecting the appropriate marketplace and then funding a crypto wallet to “mint your NFT” to upload it onto the marketplace. You then choose the option to sell and follow the appropriate prompts to list your asset, including listing time, price, the type of sale (if you want to sell shares of your asset), currency accepted, and more. The marketplace will calculate the “gas fees” or transaction fees that compensate blockchain miners who add the NFT code to the blockchain and validate the asset. After the NFT is listed, you must promote it on the marketplace or other platforms, including your website.

selling your art as a creator

Many NFTs are sold by their creators to generate profit and garner attention. The creator or owner remains with the copyright of the NFT (more on that later), however, buyers purchase property in the NFT, meaning they have proof of the digital ownership of the asset but the creator retains copyright. This is like music, while you buy the rights to listen to the song, you cannot (or should not) reproduce it for public use because the copyright belongs to its creator. By selling your own work, interested buyers purchase your work’s property rights and you can either reinvest the profit in other crypto or exchange the profit and transfer it to your bank account. You can list your NFT to generate additional gains if you set to collect royalties if buyers sell or trade your work.

nft tradings

Another way to generate profit with NFTs is to buy a sell other creators’ assets. Similar to buying physical collectibles, you buy a stake in investment and retain it until the demand is higher than your original purchase price and sell it. You don’t have to mint the NFT because the owner already did this, but you will pay additional gas fees to relist the asset.

a checklist of things to consider when raising capital using nfts

1. Understand NFTs Before Jumping on the Bandwagon – It is crucial to understand the nuances of the business and a good practice is to visit sites like Coindesk.com or CoinMarketCap to understand blockchain, cryptocurrencies, and NFTs. You can also watch YouTube videos or other online sources, but you must use your better judgment to ensure source legitimacy.
2. Choosing the Correct Marketplace – There are a variety of marketplace platforms used to sell NFTs. OpenSea is the largest NFT marketplace, but others have pros and cons. There are marketplaces specifically for Sports NFT trading, others for digital art, some for music. Some use specific tokens or coins, while others accept various forms of payment. OpenSea and Rarible seem to be the best for beginners. However, inform yourself of the pros and cons of each marketplace before listing your NFTs.
3. Minting, Wallets, and Other Tools You Need Before Selling – Minting refers to the process of coding the NFT onto the Ethereum blockchain. Ethereum is a decentralized, open-source blockchain that functions on smart contracts. Ethereum has its cryptocurrency known as ETH, and before you can sell an NFT, you need to open a crypto-wallet and exchange fiat currency into ETH crypto to pay for the gas fees. There are various wallets to choose from, and it’s best to research the appropriate wallets for your interests. You will also need to use a wallet or app to convert crypto to fiat money. Some wallets, like Coinbase Wallet, let you convert if they support your type of crypto.
4. Fees – Every event or transaction involves a fee, and whether it’s listing your NFT, using a marketplace, opening a wallet, exchanging between fiat currency and crypto, every event has a transaction fee attached to it. However, some platforms charge more than others, and gas fees vary because of many factors such as time of day, transaction amount, and more. Research the various platforms and wallets to find out how their fees work.
5. Legal Considerations Based on How You Sell NFTs –

If you own your NFT, register your work with the U.S. Copyright Office or the copyright office in your jurisdiction. While this won’t necessarily prevent copyright infringement, you have the right to sue the parties involved. If you’re trading NFTs, make sure you avoid liability by selling property you have rights to.

If you plan on selling fractions of your NFT, you might have to register with the Securities Exchange Commission “SEC”. While NFT regulation is still unclear, the SEC has used the Howey Test—SEC v. W.J. Howey Co. —to determine whether fractionalized crypto shares can be considered an investment contract and, therefore, a security. Blockchain assets usually run-on Smart Contracts, considered the same as a contract under the SEC.

Taxation is something to keep in mind. While the IRS also struggles with crypto regulation, it classifies crypto assets as property, and you need to report your assets as such. Additionally, it is crucial to record all transactions because every transaction is likely a taxable event.

It is essential to seek legal counsel if you want to use NFTs to generate income for business ventures because an experienced attorney can explain and likely provide solutions for a variety of legal issues.

This post has been reproduced with the author’s permission. It was originally authored on February 7, 2022 and can be found here.

Jeremy Garcia, at the time of this post, is a third-year law student at Penn State Dickinson Law interested in practicing in Capital Markets and Acquisitions after law school. Born in the Dominican Republic and raised in New York City, Jeremy received a Bachelor of Arts and a Master of Public Administration from John Jay College of Criminal Justice. Jeremy worked in government in the Telecommunications and Data Privacy field before law school. Jeremy enjoys volunteering with organizations that help underrepresented communities and is the current Chair for the National Latina/o Law Students Association.

