SBA Loan Programs Expanded

The Small Business Association Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) Programs quickly ran out of the urgently needed funds that small businesses are depending upon to make payroll and pay rent. In response, the U.S. Congress has expanded funding to the SBA programs that are part of the CARES Act. The PPP will receive $310 billion in additional funds, and the EIDL fund will receive an additional $60 billion in funding. The new legislation also sets aside $60 billion of the PPP funding for small and medium-sized community banks, which will provide extra help for self-employed individuals and small businesses that do not have relationships with larger banks.

If you have already applied for an EIDL, the SBA will process applications in their system. If you have not applied for an EIDL, the SBA application page will open as soon as they are ready to accept new applications. It is recommended to monitor the SBA web site, https://www.sba.gov/disaster-assistance/coronavirus-covid-19 for the moment the applications re-open.

If you have already applied for a PPP loan through a certified SBA lender, it is recommended that you contact your lender to ensure that your application is complete and if the application is in queue to be submitted to the SBA.

Northshore Legal LLC specializes in real estate law, and represents buyer and sellers of residential and commercial real estate. We will continue to provide updates throughout the pandemic crisis. We can be reached at consultation@northshore.legal or 781-463-6063.

COVID-19 Relief for Small Businesses is Here

The Small Business Administration (SBA) now offers loan programs under the recently passed CARES Act for small businesses.  These programs can provide immediate funding to small businesses to help cover payroll, benefits and key business expenses.  On April 3, 2020, the SBA began accepting applications from small businesses (Corporations and LLCs) and sole proprietorships. On April 10, 2020, the SBA will accept applications from independent contractors and self-employed individuals may apply.

SBA certified lenders are now accepting applications for the Payroll Protection Program (PPP). The PPP provides forgivable loans to small businesses so long as 75% of the loans are used to fund payroll for existing employees. The remaining 25% may be forgiven if used for rent, mortgage interest and utilities. The small business must also retain the employee and no reduce compensation to the employee. The payroll costs, interest on mortgages, rent and utilities must have been effective or established prior to February 15, 2020. You may use the loan proceeds to pay for employee benefits such as vacation, medical, parental, family,, or sick leave; group health care benefits including insurance premiums; retirement benefits; and State and local taxes assessed on compensation.

if the loan is not forgivable, the loans is made on a two (2) year repayment term and at an interest rate of one-half of a percent (0.5%). Payments are deferred from the first six (6) months, however, interest will continue to accrue. There are no application fees or pre-payment penalties.

In order to apply for the PPP loan, you must contact your Bank where you maintain your primary accounts. Your Bank should be SBA certified. Most lenders, as of the date of this Blog, have a dedicated web-page for COVID-19 relief. You will need to complete the PPP loan application and submit it with the required documentation to the Bank by June 30, 2020.

Northshore Legal LLC specializes in real estate law, and represents buyer and sellers of residential and commercial real estate. We will continue to provide updates throughout the pandemic crisis. We can be reached at consultation@northshore.legal or 781-463-6063.

Federal SBA Relief for Small Businesses is Now Here

The Federal CARES ACT (Coronavirus Aid, Relief, and Economic Security Act), in part, provides immediate relief for small business owners who are facing capital crunches due to the present economic slowdown. This article will provide a brief overview of the programs presently available for small business owners in Massachusetts and throughout the United States.

The Small Business Administration (SBA) has expanded the 7(a) Small Business loan program to provide employers with payroll assistance to ensure that employees stay employed. The Paycheck Protection Program (PPP) Loans provides provide cash-flow assistance through 100% Federally guaranteed loans to employers who maintain their payroll during the pandemic. If employers maintain their payroll, the loans would be forgiven, and if certain conditions are met. Effective April 3, 2020, small businesses and sole proprietorship can apply through any Federally insured banking institution that is Small Business Administration (SBA) certified. On April 10, 2020, independent contractors and self-employed individuals may apply for 7(a) loans. It is recommended that any businesses that require case assistance to retain employees and pay for critical health care benefits contact their preferred SBA lender as soon as possible.

Under the Small Business Debt Relief Program, the SBA will assist with SBA loan payments, including all principal, interest and fees for a period of six (6) months.

Under the Economic Injury Disaster Loans and Emergency Economic Injury Grants Program, small businesses are eligible for a $10,000.00, and the funds must be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.

