Almost every company has to grapple with the challenge of managing accounts receivable. It’s a never-ending struggle and takes a lot of work to get right. And getting it right pays off. Companies that properly manage their debts through efficient systems and by using the best-rated debt collectors can see their profits soar — even in recession. Unfortunately, a segment of those accounts cannot be collected through normal company procedures and require the help of someone specialized in debt collection. Below are some reasons why your company should consider turning debt collection over to a debt recover specialist.

Why should I use a debt collection attorney?

Reason #1: State and Federal laws can punish you if you do not proceed properly in collecting the debt. The Fair Debt Collection Practices Act and other laws limit the tactics that collectors can use to collect a debt. Violators of the Act may be subject to $1,000 fines for infractions and serious infractions may also grant attorneys fees. This is not something that you want your company wasting time and money on.

Reason #2: An experienced debt collection attorney can file suit, get a judgment, and collect on the lien. Many collection agencies can work to try to squeeze the creditors for money, but unless they have relationships with attorneys, they will not be able to use the force of the law to enforce the judgment. Attorneys can, and will. Also, experienced attorneys have a feel for when to file suit, when to negotiate, and when to settle. That experience equals more money for our clients.

Reason #3: Many collection attorneys will take your case on contingency—meaning you pay nothing up front. Depending on the amount of your bad debts, the financial strength of your creditors, and a variety of other factors, you may be able to reach an agreement with your attorney to take your cases on contingency. This is good for your company, and helps to line up the interests of your attorney with your own best interests.

These are only a few reasons why partnering with an experienced debt collection attorney is a good idea for any business. If you have any questions, give us a call to help you establish a plan to attack your bad debts.

One of the most valuable assets any innovative business can have is intellectual property. Intellectual properties are creations granted certain protections under property law to encourage innovation. Generally, they can be described under four categories: trade secrets, patents, trademarks, and copyrights.

What is a trade secret?

The classic example is the Coca-Cola formula. Coca-Cola guards its formula very closely as it’s “often imitated, never duplicated” business model has developed a loyal following to the taste. For information to be considered a trade secret it must be commercially valuable, guarded from disclosure, and not general knowledge. The company must take safeguards to assure that their protections are established. State law governs trade secrets, and some states have not enacted the act, so the protections are not quite as robust as some of the other types of IP discussed below.

What is a patent?

Patents give entrepreneurs a right to exclusion, meaning they can prohibit others from “making, using, importing, offering for sale, or selling the invention.” Patents are granted under Federal law and allow the holder to petition the court to grant an injunction to stop the usage of invention.

The US Patent and Trademark office reviews patents and decides whether to grant them. Generally, it is a good idea to file a provisional patent before selling the product, as sale in the marketplace can negate any patentability. Provisional patents are less expensive and provide beefy protections for a year—often enough time to determine marketability of the product. After that, if full patent protection is sought, choose your patent attorneys wisely, they are not created equal. Usually, you get what you pay for when it comes to patent protection.

What is a trademark?

Trademarks are distinctive logos, marks, words, designs, or symbols that are associated with a company’s brand. To receive Federal protection under the Lanham Act, a trademark must be registered. The requirements for registry include subject matter that is trademarkeable, distinctive mark, and not likely to cause confusion.

This standard of “likely to cause confusion” is also the standard to enforce the trademark. Discussing your business name with a trademark attorney, and using some common sense, can help you steer clear of confusing consumers. Thinking of starting up “Guns Are Us” but worried about “Toys R Us” coming after you? A court said it was ok.

What is a Copyright?

One of the main protections available to software makers is copyright law. Copyrights generally grant protection from copying the creative work for the author’s life plus 70 years. The standard is that the work must be “fixed in a tangible medium of expression.” One of the main issues under copyright in the business setting is the “work for hire” doctrine. Usually, copyrights belong to the creator of the work. Under the work for hire doctrine, however, an employer owns copyrights for works done through its sponsorship or employment. Many disputes arise when a company does not clearly spell out who owns the code that has taken years to develop. Make sure a competent lawyer has helped you make your work for hire agreements as strong as possible.

