UNSHAKEABLE: June 17, 2020

On June 17th, 2020, a group of extraordinary entrepreneurs joined us for at Unshakeable for a round-table webinar that focused on humility in leadership. Speakers including Greenlight founder Keith Ferrazzi, Square co-founder Jim McKelvey, Foundry Group co-founder Brad Feld, Edward Jones managing partner Penny Peggington, Benson Hill co-founder Matt Crisp, and iSelectFund CEO Carter Williams discussed how to use these next few months to foster opportunities for regeneration and innovation.

McKelvey defined the entrepreneur as someone who does what has never been done before. Companies that try to create things that are fundamentally different sometimes fail, but it is in this pursuit that we innovate. Our entrepreneurial success can best be fostered through strong interpersonal relationships. You’ll need the very best employees and partners to rise above the competition.
Crisp reminded us that while some people can’t adapt to the dynamics of entrepreneurial workplaces, many people feel liberated by them. This is the type of employee we want, one who possesses a growth-focused mindset and a willingness to change. Of course, Crisp did his due diligence looking at their resumes too!
Once we have these employees, we need to define expectations. As an entrepreneur, you and your workers are bound in a social contact that defines the expectations both groups have of themselves and each other. Ferrazzi encouraged all of us to spend the next two months ‘recontracting,’ or renegotiating those expectations. Through recontacting, you can push your employees to look for unexpected growth and engage in collaborative problem solving. Including our teams in discussions can thus cultivate good behaviors.
Through demonstrating our own radical adaptability and agility, we lead by example, leading our teams and organizations to follow our lead. While we won’t gain all that agility overnight, we must use small practices to encourage the right mindset on our own part. As Ferrazzi says, “we don’t think our way into a new way of acting. We act our way into a new way of thinking.”
Ferrazzi encourages us to use “co-elevation,” or using your leadership role to infuse accountability into the team, instead of wasting time on delegating authority. Through peer-to-peer accountability, the team will find ways to lift each other up. We give too much weight to authority and spend too much time figuring out who has it. Instead, through co-elevation, you can encourage humility and co-creation.
Ferrazzi offered some tangible exercises to help make it happen. For example, you can lead your employees in a ‘bulletproofing’ session, where everybody talks about the critical hills they’ve been facing, and then break into small groups to discuss the hard steps they will take to remedy those hills. Crucially, everybody must feel comfortable speaking without repercussion.
You must remember that Inn the best innovation will come from you, not existing big business. Williams encourages you to find investors in ‘your space,’ whatever industry that may be. Don’t expect them to all say yes instinctively, but always keep trying. And remember that empathy is the most important tool to recalibrate our leadership. “We are in the same storm but we’re all in different boats,” as Pennington said.

Unshakeable: Jack Daly

There were lots of entrepreneurs who spoke at Unshakeable, but none characterized my thoughts on living through COVID-19 better than world-renowned sales trainer Jack Daly. He appeared just days after surgery with his head elegantly wrapped in gauze….. He understands that we have to both take care of ourselves and stay focused on our businesses. As he said, “I don’t have time to stop for a pandemic. I have things to do.”
To balance between life and work, we’ll need to focus exclusively on what we can control. That means preparation, not indecision. Jack’s optimism reminded me that there’s so much we can do with our time!
For instance, you can build a playbook of best practices, just like a sports team would. If you’ve already done that, try recruiting people to join your business, a timely tactic since so many are in need of jobs. Networking is everything in business, so this is a great time to reach out to clients, collaborators and investors too. By staying focused on the controllable things, I know I’m doing all I can for my clients, my family, my business, and myself.

Unshakable: Todd Herman

Todd Herman, one of the speakers to join us last week for Unshakeable, thinks of himself as a “performance guy.” It makes sense, since he often works as a life coach for athletes. He understands that the best performances come out when you’re having fun. “You have to enjoy the process to mitigate stress,” Todd said.

            The military-derived idea of VUCA is important to Todd. VUCA is an acronym for volatility, uncertainty, complexity, and ambiguity; it refers to the world conditions that make leadership difficult. It’s a timely idea, especially now in the midst of COVID-19, when the rate of change in the world is so rapid. But Todd sees an antidote to VUCA in strategy-focused leadership.

            Todd says there are 3 types of ways that people have responded to crisis: fear-focused, unfocused, and strategy focused. Fear-focused people consume popular media through the crisis and implode with the overload. They use negative language and have poor mental health due to the negativity.