Sources:

Jacob Hale, The 10 Most Expensive NFTs Ever Sold, Dexerto.com (Dec. 18, 2021). https://www.dexerto.com/tech/top-10-most-expensive-nfts-ever-sold-1670505/

Coinbase Basics, What is a non-fungible token (NFT)?, Coinbase.com, https://www.coinbase.com/learn/crypto-basics/what-are-nfts

Nicholas Rossollilo, How to Sell Non-fungible Tokens “NFTs”, The Motley Fool (Dec. 11, 2021). https://www.fool.com/investing/stock-market/market-sectors/financials/non-fungible-tokens/how-to-sell-nfts/

Will Gottsegen, Policy, Some NFTs Are Probably Illegal. Does the SEC Care?, (Oct. 20, 2021). https://www.coindesk.com/policy/2021/10/20/some-nfts-are-probably-illegal-does-the-sec-care/

U.S. Securities Exchange Commission, Framework for “Investment Contract” Analysis of Digital Assets, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets

Internal Revenu Services, Small Business & Self-Employed: Virtual Currencies, https://www.irs.gov/businesses/small-businesses-self-employed/virtual-currencies

Open Banking in the US: What it Means for Entrepreneurs and Small Businesses

By: Anthony Francioso

Open banking technologies allow customers to share their financial data with third parties. Software, known as application programming interface (API), enables apps to access and utilize the requested data. Customers have difficulty switching banks or accessing third-party financial products without open banking capabilities because banks control their customers’ data. When consumers first attempt to link their bank accounts to third-party financial applications, they fail at a 40% rate because major banks often intentionally frustrate the process. Open banking gives customers greater control over their financial information and promotes competition and inclusion in the financial industry. This YouTube video further explains how open banking works.

In the United States, an open banking framework stems from Section 1033 of the Dodd-Frank Act. Section 1033, which became law in 2010, requires financial institutions to provide their customers with their financial data upon request. The law instructs the Consumer Financial Protection Bureau (CFPB) to implement rules and regulations to realize this objective. Until recently, the government has done little to address open banking. However, that has changed recently. In July 2021, President Joe Biden encouraged the CFPB to issue rules related to open banking. The CFPB is expected to issue rules on open banking in the near future.

open banking benefits

Open banking offers several potential benefits to entrepreneurs and small businesses. Open banking can help with lending. Major banks denied 72% of small business loan applications in 2019. Open banking allows entrepreneurs and small business owners easily apply and potentially receive loans. Open banking allows applicants to submit electronic financial information, such as proof of income and payroll data for underwriting purposes. This process is much easier than the traditional loan application, where proof of financial information is difficult to access. Therefore, competition for loans increases while costs are low. Open banking would particularly help entrepreneurs and small businesses with little to no history of credit. Such assistance can promote financial inclusion to traditionally unrepresented entrepreneurs and business owners.

Open banking can also help entrepreneurs and small businesses manage their finances. Small businesses often fail due to a lack of capital. Through open banking, entrepreneurs and small business owners can use cloud accounting to accurately track their finances. Cloud-based accounting lets the user link accounting software with their business bank accounts. Transactions automatically link between sources which save time and prevents manual entry. Open banking similarly helps with forecasting. Poor cash flow is the main reason why small businesses fail. Open banking allows apps to use financial data to make predictions and build scenarios based on the user’s financial data. These open banking abilities help busy entrepreneurs and small business owners save time and focus on things like employees, marketing, and innovation.

open banking risks

When considering open banking technologies, entrepreneurs and small business owners should consider the potential risks. One main concern is data privacy and security. When users share their financial data with a third party, cyberattacks can cause data breaches. Third-party providers also may sell or share customer data with other third parties without the customer’s consent or knowledge. Data breaches and information sharing may lead to undesired third parties having access to the user’s information. Similarly, open banking may cause overexposure to marketing. As more third parties gain access to the user’s financial data, more financial services will want to sell to them. This issue may be particularly relevant to entrepreneurs and small business owners who do not have much of a business background. While open banking helps users find personalized financial products, it could backfire.

Entrepreneurs and small business owners, and their lawyers, should keep in mind the regulations may have growing pains. As the industry evolves and the technology advances, the government, and financial institutions will likely have to refine and update their policies. Since no strict rules are in place yet, only time will tell if the CFPB and other relevant government agencies have accurately assessed the industry.

takeaways

Open banking allows entrepreneurs and small businesses to use their financial data to more efficiently access loans while also optimizing the way they manage their finances. Entrepreneurs and small businesses can reduce the high costs associated with traditional banking services by embracing open banking. Despite the benefits, open banking may pose cybersecurity and privacy risks as strict rules and regulations are still being developed.