Intellectual property can make or break a business model. Get some attorneys that understand it, and have them help you conduct IP audits to ensure you’re IP is where you want it to be.

Which?

When is comes to choosing between entities, there are 3 most common options: LLC, S-Corp, and C-Corp. A brief general overview of the differences is found here. Choosing between them really comes down to what the end goal of your business is. S-Corps are generally ok for small businesses with a limited number of partners. Beyond that, problems can arise. LLCs (Limited Liability Company) are good for small to medium sized businesses with some investors or others that could benefit from taking a larger share of the losses when passed through to personal income. C-Corps are ideal for larger businesses that have the potential for going public or that seek venture capital funding.

As you can see, the issue of scale can be an important consideration. In general, the LLC is the most flexible option and usually the best for a smaller to medium sized startup that is not actively seeking venture capital funding. VCs generally favor Delaware corporations for flexibility in raising capital, and for other reasons explained below. But if you’re bootstrapping or have a small number of investors, and LLC is generally going to be your best bet.

Where?

When you form an entity, you need to make a decision regarding which state you will incorporate. Again, for a fairly standard business, your best bet is likely to incorporate in your principal place of business (PPB). This allows you to avoid the charge of having an outside party serve as your registered agent, and facilitates easy communication with your local Department of Commerce or other agency in charge of entities.

That being said, there are two other jursidictions that provide advantages to would-be incorporators: Nevada and Delaware. Nevada offers a number of important benefits that should be considered including: no state corporate tax, greater anonymity for owners and officer, potentially greater protection from personal liability, and excellent customer service. Nevada has actively sought to attract more companies and have been successful at using their corporate laws to do this. On the flip side, the greater anonymity and secrecy can be interpreted as a way to get away with something shady or cover your backside in the event the company goes down—not the type of image you will want to put forward to investors and potential partners.

Delaware has long been known as a popular place to incorporate. 63% of Fortune 500 companies have chosen Delaware as their place of incorporation for a variety of reasons. First, Delaware has a special court, called the Court of Chancery that only hears business cases. They tend to establish business law and have a reputation for being fair and business savvy. Second, the sheer number of corporations and established body of law leads to more certainty regarding the resolution of corporate disputes—something very important to venture capitalists and other investors. Thus, they frequently require businesses seeking investment to be Delaware C-Corps. But, for the average business, the costs will generally outweigh the benefits. Plus, in many cases it is not too difficult to arrange an asset purchase or other arrangement to change from one corporate form to another if necessary.

In summary, there is not really a simple answer to the question about how to best organize a company. Instead, a lot depends on the company’s goals, potential investors, number of partners, and other factors that have a large impact on which form is best. Of course, when in doubt, it’s always best to contact a knowledgeable attorney who can help guide your individual goals.

1. Is my business idea legal/Are there applicable government regulations?

State and federal laws cover a variety of business situations including pollution, financing, and employment. This may seem rather obvious, but there may be a reason why no one is doing your business. And I’m not just talking about opening that casino in Provo. Even if you’re doing something 100% legal, there are very likely regulations that you need to understand before getting too involved. When in doubt, call a lawyer (Warning: this may be repeated ad nauseum, but if people would call before they got in these problems they’d be ok!).

2. Is your anticipated place of business up to code?

Every municipality has different requirements and if you’re opening up shop to the public, the laws may be even more strict. Make sure you resolve this before opening up or signing a lease. It can help to be on good terms with the zoning commissioner or other city authority in charge. Involve them early and often. In many cities, violations can put you in jail.

3. Is the name I want to use available?

When you are forming an entity to conduct business (to be covered in the next post), you need to make sure the name isn’t taken in the state you’re organizing in. This is done by doing an entity search. But, your business may also bump against an entity organized in a different state but doing business nationally (sorry Wolfgang Zweiner). Trademarks, especially registered ones are offered strong protection in the US (The test is explored in laymens detail here). If you do a Google search and find a similar company with the same, or very similar name, beware. When in doubt, ask.

Stay tuned for the next installment, “The Hows, Whats, and Wheres of Entity Formation.”

