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Business formation considerations for startups

Pennsylvania entrepreneurs usually are filled with the excitement of a new idea, a new product, a new service and find it hard to switch gears and focus on the business per se. Nevertheless, such gear switching is vital, particularly in regard to deciding what type of business they wish to form.

As Founders Workbench points out, which business structure works best for which startup depends on the following three factors:

  1. The desires of the owner(s) regarding limited liability of personal assets
  2. The desired business ownership and management structure
  3. Federal and state taxes

Business entity types

The Small Business Administration can be helpful in cutting through the legalese associated with the various types of business organizations and explaining them in a relatively straightforward manner. Assuming that the startup will have more than one owner, the most common types of business are the following:

  • Partnership
  • Corporation
  • S corporation
  • Limited liability company

There are several different types of partnerships. One popular type is a limited partnership wherein there is one general partner with unlimited liability and additional partners with limited liability and limited control. All of this is set forth in a written partnership agreement. The partnership itself pays no income taxes; rather, its profits are passed through to the partners who pay personal taxes on their shares of the partnership profits. Another popular type is a limited liability partnership. Similar to an LP, an LLP gives limited liability to every partner, protecting each from the actions of the others.

A corporation provides the strongest personal liability protection to the startup owners, but also is more expensive to form and requires more record-keeping. Corporations are legal entities separate and apart from their owners and pay their own income taxes. Shareholders pay personal income taxes on the dividends they receive.

S corporations are somewhat of a cross between a partnership and a corporation. After making a special election to become an S corporation, the business avoids the double taxation of a regular corporation. One downside of an S corporation, however, is that all shareholders must be U.S. citizens.

Somewhat akin to an S corporation, a limited liability company, a/k/a LLC, offers both corporate and partnership advantages. The personal assets of the owners generally are not at risk if the business is sued or goes bankrupt.

How can you start a successful business?

Pennsylvania entrepreneurs like you are always looking for opportunities to grow your business. Kisner Law Firm, LLC, works with you to get established in your chosen field, allowing you to reach your full potential and net the widest audience you can.

What's crucial to setting up a good business is asking the right questions before you get started. It's the same as it is when building houses: a strong foundation will last you a long time. First, you'll need to look at how you intend to manage your business. Questions to ask include:

  • How you plan on distributing your profits
  • How many owners the business has
  • Who plays active and passive roles in the business
  • The financial positions of all involved

Deciding all of this ahead of time will allow you to avoid potentially messy arguments later down the line when it comes to the profits that your company makes.

You'll also want to look at your business structure itself. For example, what kind of transactions do you expect to make? Will you need any special licenses to run your business? What sort of services do you intend to provide, or what items do you plan on selling? What is your intended audience? Are there any state regulations that you need to be mindful of?

Once you've figured out the above, getting started with your business will be a much easier task. Our linked web page has plenty of information for you to look at if you're starting your business.  Our knowledgeable attorneys are available to provide a variety of services to assist with starting or growing your business.

Employment contracts benefit workers and business owners

When the time comes to expand a business, a Pennsylvania entrepreneur may wish to hire employees to help carry the load. However, this may fill a business owner with trepidation because of the many potential complications that come with hiring, compensating and perhaps firing employees. Business owners often find that some of those complications can be avoided with a carefully drafted employment contract.

The advantages of such a contract include addressing common contingencies that arise in business situations. Contracts can describe what an employer expects of his or her workers, the benefits the employee may receive and how the relationship between boss and worker may end. While contracts are not always necessary, many business owners find that they are able to retain employees longer when they have signed such an agreement.

Contracts can also include important protections for the business owner. For example, a contract may include non-compete clauses, preventing former employees from seeking work with a company rival. Managers may also benefit from including requirements for employers to give reasonable notice before leaving the job. A common drawback of employment contracts is that they eliminate the "at-will" option, which allows an employer to fire a worker who isn't producing. A contract may protect the worker from such dismissal.

Well-drafted employment contracts can save business owners many headaches. Finding the balance between protecting one's business and attracting a talented employee requires skill and knowledge of employment law. Many business owners in Pennsylvania find those qualities in a experienced Kisner Law Firm attorney who can help them create a contract appropriate for their circumstances.

Source: entrepreneur.com, "Employment Contract", Accessed on Aug. 12, 2017

What is the Pennsylvania Wage Payment and Collection Law?

You may not give much thought to your employees' wages. However, wages can be a source of dispute for your Pennsylvania company. It is important to understand the various wage and hour laws affecting your business, including the Pennsylvania Wage Payment and Collection Law, so you can avoid disputes in this area of your business.

There are many things you are required to do in order for your employee wages to be considered legal. Even after you have established and promised a legal wage, you must follow through and comply with the wages and payment terms you have established.  This is why it is important not to unwittingly establish wages or payment that you did not intend to or do not plan on paying.

