Entrepreneur Law – The Sole Proprietor: How to Tell If You Have Become One

January 1st, 2014 by

So, you’ve got a great business idea that you are about to launch. Your business planning is finished, the funding is lined up and your test-marketing tells you that it’s sure to be a hit. Have you thought about your business structure? Likely not, and this is where most people’s eyes will glaze over and minds tune out, ahhh, the legal stuff… but wait, it doesn’t have to be that way.

A key to being a successful entrepreneur is of course being informed, and this includes having a basic understanding of the fundamental business law concepts that will affect your business, and that should affect the business decisions you make on a daily basis.

Different business structures come with their own pros and cons. The goal of this article is to discuss some the key aspects of the sole proprietorship in order that the entrepreneurs reading it will gain an essential, basic understanding of the legal consequences to being in business.

This will be a general overview of the sole proprietorship and the examples draw on Nova Scotia (Canada) law. There may be similar concepts according to the law in your area, but you should verify with a lawyer in your jurisdiction (state, province, or country, etc).

What is a Sole Proprietorship?

A sole proprietorship is a solely owned, unincorporated business. It is often the structure chosen by new small business entrepreneurs for several reasons. These include the ease of set up due to minimal registration requirements, relatively low cost to begin operating, and few, if any, annual reporting obligations.

If you simply started operating a business today, without having registered anything at all, you are more than likely a sole proprietor.

No Legal Entity

A sole proprietorship is not a separate legal entity. This means that the “business” cannot own any property or hold any assets in its own name. A sole proprietorship business is really just an extension of the business owner him or herself. Any assets or property used in the business are legally owned by the sole proprietor (you) (unless owned by someone else).

Because the business owner and the business are one in the same, the sole proprietor cannot be employed by the business. An employment relationship is a contractual relationship and it is impossible for a person to be in contract with him or herself. Money made in the business therefore can’t be taken out and expensed as salary against the income of the business. In fact, sole proprietorship business income will be computed as, and considered to be personal income to the business owner by the tax authority (CRA in Canada), normally called “Self Employment Income”.

As such, if a sole proprietor turns a profit; the profit will be taxed at the higher personal income tax rate in addition to any other taxable income the sole proprietor may have. However, if losses are incurred, which is often the case in the early years of the business, those losses could be used to offset other taxable income such as employment wages from a day job (we know that it is common for entrepreneurs to have a day job while trying to get their business off the ground). This could lead to a lower amount of taxable income payable on your annual taxes.
Liability of the Sole Proprietor.

The exposure to unlimited liability is a disadvantage to having no separate legal entity as a sole proprietor. This means that the owner’s personal assets may be accessible to creditors to satisfy the obligations and liabilities of the business. Should the business not make enough money to cover such liability, the owner’s personal belongings and other assets such as savings accounts, property, or anything of value could be available in such circumstances. One potential way to limit liability could be through business insurance. This would however, only be within the limits and coverage of the policy, anything in excess of that would still be a personal exposure of the sole proprietor.

Business Name Registration

If a sole proprietor wants to use a business name which is something other than his or her own personal name, business name searches will have to be done and, if the desired name qualifies, it will have to be registered as required in Nova Scotia by the Partnerships and Business Names Registration Act.

The reasoning for this is, among other things, to avoid duplicate business names from being used, which would confuse the public. It also serves to provide protection from potential later registrants using or trying to make use of your business name in the same jurisdiction in which you are registered. There is also the notion that it will serve to protect the public by providing transparency in the form of a notice to customers of who you are, and thus who they are in business with (i.e. who they are purchasing a product or service from). It is noteworthy however to make it clear that mere business name registration, however, does not provide the same level of protection afforded by trademark legislation, and it is limited, generally, to the jurisdiction in which the name was registered.

Keep in mind that just because a business name has been registered, and is being used in a sole proprietorship, the nature of the sole proprietorship legally, as discussed above, has not changed. It is common to describe a sole proprietorship as the sole proprietor “carrying on business as”, or as abbreviated “cba”, followed by the registered business name. Therefore you may see for example, Ronald Duck, carrying on business as Duck Consulting. In such a case, Ronald Duck would be the sole proprietor, and Duck Consulting the registered business name of the sole proprietorship.

