Basics of the Corporate Transparency Act

The Corporate Transparency Act (CTA) was included in the National Defense Authorization Act for Fiscal Year 2021 (NDAA 2021) and is designed to address issues related to money laundering and illicit financial activities. As of January 1, 2024, a new reporting requirement went into effect affecting millions of business owners. Here are key points about the Corporate Transparency Act:

1.    Beneficial Ownership Reporting: One of the main features of the CTA is the requirement for certain companies to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Beneficial ownership refers to individuals who directly or indirectly control or own a significant portion of a company.

2.    Applicability: The reporting requirement generally applies to corporations, limited liability companies (LLCs), and other similar entities formed under state law. Certain entities may be excluded from this requirement if they fall under one of the twenty-three categories of exempt entities. Most of these exemptions are for entities that are already subject to substantial federal or state regulation. 

3.    Thresholds: Entities subject to reporting must disclose information about individuals who own or control 25% or more of the ownership interests, as well as a person who manages or controls the entity.

4.    Privacy Considerations: While the information will be reported to FinCEN, it won't be made publicly available. Law enforcement and certain government agencies, however, will have access to this information to investigate and prevent financial crimes.

5.    Penalties for Non-Compliance: Failure to comply with the reporting requirements may result in civil and criminal penalties. It's crucial for business owners to be aware of these requirements and meet the reporting obligations to avoid legal consequences.

 In summary, the Corporate Transparency Act is important for business owners to understand and adhere to in order to promote financial transparency and be in legal compliance to avoid penalties. If you would like more information on the CTA or need assistance filing your BOI, please call us at 703.319.7868.

Why are Qualified Domestic Relations Orders (QDROs) so important to business owners?

QDROS play a crucial role in dividing retirement assets during a separation or divorce. Here are a few reasons why QDROs are significant for business owners:   

1.    Retirement Asset Division: Business owners often have substantial retirement savings in employer-sponsored retirement plans such as 401(k)s, pension plans, or profit-sharing plans. During a divorce, these retirement assets may need to be divided between the spouses as part of the property settlement. QDROs provide a legal mechanism to ensure a fair distribution of these retirement assets according to the divorce settlement.

2.    Tax Implications: Without a QDRO, transferring retirement assets to a former spouse could result in adverse tax consequences. A QDRO allows for tax-free transfers of retirement funds to the ex-spouse's retirement account or an individual retirement account (IRA), helping both parties manage their tax liabilities effectively.

3.    Compliance with ERISA Regulations: The Employee Retirement Income Security Act (ERISA) governs employer-sponsored retirement plans. QDROs are required to comply with the specific rules and regulations outlined by ERISA to ensure the proper division and transfer of retirement assets. Failing to follow the guidelines can result in penalties, legal disputes, or delays in asset distribution.

4.    Protecting Business Ownership: For business owners, retirement plans can be closely tied to the success of their business. A QDRO helps safeguard the business owner's interests by ensuring that the division of retirement assets does not jeopardize the viability of the business. It can outline specific provisions to protect the business, such as limiting the transfer of ownership or requiring the ex-spouse to waive any future claims on the business.

5.    Legal Compliance and Enforceability: QDROs provide a legally binding framework for dividing retirement assets. By obtaining a QDRO, business owners can ensure that the division of assets is done in accordance with the law, protecting their rights and interests. It also ensures enforceability, making it easier to resolve any disputes that may arise in the future.

Overall, QDROs are essential for business owners going through a divorce or separation as they help facilitate the fair division of retirement assets, provide tax benefits, ensure compliance with ERISA regulations, protect business interests, and establish a legally enforceable framework for asset distribution. It is crucial for business owners to consult with legal and financial professionals experienced in family law and retirement plans to navigate the QDRO process effectively.  Call us to see how we can assist.  