The Smart Business Network says that each employee's wages and hours should be recorded, and these wages need to be delivered on designated paydays. You typically have till the next payday to give workers their earnings when they leave your company, and failing to do this may result in a claim against the company. Additionally, workers need to understand their wages and benefits when you hire them.

Although these requirements sound simple, you may unintentionally break them. If a worker quits but owes your company money, you might wrongfully deduct money from the employee's last paycheck. You may also experience disputes if you do not give employees their wages after they leave the company, even if your company is facing financial difficulties. 

There may be stiff consequences for breaking Pennsylvania's wage law. You may be required to pay a portion of your former employee's legal fees and a fine, and in some circumstances you may face imprisonment. Before a claim proceeds to court, you typically receive a notification of your legal error and usually have 10 days to pay your former employee. The amount you owe usually increases if you do not deliver the wages after 30 days.    

The experienced attorneys at Kisner Law Firm can assist owners and management in understanding the multitude of hour and wage laws and develop a plan to help your company stay in compliance.

What is incorporation?

If you are starting a business or involved in business ownership in Pennsylvania, you may be curious about incorporation. Entrepreneur explains incorporation is the process of creating a corporation, which is a standalone entity with its own legal rights. Incorporation is done at the state level, but you can incorporate in different states, usually through filing forms and paying a fee.

Creating a corporation requires a board of directors who, along with the officers appointed by the directors, are responsible for running the business. The corporation will issue stock to shareholders, some of whom may be investors. the shareholders will enjoy limited liability because the business is an independent entity.

Incorporating a business requires following specific rules. You must file articles of incorporation. The corporation myst hold at least an annual meeting and keep records, called minutes, of the meetings of the shareholders and directors.  Taxes must be filed on behalf of the business and the finances of the business must be kept separate from personal finances. A corporation works for its shareholders and may need to provide dividends if the business is profitable.  You will need to register with the Securities and Exchange Commission if you do not otherwise qualify for an excemption.  

Corporations and shareholders sometimes face 'double taxation' where the company has to pay taxes on the profits it makes and then the owners have to pay taxes on those same profits when they receive them individually.  There are certain corporate and tax structures that can be used to minimize the impact of taxation.  Corporations must comply with rules and regulations, especially of special elections or exceptions, or they risk losing their corporate status and protections.

Corporate formation and governance can be daunting but Kisner Law Firm can provide advice and formation services to help you develop best business practices.

What's your 'pie in the sky' business idea?

Business meetings - those two words can draw excitement or ire depending on your perspective. As you meet with your partners to discuss a new business idea, you can quickly tap into the creativity in the room, but as ideas become a reality, questions arise that can bog down progress in both business formation and product creation. How can you work past these roadblocks on the way to success?

Choosing a business structure

In the early stages of planning, you will discuss what kind of business structure you and your partners will utilize. You probably know what the company will do, but how it will run takes a little more discussion. The advantages of a limited liability company (LLC), an S corporation or a C corporation will be the subject of much discussion between you and your colleagues, and understanding the differences can help drive the conversation. 

LLC

  • Flexible and simple
  • Avoids double taxation of property and income

S corporation

  • Avoids taxes on profits outside of compensation
  • Limited shareholder and stock options

C corporation

  • Provides more benefits to both employees and shareholders
  • More deductions for employee expenses like health care

Whether you want a small, medium or large-sized business, LLC, S corp. or C corp. may change as the business grows, the prospects of which can be written into the business plan.

A business law attorney can assist in including the legal needs for growth in your business formation. Your legal professional can also act as a third-party voice to your business structure outside of the egos and emotions of the daily workflow.

Focus on the formation

As a soon-to-be business owner, you want to be efficient, and keeping discussions focused is often the key to early meetings. Even if you intend to develop a large business, the close company you keep is critical.

Amazon CEO Jeff Bezos was recently named as one of the richest people in the world. To help him reach his business goals, he relies on a "two pizza rule" to keep meetings productive. That is to say; he never invites more people to a meeting than two pizzas could feed. Could you use this same rule during the formation of your business?

Understanding the advantages of particular business structures can help drive formation discussion toward the 'pie in the sky' that is your business goal.

Preparing for a consultation with a business law attorney

One of the best pieces of advice for new business owners in Pennsylvania is to seek help from those more experienced. This can mean surrounding yourself with successful owners that you respect, but should also include consulting legal experts who have helped others create and guide their companies. We at Kisner Law Firm have been strategically consulting business owners and are prepared to help you overcome any obstacles that you may encounter.