            Unfocused people have no plan at all. They’ve largely experienced reduced working hours, but instead of responding with action, they wallow in denial. They remain inert. In contrast, strategy focused people are shifting within a week of the shutdown. They move ahead, remain optimistic, and reduce revenue loss.

            Todd wants us to embrace that strategy-focused mindset. During his speech, he gave us one way that we can start doing that. When we’re faced with a decision, we have to answer four questions: what will happen if we do make this decision, what will happen if we don’t make this decision, what won’t happen if we do make this decision, and what won’t happen if we don’t make this decision. This process will give us clarity. It helps us see what problems we are facing, and how we can solve them. And that leads us to resolution. As Todd says, “you cannot solve a problem you’re not willing to accept.”

Unshakable: Dan Martell

The second entrepreneur to speak at Unshakeable was Dan Martell, a major investor in software and technology companies. Dan covered a few topics during his speech, but I was most interested in his 5-step ‘Scaling Credo,’ which is his plan for scaling and growing businesses.
First, Dan recommended we find our ‘perfect fit’ customer. Every company has a unique customer to match. It’s our job as entrepreneurs to know the details on them. By understanding them, we understand our customers’ thought process, and therefore how to best speak to them.
Next we focus on product. We only focus on one, because if we have too many, we’ll be spread too thin. So, we ask ourselves, “which gets the most results? Which has the highest demand?” We focus on the product that does the best!
After that, we focus on channel, asking ourselves which type of advertisement strategy is best. Again, we stick to whatever works. Dan said it best: “Go deep. Once you’ve hit gold, you don’t go and dig a new hole.” We keep going until we get diminishing returns. Then we focus on the product of selling and aim to convert at industry norms. Finally, we take a year to focus on the path we’ve started on. We double down on the path that has results.
It’s not easy to stick to a path in times of crisis, but that’s why we need confident leadership. Entrepreneurship works best when experienced people are there to help.

UnShakable Kevin Harrington –

The first entrepreneurial groundbreaker to speak at Unshakeable: Marketing & Sales Strategies for Uncertain Times was none other than Kevin Harrington, inventor of the modern ‘infomercial’ and former host on the hit TV show Shark Tank. Kevin discussed his long history as an entrepreneur and CEO and gave us some guidance on how to run a business during a crisis.

            The idea for the modern ‘infomercial’ came to Kevin when he realized that some channels only broadcast content for 18 hours a day. “How do I fill up that time,” he asked himself, before realizing it was the perfect setting to sell products. His quickness in thinking that night was good, but his follow through is truly admirable.

            Kevin encouraged business owners to double down on customer acquisition. The customer acquisition cost, or CAC, is lower now than it was before the onset of COVID-19, Kevin said. In fact, he had heard of people buying local 30-minute tv advertisement spots for as low as a few hundred dollars! It made me think about how essential communication is to business.

            That’s why collaboration is key. When we have a good idea, we need to have somebody to share it with. “Now is the time to reach out to mentors,” Kevin said. “If you don’t have one, go get one!”

The Supreme Court Has Spoken – States Are Permitted to Require Online Sellers to Collect Sales Tax

For many of our international and national Amazon, Ebay, Walmart.com, Jet.com and other marketplace sellers, their world just became more complicated. The US Supreme Court has overturned long-established law in ruling that the State of South Dakota can require Wayfair to collect sales tax even though they have no physical presence in the state.

We anticipate states will establish more specific rules over the next weeks and months.[Click Here for the full decision]

And  contact us if you have questions we can help you answer.

Violation of Bank Secrecy Act leads to $200,000 fine for Gold Buyer.

In December 2015, the Financial Crimes Enforcement Network (FinCen) fined a precious metal dealer for violating the Bank Secrecy Act (BSA) anti money laundering (AML) requirements, $200,000, in addition to forcing them to hire an auditor and provide comprehensive financials to FinCen. The gold buyer failed to secure the necessary customer information when buying and selling precious metals. And to think, the fine and penalties could have all been easily avoided.

The Bank Secrecy Act makes “dealers” of “covered goods” create and enforce an Anti-Money Laundering program. “Covered goods” are jewels, precious metals, precious stones, and finished goods (including jewelry. A “dealer” is a person, or entity that has purchased AND sold $50,000 of covered goods. Most businesses that buy and sell gold, fall under this definition.