This article is merely a brief of the Federal assistance. Please visit the SBA on the Web for more detailed information, or visit: https://www.sba.gov/page/guidance-businesses-employers-plan-respond-coronavirus-disease-2019-covid-19?utm_medium=email&utm_source=govdelivery and https://www.sba.gov/funding-programs/loans

Northshore Legal LLC of Lynnfield, MA is a boutique law firm and is led by Stefan E. Cencarik, Esq. We specialize in residential and commercial real estate, business transactions, corporate law, and probate. We can be reached at 781-463-6063 or consultation@northshore.legal.

Is your Massachusetts LLC or Corporation in Good Standing?

It is vital that a Massachusetts corporation or partnership remain in good standing with the Commonwealth of Massachusetts. Good standing exists when a Massachusetts entity registers itself with the state; files all necessary documents; and pays all applicable fees and taxes to both the Secretary of State and Department of Revenue. 

When in good standing with Massachusetts, an entity may request a certificate indicating its good standing and compliance.  Such certificate can be necessary when an entity enters into an asset purchase agreement; contract to purchase a commercial building or land; lease of equipment or business fixtures; or where an individual or entity seeks bank financing or capital.  The certificate of good standing is one of many common conditions to close the aforementioned transactions. 

To remain in good standing with the Secretary of State, annual reports must be filed with the applicable fee/tax paid (depending on entity type.)  A corporation will pay the filing fee with the Secretary’s office and then pay taxes to the Department of Revenue. A partnership will pay $500 to the Secretary’s office when filing the annual report.  An entity will not be issued a certificate of good standing if it’s fallen behind on filing annual reports with the Secretary of State. An entity may file annual reports for previous years so as to place the entity in good standing and avoid dissolution of the entity by the Secretary of State. The entity is responsible for the past due filing fees, and a reinstatement fee if the entity has been dissolved.

 A Certificate of Good Standing (issued by the Secretary of State) provides the following information:

1. Name of the entity;

2. Date the entity was formed;

3. Confirmation that the entity has filed all annual reports and paid all related fees;

4. Confirmation that there are no proceedings pending for dissolution of the entity;

5. That no articles of dissolution have been filed by the corporation; and,

6. That according to the records of the state secretary the entity appears to be in good standing.

 The Certificate of Good Standing does not provide an opinion nor make any warranties regarding:

1. The financial health of the entity’s business;

2. Whether there are pending lawsuits or judgments against the entity;

3. Whether the entity is subject to a bankruptcy proceeding; and,

4. Any number of the countless conditions that often affect a business (such as market conditions.)

To remain in good standing with the Department of Revenue, an entity must timely meet all tax obligations, including corporation taxes (excise, use and sales); room occupancy taxes (if applicable); meal taxes (if applicable), and withholding taxes . The Certificate provides no representation concerning unemployment insurance obligations and other taxes provided by statute. Nor does the certificate make any opinion or representation on the financial health of the business, or any other condition not related to taxes owed.  The Department of Revenue may issue a Certificate of Good Standing and/or Tax Compliance upon request by a corporation, LLC, LLP or other entity.  

If you have questions about your business entity, or how to revive a dissolved entity, or a related issue, feel free to contact one of our Massachusetts business and corporate lawyers at 781-463-6063. 

Becoming Partners? Draft and Sign Partnership Agreement First

In general, a partnership can be created when two or more persons, or entities, or a mixture of both, agree and cooperate to provide a product or service in the Massachusetts commercial marketplace. Typically, partners will share the profits and losses of the partnership, and contribute labor resources, intellectual property, business infrastructure, real estate or other intangibles to the partnerships. A partnership does not require a formal agreement or registration as a formal entity with the Massachusetts Secretary of State, Corporations Division.

If partners do not sign a partnership or operating agreement, then Massachusetts state statute will control the operation, management and issue resolution for the partnership. Massachusetts law concerning partnership can serve a a default set of rules unless partners adopt a specific written agreement.. For example, Massachusetts General Law ch. 108 will govern partnerships, ch. 109 will govern Limited Partnerships, and ch. 156D will govern Limited Liability Companies (LLCs). In other words, if you do not adopt a partnership agreement for your business then state law will decide the outcome of any issues that may arise during operations.

It is, therefore, important that you work with a business attorney to draft a comprehensive and robust partnership agreement. This agreement will protect both partners’ interests, rights, and contain a set of operating rules for the partnership. This agreement is also very useful is resolving or setting up a formal process should a dispute arise between the partners. If partners do wind up in litigation, a Court or Arbitrator will always look to the partnership or operating agreement first before deciding any issues.