Don’t Mess with the CAN-SPAM ACT: 7 TIPS to Make Sure You’re in Compliance

So now that you've got your privacy policy and terms and conditions posted on your website (see our last blog: 10/15/15) and have an email list that’s growing, you need to make sure that you comply with the CAN-SPAM ACT (Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003). You got it – another set of rules. These are the rules that regulate all of those crazy ads and unwanted emails from businesses, some of which you can't even remember registering with, and possibly didn't.

The CAN-SPAM Act regulates emails that your business sends out. And, believe it or not, each separate email that violates the Act could subject you to penalties of up to $16K - pretty hefty!

To keep that money in your business and your pocket, here is a short rundown of the 7 most important requirements that you need to be aware of:

1.     You can't use false or misleading header information. What that means is that you need to accurately identify who the email is FROM and TO whom and the person or business that sent the email must be accurately identified.

2.     You can't use deceptive subject lines. Don't use some sexy, catchy phrase to get people to open your mail and find out that you're selling pencils. Not cool!

3.     Identify the message as an ad. If your email is an ad, you have to identify it as such and it must be done conspicuously.

4.     Tell the recipient where your business is located. You need to tell the recipient where you are located so include your valid physical address that's registered with the U.S. Postal Service, or a private mailbox registered with a commercial mail receiving company that complies with Postal Service regulations.

5.     You must show email recipients how to opt out of future emails from you. The message needs to be clear, conspicuous and really easy to understand. You'll want to make sure your spam filter doesn't block these opt-out requests, too.

6.     Honor opt-outs promptly. Make sure you take the opt-out request seriously and do so within 10 business days. You aren't allowed to charge a fee or provide any other personal information beyond an email address or make them jump through hoops to opt-out.

7.     Monitor those sending emails on your behalf. If you’ve outsourced your email marketing, make sure you know what that company is doing. You're still on the hook if the company you've hired doesn't comply with the Act.

Make sure you are in compliance with these rules, and don’t spam your potential or existing clients.  Nobody likes JUNK mail!  For more information on how to avoid these traps, call us at 703.319.7868 or book a strategy session by going to www.graceleelaw.com.

Top 3 Things that Entrepreneurs Do Wrong

If you’ve figured out that you don’t know what you don’t know and you’re worried that you’re exposed to risk, then read on….

Many of my clients tell me that they don’t even know how to protect themselves because they don’t understand or know what risks are involved with running a business.

It is incredibly important to have legal protection for your business to (a) sleep better at night, (b) show that you operate in a professional manner; and (c) gain credibility that you know what it is that you’re doing.

Sadly, the top 3 things that entrepreneurs love to forget about or DIY without legal guidance can really get them into huge trouble.  What are entrepreneurs doing wrong?  They’re:

1.     Not using customized client contracts: Sometimes entrepreneurs don’t want to scare off potential clients by breaking out a legal agreement. However, the reality is that a client contract helps clarify the details between the parties and lays out the terms of the business relationship. Both parties will know how long the relationship will last, what the payment terms are and what to do in the event something bad happens or one or both parties are not happy with the way things are going with the relationship. Making expectations clear is super important and helps reduce risk and the threat of being sued by a client or customer.

2.     Not using or having appropriate disclaimers: If you have a website, it’s critical to disclaim your liability for things that relate to your business. In other words, you want to put the world on notice that you will not be held liable if they work with your business and that the client has to assume the risk and take personal responsibility for their actions and involvement with your company. For example, if you bake oatmeal dog treats, you won’t be held liable for any food allergy reaction that your dog has to the oatmeal or other ingredients in the dog treats. Disclaimers help clarify the expectations about what you do or the products or services that you offer.

3.     Not including privacy policies and terms and conditions on business website: If you collect any type of information from the public through your website, you must have a privacy policy letting people know how you intend to handle their information. There are federal as well as state laws that regulate how you are allowed to handle that information. These policies ensure your visitors that you won’t sell or give out personal information to any other parties. It’s a really good way to gain trust so your visitors feel safe and secure. You also need to have terms and conditions that act as a contract between your business and visitors who land on your website. It helps protect your business from a potential lawsuit by putting people on notice of what your business is and what the information on the website is for. Plus, these terms tell the world that the stuff that’s on your website is yours, i.e. you own it.