If the business entity is a dealer of covered goods under the BSA, they must have an anti-money laundering program. The Bank Secrecy Act, Anti-Money Laundering Examination Manual mandates that the program have: “a system of internal controls to ensure ongoing compliance, independent testing of BSA/AML compliance, designate an individual or individuals responsible for managing BSA compliance (BSA compliance officer), and training for appropriate personnel.” The program is intended to identify large cash transactions of potential money launders. Pinellas, Hillsborough, and Paso counties are High Drug Trafficking Areas, so the need to launder money is great. Next time you have a large dollar transaction, think about your AML program.

Next Blog: The necessary elements of an AML Program.

 

The Walk Law Firm can help you become compliant with the BSA/AML statutes. Contact Frank Lago if you have questions or concerns about your BSA/AML compliance.

Understanding Limited Liability Company (LLC) Taxation

Once you’ve decided to form a limited liability company (LLC), your next decision is most likely going to be “how am I going to be taxed?” An LLC is not a tax entity. Instead, the IRS considers the LLC “disregarded” and applies tax laws that apply to sole proprietorships, corporations, and partnerships to the LLC. But, to avoid an esoteric discussion of tax law, I hope I can give you enough information in this article to help you in determining which tax entity is best for you.

If your LLC has one owner, it may elect to be a C corporation or S corporation, otherwise it will be a Disregarded Entity.  “Disregarded Entity” means the IRS ignores there is a legal entity between you and the income, losses, assets, etc. for tax purposes. A single owner disregarded entity will be treated as a sole proprietorship. If your LLC has multiple owners, it may elect to be a C corporation or S corporation, otherwise it will be a Disregarded Entity. A multi-owner disregarded entity will be taxed as a partnership.

To be or not to be… Disregarded

          Sole Proprietorships

The single member LLC, when disregarded, is analogous to a sole proprietorship. That is to say, you are your business and your business is you. Per the IRS, as a consequence of not making an election you will report your income and deductions, from your LLC, on a Schedule C, on your Form 1040. This is the simplest form of taxation and provides for single-level taxation. “Single” or “Double” taxation, as you’ll read later, refers to how many times the federal government gets to tax your “income.” With a sole proprietorship the only income tax that applies would be your individual income tax. But, the drawback of the sole proprietorships is that you have to pay Self-Employment Tax on all the income you make from the business. So keeping that in mind, you are going to pay income and self-employment tax on the profit you’ve made.

How much is self-employment tax? Generally it’s 15.3% on the first $117,000. Anything above $117,000 is subject to a 2.9% Medicare tax. There is an Additional Medicare Tax 0.9% tax for income over a threshold amount. The threshold amounts vary by filing status, but if you’re married filing jointly it is $250,000.

So in addition to your self-employment tax of 15.3%, you’re going to pay personal income tax. Assuming a 20% effective personal income tax rate, that’s a whopping 35.3%. Keep in mind that personal tax rates range from 0% to 39.6%, and possibly higher with the investment tax. As my good friend George says, the IRS is not my business partner, and luckily for him and for you there is a tax planning opportunity here.

C and S Corporations

The IRS allows for single members LLCs to elect, according to the check the box rules, to be taxed as a corporation. When you elect to be taxed as a corporation you are electing to be taxed under subchapter C of the internal revenue code, hence the nomenclature “C Corporation.” C corporations pay income tax on their income, though at preferential graduate tax rates. That means the overall tax brackets are lower than individual brackets. The profits stay in the company until there is a distribution. Typically, you’re going to distribute money from the corporation in the form of a dividend. Dividends are taxed at different rates than your income is taxed, typically much lower, at “capital gain” rates of 15-20%. But, you’re paying tax twice. Which is why this generally isn’t used as a tax structure, but the C Corporation’s brother, the S corporation is much more useful in reducing federal taxes.

Subchapter S corporations give the benefit single taxation at the individual level, while relieving some of the self-employment tax. Thus, instead of paying a corporate income tax, the S corporation pays nothing. In exchange, all of the income is deemed to have been distributed to the shareholders, unlike a C corporation, which only taxes its distributions when actually distributed. This is known as “phantom income.” The S corporation shareholders, whether or not they received the distributions, will pay taxes on that amount. One major benefit is that the shareholders do not pay self-employment tax on the income that is considered a distribution. This has the potential to greatly lower your tax bill. But, you have to approach this structure with caution. An S corp. does have to employ someone to do work. So if you’re doing all the work, you do have to pay yourself a “reasonable salary,” and you and the corporation will share the self-employment tax on your amount of compensation and file employment tax returns, Forms 941/944 and Form 940. Individuals get in trouble when they pay themselves too little and all the income as distribution. As in the case of Mr. Watson who found himself in court after paying himself $24,000 in wages and taking $203,651 in distribution.  While paying yourself a less than reasonable salary will lower your tax bill, it places you at risk. Nonetheless, any amount of money on which you do not have to pay employment tax, will reduce your taxes. Here’s an oversimplified example:

You’ve taxable income is $150,000 as an individual and you’re married. As a sole-proprietorship, you pay $39,528 in federal income tax plus $17,901 self-employment tax for a whopping $57,435. You keep $92,565.