If you are interested in speaking with a Boston / Lynnfield business lawyer, we can be reached at 781-463-6063.

Incorporating in Delaware - What Advantages Does This Provide my Business?

Previous blog articles have addressed in detail the numerous financial and legal benefits of forming a registered entity (Corporation; LLC; etc.) in your home state.  This article will now address the benefits of incorporating in Delaware. 

The most sought after benefit of incorporating in Delaware is that there is no corporate tax, and the state's laws are well developed in the area of corporate law.  First, shareholders of a Delaware corporation are not required to pay personal income tax to the state if they are not residents.  There is no requirement under Delaware law that shareholders, officers or directors be residents of the state. If you business is looking  to obtain funding from a venture capitalist, or have the hopes of an IPO, then it is (practically) mandatory that you incorporate in Delaware.  It is better to first incorporate in Delaware to avoid the expense and frustration of having to convert your entity to a Delaware corporation when you begin funding discussions. 

Additionally, Delaware law is also structured in favor of upholding the limited liability of a corporation.  This is essential so that the officers and directors, and in some cases shareholders, cannot be held personally liable for acts or omissions while conducting corporate affairs. If a lawsuit is filed against a corporation and the suit falls into the area of corporate litigation, then the fate of the parties will be decided by a Judge rather than a jury.  In this case, a Judge who is experienced in all aspects of corporate affairs and disputes will decide the outcome rather than citizens of a community. 

If you first incorporate in Delaware, and intend on conducting your business operations in Massachusetts or another State, you will need to comply with State law concerning registration of a foreign entity. For example, pursuant to  M.G.L. ch. 156D § 15.03 a foreign corporation must register with the Massachusetts secretary of state within ten (10) days of transacting business in the Commonwealth.  In order to do so, you will need a Certificate of Good Standing from Delaware.  You must then file the applicable form and pay the required fee to the Massachusetts Secretary of State, Corporation Division. 

Selecting the right entity and structuring your organization in two states including Massachusetts and Delaware requires the expertise of a business law attorney. Attorney Stefan Cencarik, a business attorney in Lynnfield is available for consultation and can assist you in selecting the right entity.  

What is Trademark Infringement, and What Can My Business Do About It?

In order for your business to take advantage of the Federal rights and protections contained in the Lanham Act (the Federal trademark series of laws), you must first possess a registered trademark or servicemark.  If you have not already applied for a trademark or servicemark for your unique and valuable company name, company logo, product brand or service, you should consult a qualified business law and/or intellectual property attorney to discuss how you can protect your valuable assets.  This article will presume that a business has already received a certificate of registration of a trademark or servicemark from the United States Trademark and Patent Office.  What rights does this Certificate of Registration provide your business when you discover that a competitor or former employee (or ex-business partner) is now using your trademark? 

This blog article will focus strictly on trademark infringement, as this type of injury and civil claim is the starting point for any type of trademark dispute. (Future articles will discuss other claims and remedies concerning Cyber piracy and Unfair Competition).  

A claim for trademark infringement is rooted in 15 U.S.C. s. 1114, and declares use of a trademark without the consent of the owner to be unlawful.  Copying, counterfeiting, or imitating a registered mark in connection with the promotion / marketing, sale or distribution of goods and services, which is likely to cause confusion, a mistake, or deception to consumers qualifies as infringement. In other words, if a competing business is using a name logo to attract new customers that contains the same or very similar characteristics of your registered logo mark, you may have a claim for trademark infringement.  This is an oversimplified example, and each case is fact specific, therefore, only an intellectual property lawyer with litigation experience can determine whether your business is a victim of trademark infringement. 

If you learn that your registered trademark is being misused, then you may file a civil action in the United States District Court for the District of Massachusetts.  You will be able to obtain an injunction that prohibits further use of your mark; and in more egregious cases, obtain the profits earned by the infringer by use of the mark, recover losses incurred by your business due to the infringement, and costs of action. Prior to filing a civil action it is customary for an attorney representing the trademark holder to serve a cease and desist letter on the infringer. This will put the infringer on notice of your mark and potential claim.  

If your business already possesses a registered trademark and you suspect that you are a casualty of trademark infringement, it is best that you contact Attorney Stefan Cencarik to determine your rights under Federal law. 