If you’d like an in-depth business assessment to see what your exposure is to risk, schedule now at graceleelaw.com or call us at 703.319-7868.  We’ll get you in right away!

How to Fire an Employee and Not Get Sued: It’s All About Preparation, Execution, and Consistency

If you’ve been in business long enough, you may have had the opportunity to hire employees. When working with people, you have to not only be a good boss but you also need to be well versed in employment laws. At some point, you’ll have to deal with firing someone, which is never easy and usually not much fun. And, even if you dot all your “i”s and cross all your “t”s, firing someone can still get you into a lot of trouble. By being in charge, you run the risk of being sued by someone you’ve just booted from the company.

How do you reduce the risk of being sued when firing an employee? Follow these 3 main steps to navigate the murky waters:

1.         Prepare: Know what the federal and state laws are regarding employment and make sure you are in compliance. Be clear on what the expectations are of the employee from the beginning. Make sure your employee handbook is consistent with what you tell them with respect to what behavior is prohibited and what types of disciplinary procedures will be implemented in general. Review the feedback that the employee has been given to date and explain what the underperformance is or what’s been going wrong. You’ll want to give the employee specific direction on how to get back on track and provide them a period of time to correct the behavior. Notify them that if there is no improvement, termination is a possibility. You’ll want to document your meetings with the employee and make sure that your notes go in the employee file.

2.         Execute: Don’t be emotional when you have to pull the trigger. Know what it is you are going to say when you meet with the employee, i.e. that they’re fired, when they need to leave the office, that they’re being fired for cause or as a result of a reduction in force, how much their severance pay and benefits will be, etc. Make sure you have a witness present in case the employee threatens to retaliate. Monitor the employee from the time they are fired until they leave the building so they don’t have an opportunity to steal any information or damage company property. If possible, have the employee sign a release and offer them something in return in addition to their earned severance. Be prepared to receive a claim for unemployment benefits.

3.         Be consistent: If you treat everybody the same (be it good or bad), you’re less likely to get into trouble. You have to make sure that you treat your employees equally because there are anti-discrimination laws that might protect that employee if they’re in a protected class (race, color, national origin, religion and sex). You also need to be aware of the age discrimination laws, the Family and Medical Leave Act and other laws that would require you to reinstate someone after they are cleared to go back to work. And, just because you’re firing someone, you still need to treat them with respect. That will help curb any itch the employee might have to retaliate and really is just the right thing to do.

If you need help navigating this tricky area of running a business, let us know. We’d love to help out and make sure you’re in the best position to deal with your employment matters. We can be reached at (703) 319-7868 or through graceleelaw.com.

3 Tips for Dealing with a Difficult Employee

It doesn’t matter whether your company is a start-up or has been successful and around for decades. Every business owner has or will have to deal with a difficult employee, who tests your patience and makes you want to blow your gasket. Here are our top 3 tips to employ when those moments occur:

1.     Deal with It: If an employee is causing a problem, make sure you investigate as soon as possible. Get all of the facts before you form a judgment on the matter so you don’t accidently reach the wrong conclusion. Addressing the employee issue in a timely manner is more helpful with nipping things in the bud. Sweeping the problem under the rug typically only leads to larger or more problems down the road.

2.     Remain Calm and Professional: Don’t let a difficult employee lead you down the path to where you lose your cool. Your colleagues and staff look to you to be the voice of reason. Stay calm yet assertive. Your employees will respect you more when you show them your poised leadership. Plus, your tone and demeanor can be helpful in resolving the issue with the problem employee, as the discussion will come across as rational and calm.