There are potential monetary and legal consequences to operating a business under an unregistered business name which fines, along with a restricted ability to bring or defend legal proceedings.

Sole proprietorships may be the most practical option many entrepreneurs when starting out. However, this decision depends on several important factors including the potential risk involved in operating the particular business or industry you are in. If the industry is a higher risk one, it may be best to invest the extra money and incorporate the venture. The benefits of this should be discussed in detail with your lawyer when planning your business.

On a final note, should you decide to begin a sole proprietorship to see how things go before deciding to invest the money and commitment into incorporating a company, you may be able utilize what is referred to as a s. 85 Rollover pursuant to the Income Tax Act (Canada). If your business qualifies, you’d be able to transfer the business assets to the incorporated company on a tax deferred basis.

Garnet Brooks is an experienced entrepreneur, and is a practising business lawyer in Halifax, Canada. His law practise involves advising and representing businesses and entrepreneurs in various matters including the set-up and incorporation of businesses, transactions, drafting and negotiation of contracts, as well as preparation and registration of security in various commercial financing transactions. Garnet also represents clients in enforcing their legal and contractual rights and particular has represented clients in proceedings before the Federal Court of Canada, Nova Scotia Supreme Court, and the Small Claims Court of Nova Scotia. Garnet has an active financial recovery & collections practise where he represents clients in the enforcement, negotiation and recovery of secured and unsecured loans, credit facilities and other debts.

How To Levy A Judgment

December 25th, 2013 by

Occasionally, the best chance to recover a judgment is when your judgment debtor owns a judgment against someone else. If your debtor has a final judgment, you can probably have it levied, which gives you a chance of recovering some money. Of course, if your debtor’s judgment debtor is poor, there is probably not much reason to levy their judgment.

This article is my opinion, and not legal advice. I am a judgment broker, and am not a lawyer. If you ever need any legal advice or a strategy to use, please contact a lawyer.

After your debtor’s judgment gets attached by a Sheriff levy, there could be a settlement offer, that may get you paid. Usually, debtors do not pay after their settlement offers; so you will then have to pay a Sheriff to sell your debtor’s judgment at an auction, which might get you paid something. You might want to attend the auction, and use your judgment to credit bid, to be the high bidder and pay, so you will own your judgment debtor’s judgment. Usually, there is not very much demand for judgments at auctions.

A Sheriff sale of any of your judgment debtor’s property, including rights to their judgment; can only get you, at the very most, enough money to satisfy your judgment in full. There is a possible exception after buy something at a Sheriff auction sale. You might buy an item for $1,000 and later sell it on the open market for a higher price. Usually, it is difficult to make money reselling judgments. If your judgment debtor is only one of several prevailing parties in their judgment, you will only get a pro-rata share of any recovery or sale. (Judgments do not sell for much cash upfront in this economy.)

If there is more than one plaintiff/creditor on your debtor’s judgment, consider consulting with the other creditors, before levying your debtor’s judgment. If you do not, there could be claims of third-party ownership from the other creditors. Even if no other creditors step forward to claim their share of ownership, you will still get at most, your judgment debtor’s pro-rata share of whatever is recovered, up to whatever is necessary to satisfy your judgment.

Whether or not you have already filed the judgment lien with the court, you can pay the Sheriff to levy your debtor’s final judgment. You begin by getting a writ of execution. Then you have a registered process server or the Sheriff directly, open a Sheriff’s levying officer file. Then you file your notice of judgment levy with the court, and the proper parties must be served.

On the levy forms and your Sheriff letter of instruction, include the case number, party names, and court location. The court clerk will note in their case file and/or their computer, that your lien is now attached to your debtor’s judgment. Then, you can pay the Sheriff to sell your debtor’s judgment at an auction and perhaps credit bid for it.