Choosing Your Next (or First) Business Purchase

It may be that you are bored with working for someone else, or you have a new source of capital that you want to reap financial rewards. Or you have just sold your business, have taken some time off, and are ready to re-enter the business and entrepreneur world.  The first decision that will inevitably need to be made is whether to: (1) Start up a new business and build it up from the ground level; or (2) Acquire an existing business  and try to operate it for a profit.   If an entrepreneur or small business owner is at this stage that person already has some semblance of the type of business and market that he/she would like to enter.  Then comes the next question: what do I do next? 

If you want to start a new business, the first step is to form a legal entity, such as a corporation or LLC, and consult with a small business lawyer to determine how to structure operations and ownership of your new company.  It is also important at this stage to determine the rights, responsibilities, and ownership structure if you are forming a new organization with partners.  It is very important to set out the terms of the partnership from the outset so as to avoid any confusion or dispute about profit and loss sharing, amount of capital contributions, or buyouts of other members when that time comes. Then you can set up entity bank accounts, pay all witholdings and taxes, and enter into legally binding relations in the name of the company, such as real estate lease agreements, equipment leases, bank lines of credit, mortgages, and other types of business contracts.  Then, in some cases, a new business can engage in various types of fundraising through private or institutional investors.  Finally, the next step depends on the needs for your type of business. You may require supplies, inventory, equipment, office or production space to further the goals of your business.  This is an oversimplified summary of the steps on how to start a business, and if you have questions on how to start a business it best to consult a qualified small business lawyer, certified public accountant, and/or a business consultant. 

If you decide that you would rather avoid the start up headaches and growing pains of a new organization, it may be better to purchase an existing business.  There are numerous business brokers and business to business (B2B) sale web-sites that are listing numerous business for sale.  When you buy an existing business you are buying an existing revenue stream, customers, goodwill, relationships, and, in some cases, inventory, equipment, employees, managers, commercial real estate leases, licenses and permits, and other valuable assets.  In this case, it is very important to verify with the broker what portions of the business are being sold, and you should contact a business lawyer to ensure that you receive the benefit of your bargain. After you gain an understanding of what you are purchasing, you should retain the services of a small business lawyer, accountant/ CPA, and other business consultants to assist you with your due diligence. This may sound like a daunting and expensive task, but the counsel and expert advice that you will receive will help you avoid significant financial and legal problems and ensure that you successfully operate your business.  The purchase of an existing business can be nothing short of a mine field of financial and legal liability, and it is best to err on the side of caution before you sign a letter of intent.  

The Importance of Buy Sell Agreements for Business Partners

Buy Sell Agreements can be an effective tool for eliminating any confusion or dispute when it comes time for a partner to exit a business relationship.  A Buy Sell Agreement is a contract between two or more business owners that specifies the terms and conditions for a "buyout" and exit for one of the owners. These agreements are sometimes embedded in an Operating Agreement for an Limited Liability Company (LLC) or a Shareholder Agreement for a Corporation. 

It is a common occurrence, at the beginning stages of a business, that the partners are so focused on fundraising, marketing, and management of the business that those individuals ignore the importance of organizational matters. In other words, the partners put off meeting with a business attorney to set out an agreement that will become essential when it comes time to transfer ownership of the business.  A Buy Sell Agreement should be viewed as a indispensable agreement that can structure a partnership arrangement, and ensure that the business founders set conditions for long term control and ownership of the organization. 

These types of agreements can avoid numerous issues and potential litigation as a result of a disagreement on the transfer of a founder's interest to a third party; termination of the founder's involvement or employment in the business; buyback of interest by the organization or other founders; or death, disability, or insolvency of one of the founders. 

One of the principal and most common features of a Buy Sell Agreement is a provision that provides other corporate shareholders or LLC members the rights to purchase the shares or interest held by the other owner.  For example, if an owner materially changes their involvement in the management and day-to-day affairs of the organization through resignation, or termination, then the Buy Sell Agreement would provide the remaining owners the automatic right to purchase the interest or shares held by the departing owner. The agreement should specify the method for determining the buyout price, such as: a predetermined value; valuation of the business; or formula. The agreement would also set out the time frames; methods of payment; process for valuation of the business; and other conditions of the partner's departure from the business. 

The other types of situations that necessitate a Buy Sell Agreement are changes in the financial, health, and domestic status of one of the shareholders or members.  A business partner could face severe financial troubles that could cause a partner to become insolvent, or subject to numerous lawsuits involving personal creditors. Those creditors may seek to attach any dividends or equity disbursements of the partner, or the partner may be placed in receivership or bankruptcy.  In those instances, a receiver or bankruptcy trustee would be looking to claim all profit rights of the owners, or liquidate the business interest to a third party. This is an undesirable position for the other business partners particularly in the context of a private, closely held organization where the affairs of the business, in part, would be exposed to a public court proceeding. 