Whole life insurance has a number of important benefits that are often touted by insurance agents. And while permanent life insurance may not be for everyone, Utah law does provide one powerful incentive to purchase it: the “proceeds and avails” are exempt from the policy owner’s creditors. This means that the value in your whole life policy, as well as the death benefits to beneficiaries, are generally untouchable.

For example, say a member of your family falls ill, and your medical insurance won’t cover a particular treatment that you have to pay for out of pocket. To save your loved one’s life, you accept the treatment and work out a financing option to get it done. Meanwhile, your company hits a rough patch, and you find yourself defaulting on the medical bills. How secure are your savings? Once the creditor obtains a judgment, they can attach a lien to your home, garnish your wages, and collect from your bank accounts. If you focused on saving in traditional CDs, money market accounts, and taxable brokerage accounts, they are generally all vulnerable to creditors. However, any cash value in your life insurance policies are not reachable by creditors. In fact, if things get so bad that you have to declare bankruptcy, the cash value is not liquidated.

This may seem almost too good to be true, or a bit shady. So to combat that, state law provides that the exemption does not apply to debts from fraud, unpaid taxes, alimony, child support, or some unpaid earnings. (See UCA §78B-5-508) Also, any proceeds paid in the last year prior to collection or a bankruptcy filing are likely not exempt. Thus, this protection is only designed for the honest, and loopholes ripe for abuse are largely closed.

Permanent life is not the only instrument to enjoy this protection either. 401(k)s, many pensions, and to some extent IRAs all have some protections from creditors and bankruptcy. And whole life is not a cure-all either — it certainly is not a universal solution. But everyone should, using trusted professionals, consider the role that whole life could play in an overall financial plan to diversify and protect against risk and outside liability.

1. Save up an amount of money to make a settlement . In some cases this may mean ceasing payments on the account. This will hurt your credit, and be prepared for collection calls to begin, but depending on the situation, it may be your best option. Also, some creditors may require your account to be delinquent to settle: as much as 60-180 days late.

2. Get some documentation. If collectors make verbal offers over the phone, DO NOT TAKE THEM! Many times collectors use that as a ploy to get you to pay, but without a written settlement agreement, you won’t get the debt written off.

3. Make an offer. Remember, you have the upper hand in these negotiations. Your creditors know that they are very likely to receive next-to-nothing in a bankruptcy. Remind them of that, and any personal hardships that may be making it difficult to pay. Offer low at first (20-30%), and if they make an offer that you think is fair to take, take it! At some point, settling at a higher percentage than you originally wanted may still be worth it in peace of mind.

4. Send any payments by certified mail. This will assure that you have documentation for the settlement payment. Also, write “For Payment In Full” in the memo section on the check.

These tips should help you get your debt settled, potentially without having to use an attorney or resort to bankruptcy. If you have any questions about the process, give us a call and we can set up a plan for you to solve your debt problems.

Sole Proprietorship – The default business form. No limited liability, but allows pass-through taxation.

General Partnership –Default business form for two or more owners. No limited liability, but no corporate tax.

C-Corporation – Requires state filing. Limited liability, but taxed as a separate entity. Requires formalities.

S-Corporation – Requires filing. Limited liability, pass-through taxation, requires formalities, and division of profits according to ownership. Potential employment tax savings.

Limited Liability Company (LLC) – Requires filing. Limited liability, pass through taxation, fewer formalities, flexible allocation of profits and losses. Potential employment tax basis.

If you need to buy some time, you can have your paycheck and other money deposited into a different account at another bank, but beware, this will NOT permanently solve the problem. It will keep your money from being siphoned off of your account, but sooner or later you will need to confront the reality of the situation. You will either need to settle the debt with the bank, prepare for a foreclosure on the asset, and/or a deficiency judgment for the remaining amount on the loan.

Once you get to the judgment stage there is very little you can do outside of bankruptcy. However, your bank will very likely be willing to work with you prior to the foreclosure of the asset. Banks do not like to have to worry about collecting and selling collateral and all of the pains and formalities associated with it.

So, if you’re in a situation of default or in a dispute, contact your bank. And if you have any questions, give us a call to understand your rights and options more fully.