Articles Posted in Entrepreneur

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Rarely does something that is forced affect a lasting difference, much less result in an improved circumstance. That said, as I considered another flip of the calendar, I decided to at least partially break my own rule and to offer what I will call a few suggestions that just might make for a better business new year.

Resolution #1: Update your corporate minute book. For many businesses, particularly closely held ones, the corporate formalities tend to get relegated to the “we’ll get to it” pile. In the new year you might consider updating your corporate minutes. Hold the meetings that the operating agreement or by-laws require. Make the disclosures to the members or shareholders. Document the company resolutions put into effect last year. Review, update and memorialize your policies. Lawsuits have been decided based on what company put in writing – or failed to write down.

Resolution #2: Review your contracts. For reasons lost on me, people often will sign a contract and never look at it again. This is unfortunate. Contracts spell out how a business relationship is to function, including the parties’ respective rights and obligations. What frequently happens is that the business conducted in real time diverges from what was planned and intended. Periodically reviewing your contracts can help to ensure that your transactions or relationships work as planned; such reviews also can help to avoid problems before they turn into a source of conflict and added expense.

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AI & Content Creation

Businesses using generative AI programs like ChatGPT to create any content—whether for blogs, websites or other marketing materials, and whether text, visuals, sound or video—need to ensure that they’re not inadvertently using copyrighted materials in the process.

Clearly, the times they are a changing….and businesses need to adapt to the changes.  Employers should promulgate messages to their employees and contractors updating their policy manuals to ensure that communications professionals and others crafting content are aware of the risks of using AI-generated materials, which go beyond the possibility that they are “hallucinated” rather than factual—although that’s worth considering, too.

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When is the Best Time to Start a Business?

During the pandemic there were over 400,000 new businesses formed, the most since 2007.  This outpaced the number of businesses which closed during the pandemic. 50 million new startups are established every year. That means, on average, 137,000 startups are launched every day.   However, only 10% can sustain themselves in the long run. 

We have seen a number of businesses which were formed over the past year by well-meaning and cost-conscious entrepreneurs.  These new ventures – both corporations and limited liability companies – frequently overlook some critical elements of a new business.   In fact, the first question to ask is whether you should organize as a small corporation or a limited liability company.  There are tax consequences and managment questions that should be considered in making the choice. 

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Tax Implications When Leaving a Partnership

When a partner leaves a business, the resulting transaction can take the form of a payment to the retiring partner to redeem his or her share of the business, or a sale of that share of the business to the remaining partners. Either way, the person who leaves obtains cash or property while the partners who remain increase their share of the assets on a proportional basis. While the end result appears to be the same, however, the tax implications can be quite disparate.

When the retiring partner receives a redemption payment, Section 736 of the Internal Revenue Code comes into play, determining firstly whether the income will be treated as a capital gain/loss or ordinary income, and secondly whether the remaining partners can deduct a percentage of their redemption payments.

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You Can, But Should You?

To begin with, employers thinking about using AI such as ChatGPT during hiring and selection need to familiarize themselves with the technology at a conceptual level, and then look closely at—and understand well enough so they can explain to others—how AI integrates with their recruiting tools and practices.

A key piece of state legislation in Illinois pertaining to the use of AI is the Artificial Intelligence Video Interview Act (820 ILCS 42/1), which lays down various stipulations for the recording of video interviews and subsequent use of AI while evaluating said recordings.

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How Do Family Businesses Survive Transition?

The Cornell University Smith Family Business Initiative says that more than three-quarters (77%) of small businesses rest on significant family involvement. Family Enterprise USA has counted 5.5 million family businesses in the U.S., finding that they contribute 57% of the U.S. GDP, employ 63% of workers and create 78% of all new jobs. And not all are small businesses: Businessweek.com has reported that 35% of Fortune 500 companies are family-controlled.

But the statistics on how often family businesses don’t sustain themselves over time—whether due to squabbling or for other reasons—paint a stark picture. According to Business Week, 40% of family-owned businesses reach the second generation, 13% get to a third and just 3% are passed down to a fourth generation or beyond.  And familybusinesscenter.com calculates the average life span as 24 years.

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Subchapter V for Small Business Owners

For the past two years, small businesses whose bottom lines were impacted by the onset of COVID-19 enjoyed greater protections while going through Chapter 11 bankruptcy reorganizations in the form of higher debt limits under the Small Business Reorganization Act.

That act, passed in August 2019 and enacted as of February 2020, established what came to be called “Subchapter V” of the SBRA, aimed at providing a simpler, less costly and ultimately more beneficial Chapter 11 process for small business debtors who would struggle to afford administrative and other costs.

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New Laws for Small Businesses in 2022

From salary and benefits, to the hiring process, to non-compete agreements, an array of new state legislation that affects small businesses in one way or another has taken effect as of the first of the new year, 2022.

The legislation focused non-compete agreements (SB 6

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Considerations for Starting a Small Business

Recently, we ran a post What to consider when Starting a Small Business, Part One  about some of the early steps in starting a small business—deciding you’re ready, figuring out what type of business you want to start, surveying your competitors, and figuring out the optimal business model.

At that point, it’s time to get down to the proverbial brass tacks and put together a business plan, which really doesn’t need to be more than one page long unless you’re going to apply for a loan from a bank (in which case you should find out what the lending institution requires).

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Are you thinking about starting a small business?

It can be an exciting and challenging endeavor, although it’s more likely to succeed if you plan ahead, take it step by step, and surround yourself with trusted, experienced advisers.  Of course, such an important endeavor – not to mention a life alternating event – requires hard work, ingenuity and more than a little legal advice.   You can start by going to our webpage on What to Ask When Staring a Business.

Keep in mind that there might never be an absolutely perfect time to start your own business – so for starters you need to take stock of your mental state and make sure you’re as ready as you will ever feel.  

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