Additionally,  it may be that a business partner enters a divorce proceeding, and it becomes important to preclude shares from being held by a former spouse. Finally, there are the health and life consequences of death, disability, and/or incompetence.  A business partner may be permanently unable to participate in the affairs of the business, and  this will create problems at the management and ownership levels since owners are also typically key employees of the business.  In each of these circumstances, a well drafted Buy Sell Agreement can specify the buyout process, conditions, and price for transitioning ownership of the business to the remaining partners. 

A properly drafted Buy Sell Agreement can help business partners can help make all of the expectations and conditions clear out the outset when it comes time for a partner to move on. Attorney Stefan Cencarik, a Boston area business lawyer, works closely with business partners and entrepreneurs to help create Buy Sell Agreements, and is available for consultation at 617-669-9780. 

Small Business Owners and the Personal Guaranty - How Can You Avoid Liability?

The easiest method of avoiding personal liability for a debt as a small business owner is to never sign a personal guaranty. However, banks and other institutional and private lenders are mindful that most start up businesses, entrepreneurs, and young businesses have very few valuable assets, thin capital, and unpredictable revenues to obtain sufficient security when issuing a loan. In other words, it is nearly impossible for a small business to obtain a loan without providing the lender the security of a personal guaranty in addition to other commonly used types of security, such as a collateral assignment of leases and rents, security agreement and UCC- 1 Financing Statement ("UCC-1"), or a mortgage  on the commercial property, and, sometimes, the owner's personal residence. 

It is all too common an occurrence that when a business owner decides to exit the business, wind down operations, or sell the assets of the business to a third-party, the personal guaranty may become a significant issue.  For example, if a business debt is owed to a bank for a commercial loan, and the business owner or partners decide to terminate business operations while the debt remains unpaid, it is highly likely that the bank will demand payment from the guarantor under the terms of the personal guaranty.  As another example, a business owner may be personally liable on a loan or lease agreement, and the assets of that business are being sold to a third party.  Not only does this create an issue if the bank holds a UCC lien on those assets, the question arises, for the business owner, as to how the debt will be satisfied so that he/she may be released from the obligations of the personal guarantee.  No business owner should sell a business or its assets, and remain personally liable on any of the business debts, particularly if the debt is tied to those assets.  

How does a business resolve the liability associated with a personal guaranty? 

The easiest way to manage a personal guaranty is to make payment arrangements, or negotiate a payoff of the debt and release of the guaranty.  In this instance, the lender will look for cash and may be willing to accept some type of equity or other type of security as consideration.  It all depends on the circumstances, as well as the viability and nature of the acquiring business. 

The other method of dealing with a personal guaranty is litigation.  If you fail to pay a debt upon reasonable demand of the lender under the terms of the personal guaranty and promissory note, then it is likely that you will be dragged into a state court legal proceeding. Litigation is costly, time consuming and expensive for all participants.  If you are defending the enforcement of a personal guaranty, the best method of defense is equitable principals. In this instance, you are relying on the lender's acts and omissions during loan issuance and administration to provide you with an equitable defense to enforcement. For example, has the lender negligently handled the loan by failing to notify the guarantor of material changes in the loan, such as loan amounts, credit line increases, term, and the like? Did the lender take actions that indicate that it waived its rights to enforce the guaranty, or did it enter into another agreement that satisfies the debt, in full or part? Did the lender fail to adequately provide adverse information concerning the business financial affairs that somehow increased the guarantor's risk?  Did the lender allow the default and permit the debt to accumulate interest and principal? These are all questions that any Boston area business owners should ask when faced with a personal guaranty. 

There also may be issues with the personal guaranty document itself. The document may fail to properly identify the parties; capacities in which the parties have signed; failure of consideration; the guaranty could be a payment guaranty or a collection guaranty;  or some other type of technical issue with the personal guaranty. However, it is highly likely that lenders have learned from mistakes of their own, mistakes of others, and/or have hired skilled lawyers to draft the personal guaranty.  In this instance, the best hope for some type of technical issue is that the lender obtained the guaranty from an unqualified attorney or used downloadable form obtain from an Internet legal form retailer. 