3.     Know when it’s time to pull a “Donald”: You may really like the difficult employee if he or she is a great performer. However, if he or she is difficult to manage or is hurting your corporate culture, or worse yet, no one else likes him or her around, you might need to consider other options. Always keep your company’s interest in mind when making these decisions. If your difficult employee isn’t changing for the better after you’ve addressed the issue with him or her, it may be better in the long run to say, “you’re fired.” It may be a tough decision but your other colleagues and staff will respect you for doing what’s in the best interest for the company. And, having one less problematic person in the group can lead to a better work dynamic and increased productivity – a Win-Win for everyone.

For more tips and strategies on dealing with unruly employees, give us a call at 703.319.7868 or schedule time to talk with us at graceleelaw.com.

Want to Sit on a Corporate Board? Here are the 5 Things You Need to Know About Fiduciary Duties and Liabilities

Whether you’ve been asked to sit on a corporate board or really want to boost your resume by finding a corporate board seat, there are a few key things that you’ve got to know before taking the plunge.

A board of directors is a group of people selected to help govern a corporation. A for-profit corporation is tasked with meeting the desires of its stockholders, whereas a non-profit corporation reports to its stakeholders or communities, which the non-profit serves. Whichever type of board you end up participating on, the major duties and liabilities are primarily the same.

1.     Duty of care: Board members have a duty of care to act in the best interest of the stockholders and/or stakeholders of the corporation. Effectively, the board members have a fiduciary responsibility to exercise a certain level of care, skill and diligence that a reasonably prudent person in the same situation and under the same circumstances would exercise. At all times, board members must act in good faith and exercise sound business judgment as they carry out their fiduciary responsibilities, while keeping the corporation’s best interest in mind.

2.     Duty of loyalty: Board members have a duty of loyalty to put the corporation’s interests ahead of their own and that duty also includes avoiding any conflicts of interest. A board member cannot usurp an opportunity for him or herself that would otherwise have been an opportunity for the corporation. He/she also cannot work on advancing a transaction that is beneficial to him or herself and offers a financial and self-dealing gain. If either scenario occurs, it doesn’t mean there’s an automatic breach of the duty. If there’s disclosure and no others are at a financial gain and the transaction is approved, this type of transaction may pass muster.

3.     Duty to not commingle: Board members have a duty to avoid commingling corporate with personal assets. If board members fail to keep assets separate, they could lose the limited liability protection that the entity provides. Commingling assets makes it harder to view a corporation as a separate entity apart from its owners. Thus, it becomes much easier for a third party to assert the doctrine called “piercing the corporate veil”. Courts are likely to pierce the corporate veil and possibly assert personal liability on a board member if: (i) corporate formalities are not followed; (ii) owners commingle corporate and personal funds to satisfy obligations of the company; or (iii) the company was undercapitalized when formed, which evidences that the corporation may have been established as a shell or sham.

4.     Personal Liability: Typically, board members are not liable for the debts of the company. However, if a board member personally guarantees, cosigns or pledges personal property or a home for a business loan, the liability will extend to the individual if the company fails to pay it back. Creditors might be able to take the personal property or home used as collateral to satisfy the company’s obligations.

5.     Exposure to Shareholder’s Lawsuit: If not careful in observing fiduciary duties, there’s a possibility that the shareholders of the corporation might file what’s known as a derivative lawsuit against a board member or insider within the corporation who has allegedly breached his or her fiduciary duties. Procedurally, shareholders must first make a formal demand on the board of directors to cure any breach or take corrective action. If the board fails to act, the shareholders may file a lawsuit. 

While it can be exciting and rewarding to sit on a board, it’s important to understand the greater implications and responsibilities of serving.  For more information on the ins and outs of sitting on a board, call us at 703.319.7868 or schedule your strategy session by going to graceleelaw.com

7 Things to Consider When it Comes to Your Employee Handbook

One of the best ways to build a successful business is to hire the right people and foster those professional relationships. One way to get off to a good start with your team is to have a clear and straightforward employee handbook that outlines the company policies and procedures and states the company’s expectations regarding employee conduct. An employee handbook can provide structure to the work environment, reduce confusion, and even create loyalty by defining the corporate culture.