Entrepreneurs and small business owners should consider open banking technologies, particularly those more focused on a specific product or innovation and with minor business background. It is important for those who wish to utilize open banking technologies to ensure they are doing business with reputable financial companies to minimize potential security concerns. Therefore, entrepreneurs and small business owners should consult with an attorney who is well-versed in this field. An attorney can help entrepreneurs and small business owners stay informed of the developing laws.

This post has been reproduced with the author’s permission. It was originally authored on January 22nd, 2022, and can be found here.

Anthony Francioso, at the time of this post, is a rising third-year student at Penn State Dickinson Law. Anthony is from Hamilton, New Jersey, and a graduate of Dickinson College, where he was a member of the baseball team. He is also an Articles Editor for the Dickinson Law Review.

Sources:

https://www.bloomberglaw.com/product/blaw/bloomberglawnews/business-and-practice/XB2VJHB0000000?bc=W1siU2VhcmNoICYgQnJvd3NlIiwiaHR0cHM6Ly93d3cuYmxvb21iZXJnbGF3LmNvbS9wcm9kdWN0L2JsYXcvc2VhcmNoL3Jlc3VsdHMvMDRhMjZkN2RjZWQwNmI3NTNhZjBmZDNiOTY3YmVmYTEiXV0–3b60632baa5e21350f083c87842614133067fbb5&bna_news_filter=business-and-practice&criteria_id=04a26d7dced06b753af0fd3b967befa1&search32=59hxEExvwbWRtCHg_J9tXg%3D%3Dw5JR3cQ1JTXIWSGBbbFD9hJG4BRd8z_eiKpqMbGvRVU1W6H8597oJAqca2aL2sEf6-zGUW5XbBJEk40UrVD6L5o8Ejxv8wa69DV6zhBA0f24SnXdZM4cN6NPLWLmMHfc4ecA4Nbx6CKksi1luNcrFuc_q2aquxyWxEkNeYu7WXAIfwuAxBKQTsrszni_aEYkkf_C3l21mPVErgVc348DsdyyjQApbebyiTR830uI6eo%3D

https://www.finextra.com/blogposting/21066/open-banking-for-small-businesses

https://money.usnews.com/banking/articles/what-is-open-banking

https://www.jdsupra.com/legalnews/the-road-ahead-for-open-banking-in-the-7076173/

https://www.jdsupra.com/legalnews/open-banking-navigating-the-emerging-15903/

Green Responsibility: Understanding the Regulations Affecting Small Business Owners

By: Lisa Dang

Small business owners must navigate a complex maze of environmental laws. The Environmental Protection Agency (EPA) has issued a number of regulations to oversee and control the impact businesses have on the environment. While businesses must adhere to the EPA’s environmental regulations, these acts are often complex and difficult to understand. To make matters worse, studies have shown that environmental regulations disproportionately burden small businesses and may impose more stringent requirements on new operations.^[1]

Regulations to keep in mind while operation your business

Environmental policies and regulations are constantly changing and being updated. It is important to know which regulations can affect your business.

CLEAN WATER ACT

The Clean Water Act (CWA)^[2] regulates the discharge of pollutants into navigable waters in order to restore and maintain the chemical, physical, and biological integrity of U.S waterways. The CWA prevents businesses from emptying wastewater or other pollutants into surface water (e.g., streams, rivers, lakes, reservoirs, wetlands, and creeks) unless they have a permit. However, a limited number of activities are exempt from acquiring permits, such as qualifying farming activities.

If your business requires discharging pollutants (e.g., sewage, solid waste, chemical waste, discarded equipment, and biological materials) into waterways, it is necessary to obtain a National Pollutant Discharge Elimination System (NPDES) permit. The permit can be issued by the EPA or by state government agencies. NPDES permits, if approved, will provide the right to discharge a limited amount of a specified pollutant.

CLEAN AIR ACT

The purpose of the Clean Air Act (CAA) is to reduce emissions that pollute ambient or outdoor air to protect human health and the environment.^[3]The specific requirements affecting your business will often depend on 1) how badly your local air is polluted, and 2) the kinds and quantities of pollutants your business emits into the air. It is difficult to populate a single list that details every kind of small business that will be affected by the CAA but you should keep in mind that your business may be subject to one or more controls if your business:

- - - Services and repairs motor vehicles or air conditioning systems
    - Performs work involving auto body painting, the degreasing of machinery, and agricultural chemicals
    - Operates a print shop, bakery, or dry cleaners
    - Sells or distributes gasoline, heating oil, or other petroleum products
    - Emits volatile organic compounds and nitrogen oxides in an area where smog has been identified as an air quality problem

HAZARDOUS WASTE REGULATION

Many small businesses may not even be aware that they generate hazardous waste. Almost all retail stores, including grocery or convenience stores, drug stores, and home improvement stores produce hazardous waste. The Resource Conservation and Recovery Act (RCRA) governs the management of hazardous waste.^[4]The EPA has established three categories for the disposal of hazardous waste, which depends on how much waste a business generates:

1. 1. 1. conditionally exempt small quantity generators (CESQG) (produces less than 220 lbs of hazardous waste per month)
    2. small quantity generators (SQG) (produces between 220–2,200 lbs per month)
    3. large quantity generators (LQG) (more than 2,200 lbs per month)

The majority of business owners will probably fall into the first or second category (CESQG or SQG). Similar to small businesses affected by the CAA, waste is typically generated by dry cleaners, construction operations, car repair shops, photo processing shops, and pesticide user/ application services.