Finally, there is reorganization and/or liquidation in a bankruptcy proceeding.  This is typically the final option for most business owners, and is not desirable for those wishing to keep their financial affairs out of public view, and out of the hands of a bankruptcy trustee. 

As outlined above, there are narrow circumstances that permit a Massachusetts business owner to avoid personal liability for a business debt and/or personal guaranty.  If you or any business owner or a group of business partners have questions about liability under a personal guaranty, Attorney Stefan Cencarik, a business lawyer serving the Boston area, is available for consultation at 617-669-9780. 

Independent Contractor vs. Employees in Massachusetts

Employers beware that the Commonwealth of Massachusetts treats nearly all workers as employees through strict interpretation of the characteristics that qualify a worker as an independent contractor. Equally important is the fact that the State treats enforcement of the independent contractor laws  as priority, and both civil and criminal penalties can be levied against businesses, in addition to injunctions and other orders for compliance. Massachusetts targets employers who fail to properly classify workers as independent contractors.  The State is well aware that businesses often improperly classify employees as "independent contractors" in an effort to avoid paying for or providing benefits to the worker, and/or avoiding tax and other witholdings, as well as payment of unemployment and worker's compensation insurance premiums. 

M.G.L. ch. 149 s. 148B, declares that all workers are to be considered employees, unless the circumstances and nature of that individual's employment meet all of the following criteria:

 1.  "The individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact." In other words, your business cannot retain management control or authority over the manner and means of the worker's performance of their duties and tasks.  The worker must be free to perform any work at their own control, discretion, professional standards, and time frames. 

2. "The service is performed outside the usual course of the business of the employer." If the worker performs work that relates to or provides support for the nature of your business, that individual is an employee.  For example, a computer engineering firm cannot classify a software  analyst as an independent contractor, however, it can hire an attorney or certified public accountant at another firm to perform those specific professional services.  This is the strictest factor of the Massachusetts independent contractor statute, and most businesses fail to meet this criteria.  

3. "The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed."  The worker must perform a service that is distinguishable and separate from the business, and that service is customarily provided in that worker's profession or business.  

If your classification of workers fails to meet one of the above three criteria, then your worker must be classified and treated as an employee.

Failure to properly classify and treat workers as employees can result in a significant amount of liability for an employer. If you fail any of the above criteria, and then do not provide vacation, sick, and leave benefits; fail to pay tax and witholdings; fail to pay worker's and unemployment insurance premiums; and allow other benefits (such as Maternity Leave or Family Medical Leave Act (FMLA)), you will be subject to both civil and criminal liability.  For example, an aggrieved employee who has been misclassified as an "independent contractor" may file a complaint with the Massachusetts Attorney General's Office, and then may be provided with a private right to initiate a civil action against your business.  This lawsuit may enable an employee to recover lost wages, plus the monetary value of the lost benefits, plus treble damages and legal fees.  If a business has misclassified employees in a widespread basis, it could be exposed to numerous claims involving substantial damages and penalties for failing to comply with Massachusetts independent contractor law.  This scenario could potentially end in disaster for a business. 

Don't Forget Your Annual Report Deadlines

In Massachusetts, all organized and registered entities are required to file an annual report with the Massachusetts Secretary of State, Corporations Division, and pay the applicable annual fee. Depending on the type of entity that you operate, the deadlines for filing annual reports vary. Make sure to mark your calendar and stay on top of these deadlines so that you can maintain the legal status of your entity. 

Domestic (Massachusetts) and Foreign Corporation - File 2.5 months from the end of the fiscal year.  For most corporations ending the fiscal year on December 31st, this means the annual report must be filed no later than March 15th. 

Domestic and Foreign Non-Profit Corporations - File by November 1st.  This excludes churches, hospitals, religious organizations, schools, universities and colleges, and some library institutions. 

Domestic and Foreign Limited Liability Company (LLC) - File by the anniversary date of the LLC.  This means that the date that the entity was organized in Massachusetts, which will vary for each LLC. 

Recall from past blog entries that filing the annual report for your business is crucial for a number of reasons.  The most important reason is that if you do not file your annual reports and pay the application fee to the Secretary of State in Boston, he will administratively dissolve your entity. Upon dissolution, you are no longer a legal entity and have no authority to conduct business, such as entering into contracts, filing a lawsuit on behalf of the entity, etc. Based on past experience, it sometimes takes several years of unfiled annual reports and fees to accumulate before this occurs, however, there are reported instances where dissolution can occur after a number of months. It really depends on how quickly the Secretary of State Office discovers that your reports and fees are delinquent. It is an all too common occurrence that many businesses discover after several months (and sometime years) that the entity was dissolved, which leaves business owners scratching their heads as to what types of new issues may present themselves as a result of dissolution.  It is, therefore, recommended to stay on top of the annual report and fee deadlines and requirements, or contact a business lawyer if your business lies in a state of dissolution.   