In the alternative, an employee handbook that is poorly written can create a negative and hostile work environment and even place you at risk of being sued. But, don’t fret! With the proper advice, you can create an employee handbook that not only creates a healthy work environment but also helps reduce corporate risk.

So, start thinking about the following 7 areas to include in your employee handbook.  

1.     Include an overview of the company and its goals and mission. A good way to instill corporate culture is by including your company goals, mission, and an overview of the business. This helps set the tone for where the company expects to take the business and how its employees can be a part of that growth. A section upfront in the employee handbook can really set the tone for engaging employees in that process.

2.     Know and understand what federal, state and local laws apply to the company. For example, anti-discrimination laws under Title VII of the Civil Rights Act of 1964 only apply to certain types of employers with 15 or more employees. Other laws such as minimum wage and overtime requirements must be a consideration as well. You’ll also want to check with your county and/or city to make sure your handbook complies with any applicable regulations.

3.     Put in the necessary disclaimers. Employee handbooks can create an implied contract with the employee unless you clearly state that it doesn’t and that the employee handbook is not a contract of employment. In Virginia, you’ll also want to include an employment at-will provision to strengthen that argument. Another tip is to keep internal policies broad because if you don’t follow them, you could be sued for breach of contract. Be clear and concise and make sure you know and follow your own set of rules.

4.     Address employee conduct and anti-discrimination policies. Your policies need to be drafted in a manner that clearly indicate what behavior is prohibited and what types of disciplinary procedures will be implemented. So make sure you outline the general rules and procedures that the company intends to follow. Be clear that the company has a zero tolerance policy for harassment or discrimination of any kind. And, let employees know how and to whom they can report their complaints. 

5.     Include information on benefits. With benefits, you can include a brief description of the benefit programs available. There’s no need to spell everything out since your plan programs will provide that information in detail, but it’s always a good idea to highlight the primary benefits with a short explanation as well as any other fringe benefits offered.

6.    Include leave policies. There are many federal, state and local laws that regulate leave policies so outlining what they are is important. These laws include family and medical leave, pregnancy leave, military service leave, jury duty leave, and the like. You should also include policies on other types of leave that can arise and that your company allows such as vacation days, sick days, funeral leave, etc. 

7.    Include information on computer usage and technology. Briefly outline the company policy on computer and other technology use. You should include a provision stating that internet access is limited to job-related activities only and personal use is not permitted. And, it’s important to notify your employees that all internet usage may be monitored and/or blocked if deemed not productive to business.

By including the 7 items above in your employee handbook, you can avoid unwarranted lawsuits, develop and grow strong relationships with your employees, and create a healthy work environment. For more information on writing your employee handbook, please contact us at 703.319.7868 or via email at grace@graceleelaw.com.

Want to Do Good? 7 Simple Steps to Forming a Nonprofit

Have you ever dreamed of making the world a better place? One way of doing that is by starting a 501(c)(3) organization and making a positive contribution to your community, state, nation or the world. Filing for tax-exempt status takes time and effort, but here are a few simple steps to get you thinking about how the process works. 

1. Choose the initial directors for your corporation. Each state has its own requirement of how many directors you are required to have so check the rules before you select your board. Most states require a minimum of either one or three directors.

2. Choose a name for the nonprofit. If you haven’t already, start thinking about the name of your nonprofit organization. You’ll want to make sure that the name is available in the state in which you intend to file.

3. Prepare and file your nonprofit articles of incorporation. After you’ve made sure your name is available, you’ll need to file your articles of incorporation that include basic information about your organization. Most states require information such as: name, address of the corporation's registered office, information on its registered agent for service of process, the nonprofit’s purpose, name and mailing address of the incorporator, etc.

