Running Your Business
BizFilings provides useful information to help you manage and grow your business.
Employee theft of inventory and supplies, and the unauthorized use of equipment, although not as frequent as cash theft, can be a major loss for many small businesses. In some cases, a non-employee accomplice may be involved, including a dishonest vendor.
Both the federal government and the states, as well as organizations and companies, provide resources to assist small businesses in the fight against fraud.
Fraud is often committed by business owners who misreport financial transactions by "playing with their books."
Mail and wire fraud involves crimes that violate federal laws because the frauds utilize the United States Postal Service or other interstate means of communication.
Tools and strategies are readily available to small businesses for purposes of detecting, deterring and prosecuting fraud from whatever source. Both civil and criminal remedies may be available.
You can reduce employee fraud by controlling tempting environments and implementing internal control processes to deter wrongdoing.
External frauds commonly originate with or involve customers and vendors. Common frauds include check and credit card frauds, shoplifting, vendor and telemarketing frauds, and fraud perpetuated by ID theft.
Phony employee disbursements pose a significant fraud problem for businesses. These practices include frauds such as padded expense accounts, check tampering, payroll fraud, and false employee insurance claims.
Whether committed by employees, vendors or unknown individuals, the need to protect your business from fraud is an unpleasant fact of life for the small business owner.
Cash left in a business is vulnerable to creditors. However, there are a variety of ways to withdraw cash from a business, such as salary payments, guaranteed payments, loans and leases. When done for business purposes and properly documented, these withdrawals will not be set aside as fraudulent.
To limit the amount of vulnerable assets within a business that could be exposed to a creditor's claims, you should have a plan to continuously and regularly withdraw funds from the entity. However, that strategy must not run afoul of the restrictions imposed by state law, especially the fraud provisions.
In order to protect your business assets from creditors, you should regularly and consistently withdraw excess funds from the business. Options for withdrawing funds include distributions of earnings, salary payments to yourself and family members, payments on loans or leases you have made with the business, guaranteed payments and sales of accounts receivable. Whatever combination of methods you chose, make sure you follow business formalities, including written documentation of a regular, consistent plan.
Even if you organize your business as an LLC or corporation, you can find yourself personally liable on a business contract if you enter into a contract before your business is legally formed, fail to act as an agent, or personally guarantee performance on a contract.
Even if you operate as an LLC or corporation, you can be exposed to personal, unlimited liability if you personally take, or do not take, an action that causes injury to another. You also risk unlimited personal liability if you negligently hire or supervision your employees and another person is injured.
'Protecting Trade Secrets' discusses the current definition of business trade secrets, how the judicial system enforces them, and how best to protect them in your own business, including the use of patents, copyrights, trademarks, non-disclosure agreements and non-compete agreements.
Every corporation issues securities and a growing body of law suggests that non-manager interests in an LLC are also considered to be securities. Even so, most small businesses do not need to be concerned with federal and state security laws. However, if you plan to raise capital through "public offerings" or via the internet, then you should have a basic understanding of securities laws so that you can work effectively with your professional advisors.
Unless you are the only owner of your business, it is essential that you have a buy-sell agreement in place from the outset of operations. A buy-sell agreement prevents a co-owner from selling out to a stranger and provides an orderly and equitable method of determining the value of each owner's interest in the business.
In order to avoid day-to-day liability risks when enacting an asset protection plan, a small business owner must pay close attention to recordkeeping and initial capitalization to avoid of the doctrine of "piercing the veil" of limited liability.
Merely using an LLC or a corporation is not sufficient asset protection strategy. You must also structure and funded to minimize your liability exposure. You must operate your business in a way that maintains your limited liability.
Asset protection includes taking steps to legal shield your wealth and assets from federal taxes. The manner in which you fund your business in order to limit liability in your business structure can seriously affect your tax status.