 

If you have an appointment already made, there are certain pieces of information that are important to bring to the consultation. You will need to show as much as possible about your operations, including what products or services you will offer and what licenses will be required for those, as well as any state or federal regulations that may apply to your business. You should also be prepared to discuss equipment needs and other large purchases that are expected.

 

You will also need to explain structure of your company. This includes the number of owners that will be involved and what their level of activity will be, how profits and responsibilities will be divided, and what the financial positions of the owners will be. This information will be crucial in determining the type of entity that you need to create.

 

Once these facts are presented, you can make decisions such as the type of insurance that will be best, your employee situation and the most optimal way to minimize tax liability. You can focus your decisions on the goals that you have for your company now as well as in the future. For more information on preparing for your consultation, please visit our web page.

How do I handle employee conflicts in my business?

As a Pennsylvania employer, planning for what could happen in the future is always a good idea to protect your business. One such plan you need is how to handle employment disputes. Situations can vary, so your approach should be based on the situation at hand. For example, fi the conflict is between two employees, it should be handled differently than conflict between you and an employee. In addition, harassment or discrimination issues should be handled differently than other employment disputes.

In most conflicts, according to the balance, you should approach employee conflict in a neutral way. You do not want to come across as favoring one person over another. Never meet with each person involved separately. Make it clear you are not going to allow yelling or fighting during the medication process. You should encourage both people to explain their side of the issue. Encourage them to calmly discuss what happened and what they would like done to resolve it.

It might be a good idea to have someone from human resources sit in on the meeting. That person would best understand the policies and other regulations that may come into play and be able to provide valuable input.

You should never avoid or ignore a conflict in your workplace. It is disruptive to everyone. Even if only two people are actively involved in the situation, it will still rub off on others and could affect productivity in the whole company. Always address the situation as soon as you become aware of it. This information is only intended to educate and should not be interpreted as legal advice.

EEOC sues Time Warner, Charter for firing disabled worker

On July 6, 2017, the Equal Employment Opportunity Commission (EEOC) announced that they would be suing Time Warner Cable and Charter Communications. The two cable companies, which recently merged under the brand Spectrum, are being sued for firing a disabled employee.

The employee alleges that her disability was not accommodated and that she was fired after the company learned about her condition.

This case serves as a reminder that no matter how big or small your business may be, there’s always the risk of a discrimination lawsuit. These charges may emerge from the EEOC (15 or more employees) or the Pennsylvania Human Relations Commission (4-14 employees).

How to protect your business from charges of disability discrimination

Facing discrimination charges from either the EEOC or the PHRC can be intimidating for any business. There are things you can do to better protect yourself and your business from a discrimination lawsuit.

  • Rethink your interview questions: Employers can’t ask employees about their medical history or disabilities before making an offer. Rather than asking about someone’s physical limitations, reframe questions to ask about an applicant’s abilities to perform the essential functions of the role they’re interviewing for.
  • Provide reasonable accommodations: Employers need to provide reasonable accommodations for an employee with a disability. The exception to this rule if it would impose a significant difficulty or expense on the employer. Flexible working hours or making the workplace more accessible for wheelchairs are common accommodations you may need to make.
  • Document everything: If an employee is simply not performing the essential functions of the task, then you may ultimately find it necessary to terminate employment. Documenting an employee’s poor performance strengthens your credibility that the employee was fired due to performance, not because of a disability.

Just because your business was charged by the EEOC doesn’t automatically mean you’ll face disciplinary consequences. Taking these charges seriously and proactively dealing with them will help your business overcome these disputes.

Questions to be answered regarding unpaid internships

During the summer, it is fairly common for companies to offer internships to high school and college students. They basically serve competing interests very nicely. Students get valuable experience with a company that improves their job prospects after they graduate, and employers get an opportunity to audition prospective employees.

While some internships come with a fair wage, others are unpaid. Given state and federal employment laws, are unpaid internships legal?

The quick answer is: it depends on the circumstances. Generally speaking, unpaid internships may violate state and federal wage and hour laws if they do not satisfy certain criteria.  Essentially, these rules are in place so that employers do circumvent federal minimum wage laws by simply naming seasonal temporary employees "interns." This post will highlight a few of the factors the U.S. Department of Labor will use to determine if an unpaid internship properly follows federal law. 

Whether the experience supplements classroom - An unpaid internship must utilize or expand upon training or education previously provided in a classroom environment. This may mean that a particular class must have been completed as a prerequisite to the internship.

The intern must benefit from the job -  In the same vein, the intern usually receives some type of academic credit that will be used to satisfy graduation requirements.  

Regular employees can still work - Permanent employees must not be displaced by unpaid interns, and any interns working on a temporary basis must be supervised by an existing, permanent employee.

If you are putting together a new internship program or have accepted students into one and have questions about proper compensation, an experienced employment law attorney can advise you.

The preceding is not legal advice.

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