In judgment recovery, anything can happen. I have read about a few cases where debtors have filed a claim of exemption, after their judgments were levied. If that ever happens, claims of exemption procedures would need to be followed. Rarely, however more than once, courts have ordered that the judgment be collected instead of being sold. If only collection was as simple as those courts believed. In California, see Code Of Civil Procedure section 701.520.

Representing Yourself in a Criminal Court Case – Don’t Do It

December 18th, 2013 by

He who represents himself has a fool for a client.

That old expression is true.

If you’re not a mechanic, would you get under the hood of your car and start taking apart the engine? If you needed an appendectomy, would you do that yourself? Even if you are a surgeon, that is probably still a bad idea. The results would be disastrous. The same goes for representing yourself in court when you are charged with a crime. The results can be, and probably will be disastrous.

In Washington State, when you are charged with a misdemeanor, the maximum penalty you face is ninety days in jail and a one thousand dollar fine. You would also have the conviction on your record for anyone to see, like prospective employers and landlords. Depending on the offense and your criminal history, you may also be placed on probation for up to two years. In addition to the fine that will be imposed, you also have to pay probation fees each month. If you’re on probation for two years, that bill can run up into the thousands of dollars. Oh, and while you’re on probation, you may be ordered to get an evaluation for whatever problem may have contributed to the offense. Guess what; you have to pay for that evaluation too. If the evaluator finds that you have a problem that needs treating, you will have to comply with the treatment recommendation and, yes, you have to pay for the treatment.

All of the probation fees and requirements apply to Gross Misdemeanors too. The difference between a Misdemeanor and Gross Misdemeanor is the maximum penalty. If you are convicted of a Gross Misdemeanor, then the court could impose up to one year in jail and up to a five thousand dollar fine in addition to all of the probation requirements. In Washington, your first Driving While Under the Influence (DUI) is a Gross Misdemeanor. Remember when I said you can receive up to two years of probation for Misdemeanor and Gross Misdemeanor offenses? That is true, except for DUI. In Washington, if you are convicted of DUI, you are placed on probation for five, count ‘em, five years. Did you know that? That really should be something you know if you are thinking of trying to represent yourself in a criminal case.

Something you should also be aware of is that DUI is one of a number of offenses that carries a mandatory minimum sentence. That means if you are found guilty of even a first offense DUI, the court must impose at least one day of jail and mandatory minimum fine along with probation. Depending on whether you took the breath test or not, the breath test reading and whether you have prior DUI convictions determines what minimums you are facing. The minimums can be one day, two days, 30 days, 45 days, or more, in jail and mandatory electronic home monitoring on top of that. The mandatory minimum fines increase also depending on the above criteria. You may also be required to install an ignition interlock device in any vehicle you drive. Your privilege to drive will be suspended also. Do you still think you should represent yourself?

If you are convicted of an offense that is considered “domestic violence”, then you are going to have other consequences in addition to everything else I’ve just told you. Specifically, if you are convicted of certain “domestic violence” offenses, you will lose your right to possess a firearm in the State of Washington and federally. Were you going to join the Army or apply to the police academy? Not anymore. You typically need to be able to hold a gun to have those jobs. If you are convicted of a “domestic violence” offense, you don’t get to possess guns. Not until you have a “court of record” restore your right and even then the federal government may still prevent you from owning a gun. Do you know what a “court of record” is? Do you know what you have to do or how long you have to wait to petition the court to restore your right? Your attorney would. Your attorney would also stress to you that if you were to possess a firearm after being convicted of a “domestic violence” offense without having your right restored by a court of record first, you would be committing a felony. Then you’ve just graduated from misdemeanor behavior in your local municipal or district court to felonious behavior in superior court and possible prison time.

Another consequence of being convicted of a “domestic violence” misdemeanor or gross misdemeanor is that you may have a no-contact order issued restricting you from having any contact whatsoever with the victim in the case. That means exactly what it says. If you have a no-contact order against you, you should proceed as if that person does not exist. Do not talk to them, phone, text or email them. Do not send messages to them through a third party. If you do, that is a new criminal charge for violating the order. In Washington, your third violation of a no-contact order is… you guessed it, a felony. If you make the incredibly poor decision to violate the order and then compound your poor decision by assaulting the other person, then you have also committed a felony and it doesn’t even have to be your third violation. Did you know that? Your criminal defense attorney would.