Holding Business Officers and Directors Personally Liable: Part II

On November 4, 2015, the Law Office of Stefan Cencarik, PLLC, a Boston business lawyer, explained the criteria for disregarding the corporate entity, so that shareholders and corporate directors may be held personally liable.   This blog article will focus on the State statutory exceptions that permit direct liability of officers. 

 The Massachusetts Wage Act, M.G.L. ch. 149, § 148 – The Wage Act holds the president and treasurer of a corporation and any officers or agents having the management of such corporation: liable for the non-payment of wages to employees. In other words, Massachusetts business owners and top level managers can be subject to civil liability for non-payment of wages to employees. Those individuals will be personally responsible for payment of any overdue wages plus any double or treble damages  and legal fees awarded by judgment of a Massachusetts Court. In other words, failing to pay employees earned wages has severe consequences in Massachusetts. 

Worker's Compensation, M.G.L. ch. 152 - An employer is required to provide its employees worker's compensation insurance, and failure to do so will subject a corporation's president and/or treasurer to civil penalties, fines up to $1,500 and imprisonment up to one year. In this instance, the corporate veil cannot protect the officers of a corporation who fail to pay worker's compensation premiums. 

Massachusetts Withholding Tax, M.G.L. ch. 62B, s. 5 - Massachusetts employers and businesses paying wages to employees are responsible for withholding and paying tax to the Massachusetts Department of Revenue. Failure to withhold and pay taxes will subject the corporation officer or LLC manager to personal liability, and that person will be liable to the DOR for payment of the tax, until the business turns-over all overdue tax payments.   

Massachusetts Minimum Wage, M.G.L. ch. 151 - In Massachusetts, it is considered oppressive and unreasonable to pay any worker less than the applicable minimum wage. ($9.00 per hour in 2015; $10.00 per hour in 2016; and $11.00 per hour in 2017 and beyond).  Businesses that pay employees less than the statutory wage (docking wages; failing to pay interns or "temps") are presumed to be in violation of minimum wage laws and the corporate officers may be held personally liable. 

Despite these statutory exceptions to the corporate veil, a corporate officer will not be able to use the limited liability protection of the corporation to obtain immunity for criminal actions and/or intentional torts, such as assault and battery of a fellow co-worker.

The next blog article on holding corporate officers personally liable will address the Federal statute and case law exceptions to limited liability. 

Setting Up Shop in Massachusetts From Out of State

Are you an out-of-state business or entrepreneur interested in expanding your businesses into Massachusetts? If so, stop reading, pick up the telephone and call a Boston area small business lawyer immediately.  Doing in business in Massachusetts can be a lucrative venture, however, this state has a well deserved reputation for being a consumer (and Plaintiff) friendly jurisdiction, and there are many state laws and regulations that determine how a business may operate and conduct its affairs. Depending on your industry, type of business, and procedures for operating under the laws of your home state, you could potentially expose yourself to both criminal penalties and/or civil liability when you begin operating in Massachusetts. The worst way to start off your business is to receive a cease and desist letter from the Massachusetts Attorney General's Office.  

The starting point for any out-of-state business that desires to set up shop in Massachusetts is to register as as foreign entity with the Massachusetts Secretary of State, Corporations Division in Boston. M.G.L. Ch. 156C, s. 48 and M.G.L. ch. 156D s. 15.03 requires that all entities conducting business in Massachusetts must register as a foreign entity within 10 days.   You will be required to file a relatively simple application, a certificate of good standing from your home state, and pay a filing fee.  If you do not intend to maintain an office or other commercial space in Massachusetts, you also need to find a registered agent for service of process.  There are many professional agents for service of process in downtown Boston that will serve as your nominee agent, and take responsibly for timely notifying you of any process that was served on you. 

You will also need to investigate and adapt to the specific regulations and licensing requirements for your industry and type of business. This is the more complex issue for most out of state businesses.  It also is possible that you need a permit or license at the state or city/town level, or both. Finally, if you conduct business in a different name than your legal entity name, you will need to file a d/b/a certificate with the city or town that you are doing business in. 