If you were operating as an S corporation, let’s assume you pay yourself as a wage $75,000 and receive $75,000 in distributions. First, you’d pay self-employment tax on your wages of $75,000, which is $11,475. Reducing your distribution by that amount leaves you with $69,262 (75k for tax purposes) in compensation in your pocket and $69,262 available for distribution. Your income tax will be $35,928 plus 36% over 140,000. The product being $1,534 plus $35,928, totaling $37,426 in taxes. From $150,000 less self-employment taxes paid, take home $101,099 versus $92,565 as a sole proprietorship. A savings of $8,534 in taxes.

One caveat to keep in mind is that an S corporation generally cannot deduct health insurance and term life premiums while a C corporation can deduct up to $50,000 per employee. If you really wanted to make these amounts deductible, you could actually setup two separate entities and get the best of both worlds, primarily using a management contact.

S corporations also cannot make distributions unevenly, this is known as the “single class of stock” rule and have restrictions on ownership, unlike C corporations.

Partnerships

LLCs, with two or more members, who do not elect to be taxed as a corporation, will be taxed as a partnership. Partnerships, like S corporations, are a pass through tax entity. Meaning, the income is passed directly from the partnership to its Partners. Partnerships do not pay separate income taxes like C corporations. Partners of a partnership are not employees and should not receive a salary. There is a rich, legal history in understanding the employment status of partners in partnerships. Here is a detailed history. Otherwise, understand that a partner will pay self-employment tax on all of his income that flows from the partnership. A partnership can make “guaranteed payments,” which look like a salary to the partner. But, the partner will still need to pay self-employment tax on this income. There are several reasons to avoid the self-employment tax, but there are several reasons why you might choose to be taxed as a partnership.

Partnerships offer the most flexibility with a pass-through tax entity. A partnership will undoubtedly need a partnership agreement, or in the case of an LLC, an operating agreement. Both are contracts that govern the relationship between the entity and its members (LLC) or partners. With a partnership you can get creative in how cash will be distributed, who will be allocated income and losses, foreign or domestic, how debts are repaid, etc. For this reason, when there are multiple members who are not even partners, they often choose to be taxed as a partnership. But, to the extent that your entity doesn’t need a complicated structure of distributions or allocations, it is usually advisable not to be taxed as a partnership.

 A Note on Liability

As a general rule, LLC members are not liable for the debts of the LLC. But, in Florida, in accordance with the Olmstead case, the single member or a single member LLC, may become liable for the debts of the LLC, after the creditor secures a charging order. This is not the case for a multi-member LLC. If you are considering a single member LLC, you may consider a Florida Corporation with an S Corporation election, because you will get the limited liability you are searching for and the benefits of pass through taxation.

Need more help?
If you have more questions or need help establishing your entity please call our offices at (813) 999-0199, www.WalkLawFirm.com.

Frank Lago is an attorney at the Walk Law Firm, PA. HE is a graduate of Stetson University School of Law and holds an LLM in Taxation from Georegetown University.

When the DOL Proposes Changes to the Overtime Rules, Employers Must Take Note

WHEN THE DOL PROPOSES CHANGES TO THE OVERTIME RULES, EMPLOYERS MUST TAKE NOTE.  In 2014, 8,086 lawsuits were filed in federal courts for violations of pay practices under the Fair Labor Standards Act (“FLSA”).  Of these, 1,837 lawsuits, or approximately of 23% of all FLSA lawsuits in the United States, were filed in Florida.  In March 2011, a Florida-based company paid more than $754,000 in overtime back wages following a finding by U.S. Department of Labor (“DOL”) that its temporary supervisors were misclassified as exempt employeesSimply, improper time and pay practices are costly mistakes.