Are you starting to get my drift? Those are just a few possible consequences of being convicted of Misdemeanor and Gross Misdemeanors! Misdemeanors and Gross Misdemeanors are the least serious class of crimes in Washington and you can see what effect they could have on your life. Are those dice that you want to roll on your own? We haven’t even touched on all of the different aspects of going to court.

You’ll notice I have not been talking about representing yourself on a felony charge in superior court. I will not either. The stakes are higher. That is sure suicide if you try to take on the task of representing yourself against felonies. I have been appointed as “stand by” counsel in a couple of cases where the defendants were charged with very serious felonies. After one simple court hearing, one of my clients realized he was so far over his head, he told the judge he wanted me to take over the case. Smart move. I believe his case resolved much better than if he had tried to do it himself.

The other client waited until the day before his jury trial began and then told the judge he wanted me to step in to handle the trial. He had tried to get his own witnesses lined up and prepare his defense on his own from inside the county jail. Needless to say, I did my very best to try the case (even after his expert witness told me that he actually agreed with the State’s expert). Needless to say, we lost the case. He was convicted of very serious charges and received a maximum sentence of ten years.

Let that be a lesson to all of you. People with no legal training or real knowledge of how the system actually works are in serious danger of messing things up their case beyond repair. Just because a person has been charged with a crime and been to court before does not qualify them to represent themselves.

As you can see, I strongly urge anyone charged with a crime, any crime, to get a lawyer or at least talk with one before making a decision. Ask for a free consultation. Ask for a public defender. Yes, a public defender. Do not try this case on your own. Even if you are a lawyer yourself. Say what you want about lawyers, but lawyers (at least most) are smart enough to know better than trying to represent themselves in a criminal matter. As the defendant, you have the right to remain silent. Let someone else who knows what they’re doing, and saying, do the talking for you.

If you can afford to hire a private criminal defense attorney, then please do yourself a favor and do so. Ask anyone you know who has hired a criminal defense attorney for referrals. Research local attorneys online with attorney-referral websites. Try to get a free consultation with more than one attorney. Find out what you can about them. How long have they practiced? How long have they practiced criminal law? How much trial experience do they have? Find someone you feel comfortable with. That will be very important as your case proceeds. If you cannot afford a private attorney, then absolutely apply for a public defender.

PUBLIC DEFENDERS

People find it fashionable to hack on the public defenders. They refer to them as “public pretenders” and other derogatory names. But you know what? At the very least, they have a law degree. They’ve been to law school and have passed the bar exam. Even with the bare minimum requirements to be a lawyer, they are in a much better position than you are to represent you in court.

People who get convicted of an offense will blame their public defender. Some think, if you don’t walk away scott-free, then you must have been failed by the public defender. As if the public defender actively sought to get you convicted of the offense. They talked you into pleading guilty. Bull. You are the client. You make the final decisions as to what happens with your case. If you don’t want to plead guilty to anything and set it for trial, that is completely up to you. Your public defender (or private attorney for that matter) may advise you that going to trial may be a bad idea depending on the evidence the prosecution has against you. They may also tell you the consequences you face if you decide to turn down whatever plea bargain is on the table and go to trial. The attorney would not be doing their job if they didn’t tell you those things. In fact, they are required to disclose all offers (even the lame ones) to the client. It doesn’t mean they are trying to talk to you into pleading guilty. It means they are doing their jobs and their ethical duties.

Public defenders are historically overloaded with cases. The city or county that pays for the office only has so much money to spend on the public defender’s office. That means they can only hire a limited number of attorneys. All of the cases that are referred to that public defender’s office have to be split up among that limited number of attorneys. The number of cases increase at a faster pace than the number of attorneys. Even if the county or city council approves a budget to add another lawyer, the lawyer is a band aid. And the caseload will continue to grow and swallow up any extra benefit the new attorney added.