4. Prepare bylaws. Along with filing your articles of incorporation, you’ll need to have bylaws that comply with state specific law. There are also certain provisions you’ll want to include in preparation for filing your tax-exempt application with the IRS.

5. Hold a meeting for the board. The first board meeting is the organizational meeting of the board and at that meeting, you’ll need to conduct business that establishes the board and approves how the nonprofit will do business, etc. You’ll want to record the meeting via minutes. After doing all of the above, you will file for your tax-exempt status.

6. File your Form 1023 or 1023EZ federal tax exemption application. In order to obtain federal tax-exempt status from the IRS, you’ll need to file your Form 1023. This long and detailed form asks for a wealth of information about your organization, its history and how it is run. Smaller nonprofits can file the streamlined Form 1023EZ if they have projected annual gross receipts of less than $50,000 and assets totaling less than $250,000. Both forms can be found at IRS.gov.

7. File for state tax exemption. After the nonprofit qualifies for 501(c)(3) status from the IRS, it may be exempt from state corporate income tax. You’ll need to check on whether your state requires a separate filing.

For more information on things to consider when forming your nonprofit organization, give us a call at (703) 319-7868 or schedule an introductory strategy session online at graceleelaw.com. 

Top 3 Things to Consider for Your Business Succession Plan

Busy building your business and your wealth that you haven’t had time to sit down and think about some very important things such as your business succession plan?  Well, consider yourself in good company.  About two-thirds of business owners do not take the time to think about the future and put a plan in writing. Be like the other third and consider these 3 things so you can get this important item checked off of your list.

1.         Do as you say, not as you do. You probably have or have considered policies and procedures for how your business should run and what is expected of your employees. It’s great to have this well thought out information readily available.  What about having a plan for what happens with the business if something happens to you? Your company needs to be prepared for the worst. If you die or become incapacitated, what’s the protocol?  What if one of your C-level employees dies or suddenly leaves? It happens. Don’t be caught off guard without a plan in this scenario. If you’re prepared, everyone will know who’s in charge in the event something catastrophic or unexpected occurs. This can help ensure that work goes on despite the tragedy or ill-timed circumstances. After all, you’ve worked long and hard to build your business.  Don’t let your business go under if something bad happens.

2.         Put a short list together for possible successors. Identifying and training the person who you’d like to replace you isn’t always an easy task. While you may think that the person who you’d like to step into your shoes seems obvious, you should have an organized approach for assessing and cultivating the talent pool needed not just to replace yourself but others across your business. This helps minimize business downtime due to unanticipated changes with personnel. Consider the experience and skill sets needed for key positions and take a close look at your current employees and ones just coming on board. If there are any employees who are ready to be groomed over the next couple of years, start developing that talent by providing training, resources, and other tools so that these individuals are ready to step up to the next level within the organization.

3.         Structure your financial exit for a smooth transition. There are several ways to form your business, i.e. sole proprietorship, partnership, corporation or LLC. When forming your entity, think about ways to make the business succession go smoothly and how you might want to transfer ownership to someone next in line. If it’s a family owned business, what are the parameters of selling to the family member? Would you sell your entire share or partial share to a family member or to an outside individual or entity? Having a plan in place can help with your exit strategy and prepare you for the tax implications upon the sale. It can also help reduce conflicts that arise when there are differing opinions about what the sales price or company’s valuation should be. Once that figure has been determined, you’ll want to further prepare the company financially by funding the succession plan with life insurance in the event of an untimely death.

When you own a business, it’s critical to prepare for the future. Think about attracting, training, and retaining quality employees. Put your exit plan into place and fund it so that the business is prepared for any situation that arises.

For more information on ways to protect your business and plan for your business succession, schedule an introductory strategy session online at graceleelaw.com or call us at (703) 319-7868.