Earlier this month, the DOL proposed changes to the rules governing the white-collar exemptions (executive, professional, administrative, highly compensated, and computer related employees) to the overtime requirements under the FLSA.  The DOL estimates that the proposed rule changes will extend overtime protections to an additional 5 million employees.  Any business with at least 1 employee, should:

  • Understand the existing rules and proposed changes
  • Assess the impact of how the proposed changes will affect employee classification, timekeeping and pay practices, and payroll
  • Consider submitting comments to the DOL concerning how the proposed changes will affect your business. You may do so at: regulations.gov  on or before September 4, 2015.

THE EXISTING RULES AND THE PROPOSED CHANGES

Currently, under the FLSA, all employees covered by the Act, unless they specifically exempted, must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half their regular rates of pay. Employees who fall within the white collar exemptions are not entitled to receive overtime pay — regardless of the number of hours they work within a workweek.  To fall within one of these exemptions, employees must (1) be paid on a salary basis, (2) be paid at least a fixed minimum salary per week of at least $455.00 per week ($23,660.00), and (3) meet certain requirements as to their primary job duties that are specific to each exemption.

For more detailed discussions on the FLSA, 
please see the videos on the FLSA previously made by our new Of Counsel 
Attorney Kerry Raleigh at:
·         Introduction to FLSA
·         Employee Overtime:  Common Mistakes & Perceptions
·         Employee Overtime: Employers Need to Get It Right

THE PROPOSED CHANGES:

The DOL proposes three key changes to:

  • Set the standard salary requirement for the white collar exemptions from $455.00 per week to the 40th percentile of weekly earnings of full-time salaried workers, which is currently $921.00* per week ($47,892.00* annually);
  • Increase the total annual compensation requirement for the highly compensated employee exemption to the annualized value of the 90th percentile of weekly earnings of full-time salaried workers, which is currently $122,148.00* annually; and
  • Establish a mechanism for automatically updating the salary and compensation levels going forward to ensure that they will continue to provide a useful and effective test for exemption.

Continue reading

What is Venue? Why Does Venue Matter? The Essentials of Venue Selection Clauses

Construction contracts, design services contracts, and for that matter most contracts typically contain a provision governing the location (venue) for litigation/arbitration/mediation of disputes arising out of or related to the contract. The terms relating to venue is often hidden in governing law provisions under the “Miscellaneous” terms.

What is Venue? 

Venue is the geographical place and court where the lawsuit will be handled.  Without a contract clause that establishes venue, the venue law allows an action to be brought in various locations: 1) the place of the defendant’s residence, or principal place of business; 2) the place where the cause of action accrued; or 3) where the property in litigation is located [§47.01 et seq., Fla. Stat. is the general venue law]. The party bringing the action gets to initially select the location because they are the party filing the action. However, if they file the action in an improper venue, a change of venue may be sought.  Avoid waiving the right to enforce the venue selection provision in your contract.

Why Could Venue Matter?

If you do business with a subcontractor or supplier to whom you make payments, the suit may be filed at the place where payment is due, thus a subcontractor with its principal office in Atlanta, could file suit against you in Atlanta. This would be inconvenient to say the least, and could be quite costly. There are various reasons to assign the venue for litigation within your contract; included among them are expenses and costs for litigation.

A venue far from your or your attorneys would increase the time and expense related to the action. The party with whom you contract, or the property being improved may be quite far from your office or your attorney’s office. Also, preferences for venue may be based upon factors related to the court system, judges or the jury pool. Some courts are back-logged and litigation may take a longer time in that jurisdiction.

Venue Selection Clauses are Not Bullet-Proof

Although a well drafted mandatory venue selection provision is ordinarily enforced, in limited circumstances the courts may not enforce the venue provisions contained in your contact. The rule in Florida recognizes a free and voluntary choice of forum that may be enforced. A Florida court is not required to enforce a venue selection clause if compelling reasons exist to not do so. One such compelling reason would be to avoid multiplicity of lawsuits. Another reason could be a conflicting clause in a related agreement under consideration in the same lawsuit, or a statute requiring venue in a particular location such as a lien transfer bond per F.S. §713.24. A venue selection clause may not be enforced when the clause or underlying contract was induced by fraud.

Bear in mind, that other states have their own rules and may not enforce the venue selection clause.

Conclusion.

In your contracts, if you have the ability to negotiate, it is good to have a favorable venue provision protecting your interests.  When presented with someone else’s form of contract, pay careful attention to this simple provisoin, as it may hae profound effects on your rights.  If you have any questions, please contact us.

May all your projects be successful.