If you have questions about how to expand you business into Massachusetts, Attorney Stefan Cencarik can be reached at 617-669-9780.   

Company Policies and Employee Manuals: Dust Collecting Binders or Necessary Safeguard?

Hiring employees for your Massachusetts business entails a significant amount of responsibility and legal liability.  What is your policy for addressing particular circumstances that will, without a doubt, occur during the operation of your business?  In other words, what is your paid and unpaid leave policy? What is your sexual harassment or violence in the workplace policy? What are the rules for performance and conduct of employees in the workplace? What is your procedure for termination of employees? These types of questions and significant concerns for your business can continue in perpetuity. 

Regrettably, most small businesses do have an oral (or unofficial) policy for addressing these types of circumstances, or have some semblance of how to deal with these problems as they arise.  However, this approach will not reduce the risk of an employee lawsuit for wrongful termination, unpaid wages (subject to treble damages and attorneys fees under the Massachusetts Wage Act), and other grounds for suing an employer for damages.  Most small businesses with 1 to 25 employees do not have company policies and an employee handbook. The reason is that these small businesses operate lean and mean, or have rapidly expanded to the point that they do not have the time and resources to structure the internal affairs of the organization. This oversight can be disastrous when an incident occurs or dispute arises, and a former employee hires an attorney to file a lawsuit against your business.  

At a minimum, all businesses should have a basic set of written company policies, including: At will employee policy; sexual harassment policy; anti-harassment policy; anti-discrimination policy; safety policy; Method and frequency of payment of wages; COBRA and mini-COBRA (Businesses with 20 or more employees); Breaks and facilities for nursing mothers; Maternity leave; Military leave, and

A Massachusetts small business should also have a basic employee manual that recites company policy, as well as states rules and procedures for: Orientation; Use of company technology and equipment (Cell phone, Internet, E-mail, and Computer); Compensation; Confidentiality and non-disclosure; Intellectual property; Drug use and testing; Non-smoking; Conduct; and Termination.  

Off the shelf or downloadable Internet forms containing template company policies and employee manuals are not enough to protect your business. These templates may not be in compliant with Massachusetts law, and are not tailored to your specific business needs. They may also be incomplete, poorly drafted, or written so as to protect the employee and NOT your business. Remember that if an employee files a lawsuit against you, your written policies will be strictly interpreted against you. And not having any policies at all can put the success and health of your business at risk. 

The Law Office of Stefan Cencarik, PLLC specializes in assisting small businesses and entrepreneurs in Boston and its surrounding areas, including Suffolk, Middlesex, and Essex counties.  To discuss whether your business is in compliance or protected against potential liability, please contact Stefan Cencarik, your business lawyer, at 617-669-9780.  

So, You Want to Buy a Business and You Have Never Done This Before . . .

Would you perform a root canal, or other surgical procedure on yourself?  The most common (and rational) answer is: NO.  Most Boston area businesses and residents will hire a professional to assist them when they have a highly complex, specific need. What makes a business purchase different from a surgical procedure or even the purchase of a new home? What type of prudent business decision are you making when you do not hire a qualified business lawyer to protect your interests and make sure you are receive the fruits of your deal? Hiring a business lawyer serves as the shield and sword for your financial interests in any business transaction.  This is neither a "do it yourself" task for an experienced entrepreneur or savvy business person, nor a person entering the world of business ownership for the first time.     

A new business owner may consider exercising fiscal discipline by deciding not to hire an attorney to assist them with their business purchase.  Often new Massachusetts business owners want to avoid having to borrow or obtain additional funds, and/or have to pay out more funds to attorney in addition to the purchase price.  This decision can be fatal for a number of reasons. You do not have an experienced third party to provide you with an outside counsel that is based on experience, best practices and tribulations. You will not have an individual that is not personally vested in your deal to provide you with objective advise, opinions, and  advocacy (if necessary) during a transaction.  You also will not have an independent party to assist you in the due diligence and legal relations that you will invariably enter into. 

Non-employee companies, main street businesses, suppliers, and venture funded, high growth companies all can benefit from a business lawyer who can ensure that you make a strong start out of the gate.  As soon as you make an offer (or even earlier in the negotiation process) you should consult with a qualified Boston business lawyer to ensure that you are protected each step of the business transaction.  Attorney Stefan Cencarik works closely with experienced and new entrepreneurs alike, and is committed to helping you close the deal on-time and on budget.