Even with that being the case, it is still better than attempting to represent yourself. The reason is that the overworked public defender still has the knowledge, skill and most importantly, the experience practicing in court and handling cases that you do not.

Criminal law is all the public defender practices. They are not part of a general practice law firm that may handle a couple of criminal cases for their civil clients once in a while. All day, every day, the public defender is reading and researching the criminal law. They are writing and arguing motions to suppress evidence and dismiss charges. They are trying criminal cases to the bench (a judge only) and to juries. Even the rookie public defender who has just graduated law school and passed the bar exam is in a better position than you to represent you in court. How you ask? They have resources. The biggest resource a new attorney has is the other attorneys in his or her office. They routinely go to their colleagues or supervisors and run cases by them and ask for advice.

Normally a lawyer might claim law school is a waste of time but one thing law school teaches potential young lawyers is issue spotting. Issue spotting is incredibly important to your case. Would you know if an officer followed the proper procedure in obtaining your confession? Would you know if the officer broke the chain of custody in processing your evidence? Do you know what “chain of custody” means? You may think you could get your statements or evidence suppressed on your own, but you’d probably be wrong. You would find, probably the hard way, that there is more to getting statements and evidence suppressed than just crying “Miranda!” or “Fourth Amendment!”.

Another crucial tool a lawyer learns in law school is how to research the issue you’ve spotted. Do you know where to go to research? Do you know what to look for when you get there? Is there a court rule that controls? Is it a statute you’re looking for? Is it an evidentiary question you’re trying to answer? Is it, God forbid, legislative history of the statute you need? Is it a case interpreting any of the above that you need to find? If you find it, is it still good law? Even a new public defender knows where the local law library is (or which internet site to use) and where to begin looking when they get there.

Let me ask you this? How many cases have you tried to the jury? Hmmmm? What’s that you say? None? You have never stood before a judge, prosecutor and jury and tried a case? Never cross examined a witness against you? Do you even know the mechanics of a trial? That is, do you know what motions, if any, to make before the trial begins? Do you know what those motions are even called? Do you know how to select a jury? What is the purpose of an opening statement? What types of questions are allowed during direct and cross examination of a witness? How do you present an effective closing argument? And you think it is a good idea to learn these things for the first time when you are the one whose future hangs in the balance? If you’ve never performed surgery before, would it be a good idea to start by giving yourself an appendectomy?

As stated above, if you can afford to hire a private attorney, then please do so. However, if you cannot afford a private attorney and do qualify for a public defender, then by all means, accept him or her. Remember you can assist your attorney in your defense. They would appreciate the help. Cooperate with them. The defense may develop much easier and be stronger if you help your attorney and not fight them because they are a public defender.

Public Defender offices are like any other office in any other business. They have some employees who are very, very good, dedicated and work as hard as they can. They also have employees who try hard, but may not be as good. Unfortunately, there are probably some, a very, very small amount, who are not as dedicated and do not work as hard. That is just a fact of life. But, it’s not because those people are public defenders. They would be the same worker if they were prosecutors, private attorneys, doctors, or cab drivers. That is who they are.

But, if you are in the super minority of clients who get that public defender, all hope is not lost. The result may simply be that they are difficult to work with because they don’t return phone calls, etc. As mentioned above, you can assist your attorney in your defense. We know you will be motivated because it your case. So, anything you can do to help the defense, such as gather your witnesses names, phone numbers, etc. and give those to your lawyer. Another way to help is be completely honest with your attorney. Tell your family and friends whatever you want, but you have to give your attorney the true facts as you know them. Fewer things are harder in defending a case than not knowing all of the facts. That doesn’t mean the attorney is going to be revealing any of your information to anyone. They can’t because of the attorney-client privilege. It will help the attorney to know which questions to ask or not ask when examining a witness at trial or when negotiating with the prosecutor.

If you think you can afford an attorney, take advantage of free consultations and discuss your options with a private attorney. Find one you feel comfortable with and hire them.