What Counts as Hazardous Waste?

Waste is any solid, liquid, or gas that is either chemically or biologically discarded, burned, incinerated, or recycled. Hazardous waste is classified into three broad categories.

1. 1. 1. Listed waste: often comes from manufacturing processes or commercial product chemical waste. Your waste is considered hazardous if it is on one of the four lists published in the Code of Federal Regulations, 40 CFR Part 261.
    2. Character waste: exhibits characteristics of ignitable waste, corrosive waste, reactive waste, or toxic waste.
    3. Mixed Radiological Wastes: has both a hazardous and a radioactive component.

Managing and Disposing of Hazardous Waste

First, most small businesses will fall into the SQG category and therefore must obtain an EPA identification number. CESQGs are exempt from this requirement. Second, SQGs are permitted to accumulate the waste on-site for up to 180 days without a permit. Last, SQG may send their waste only to a regulated Treatment Storage and Disposal Facility or recycler. Managing and disposing of hazardous waste may be complicated. Check with your appropriate state authority to ensure you are properly handling, storing, and transporting hazardous waste.

COMPLIANCE AND PENALTIES: HOW TO AVOID VIOLATIONS

The penalties for violating regulatory acts such as the CWA, CAA, and the improper treatment, storage, or disposal of hazardous waste impose a significant financial burden that small businesses might not be able to absorb. Each year, the EPA publishes an annual inflationary increase to the fine amounts for civil penalties assessed under its authority.^[5] As of January 12, 2022, the penalty for violations are as follows:

- - - Clean Water Act (CWA): $59,973
    - Clean Air Act (CAA): $109,024
    - Resource Conservation and Recovery Act (RCRA, Hazardous waste): $109,024

Over the past decade, the EPA has recognized the burden environmental regulations place on small businesses. The EPA has developed several comprehensive guidelines and has required states to develop assistance programs specifically to address the needs of small businesses to ensure regulatory compliance.^[6] Under the RCRA, the EPA provides industry-specific guidance to help with hazardous waste management.

Furthermore, the EPA will eliminate or significantly reduce penalties for small businesses that voluntarily discover violations of environmental law and promptly disclose and correct them under the Small Business Regulatory Enforcement Fairness Act. A business has 21 days from the time it discovers that a violation has, or may have, occurred to disclose the violation in writing to EPA.

conclusion

Understanding and complying with the various environmental regulations that may affect your small business ensures your business will not bear the significant financial burdens imposed by civil penalties. Although the regulations may seem daunting for a small business, following the guidelines set by the EPA or contacting your state’s Small Business Environmental Assistance Program (SBEAP)^[7] will help you to meet regulatory compliance.

This post has been reproduced with the author’s permission. It was originally authored on February 7, 2022, and can be found here.

Lisa Dang, at the time of this post, is a rising 3L at Penn State–Dickinson Law. Dang hails from Richmond, Virginia, and graduated from the College of William and Mary with a BS in Neuroscience and Philosophy. Before coming to law school, Dang worked as a Research Assistant in the division of Hematology, Oncology & Palliative Care at Virginia Commonwealth University. Dang has a wide-range of interests and has been exploring many different classes and areas of law. In between work and school, Dang plays competitive Ultimate Frisbee.

Sources:

[1]. https://www.epa.gov/sites/default/files/2014-12/documents/do_environmental_regulations_disproportionately_affect_small_businesses.pdf

[2]. The Clean Water Act, 33 U.S.C. §1251 et seq.

[3]. The Clean Air Act, 42 U.S.C. 7401 et seq.

[4]. Resource Conservation and Recovery Act, 42 U.S.C. §6901 et seq.

[5]. https://www.federalregister.gov/documents/2022/01/12/2022-00349/civil-monetary-penalty-inflation-adjustment

[6]. https://www.epa.gov/resources-small-businesses

[7]. https://nationalsbeap.org/states

Photo Sources:

https://www.uniteammarine.com/clean-water-united-states-u-s-clean-water-act-and-relevant-regulations/

https://www.epa.gov/hw/learn-basics-hazardous-waste

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.