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What’s the Best Legal Form for Your Business Enterprise?

Legal-Form-for-Your-Business-Enterprise

When you’ve decided to open your own business, there are seemingly endless decisions to make. One of the most important is the legal form your business will take. The choice you make can have a significant impact on your exposure to liability, but can have tax consequences as well. Here’s an overview of the common business structures, with some of the advantages and disadvantages.

Sole Proprietorships

If you are truly going into business for yourself, this can be the easiest and best choice. With a sole proprietorship, you don’t have to file organizational documents with the state. You may need a business license—not all businesses in Pennsylvania are required to have a license. In addition, if you plan to do business under an assumed name, you will need to file a Registration of Fictitious Name form.

With a sole proprietorship, you are personally responsible for the debts and obligations of the business, and your creditors can have access to your personal property to satisfy a business debt. The income from a sole proprietorship passes through as ordinary income on your personal tax return.

Partnerships

If there’s more than one person involved in the ownership of the business, you might choose to set up a general or limited partnership. In a general partnership, all partners are “jointly and severally” liable, meaning that each partner can be held individually responsible for the debts of the partnership, and that creditors can have access to personal property to settle a debt. In a limited partnership, the limited partners typically don’t have any liability beyond their investment in the enterprise. Partnership income is pass-through income, treated as ordinary income on your personal return.

Corporations

The principal benefit of the corporate structure is the limit it establishes on your potential liability. As a general rule, with a corporation, you are only liable for the amount of your investment. You can lose the entire investment, but the corporation’s creditors do not have access to your personal assets to satisfy debts of the business.

There are two types of corporations—S corporations and C corporations. S corporations, limited to a maximum of 100 shareholders, are treated much like partnerships when it comes to taxation—any income passes through to shareholders based on their ownership interest. With a C corporation, there’s “double taxation”—the corporation pays a tax and the shareholder also pays tax on distributions.

Limited Liability Companies (LLCs)

A limited liability company shares many traits with an S corporation. Tax treatment is the same, as is the protection from liability for the debts of the company. It’s typically easier to set up an LLC and there are fewer filing and recordkeeping requirements than for a corporation. In addition, there is no limit to the number of members you can have in a limited liability company.

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Is Your Contract Enforceable?

Contract-Enforceable

The Legal Requirements for a Valid Contract

When you’re operating a business, you’re constantly talking to customers, suppliers and others, inquiring about the availability of resources or seeking to sell goods or services. When are those conversations just that—preliminary discussions before the formation of a contract—and when do they rise to the level of an enforceable agreement? Here are the basic elements of a legally binding contract.

There Must Be an Agreement

Agreement assumes at least two parties (there’s really no upper limit on the number of parties to a contract) and it assumes that the parties have a mutual understanding of their rights and responsibilities. Under the law, that is known as offer and agreement. To be valid, an offer must be communicated to the other party, and the person making the offer must manifest an intention to be bound by the terms of the offer. The offer must also state specific or definite terms. As a general rule, acceptance must be communicated to the person making the offer—the exception is with unilateral contracts, where performance constitutes acceptance. An acceptance that changes the term of an offer is technically not an acceptance, but a rejection and counteroffer.

There Must Be Consideration

Consideration is a legal term that means “something of value.” Both parties to a contract must give consideration, either in the form of giving or doing something or refraining from doing something they have a right to do.

The Parties Must Have the Legal Capacity to Enter into a Contract

Essentially, this requirement ensures that both parties have the ability to understand that they are entering into a contract, and to understand the terms and obligations. Parties may lack capacity for a number of reasons:

  • Age—Persons under the age of 18 are considered under the law to lack the capacity to enter into a binding contract. Such a person may, however, ratify an existing contract after attaining the age of 18.
  • Intoxication—A person may lack capacity if under the influence of drugs or alcohol at the time the contract was signed
  • Mental incapacity—Mental illness, dementia or other afflictions that limit a person’s cognitive functions can make them incapable of entering into a contract.

The Parties Must Have Voluntarily Entered into the Agreement

The courts will not enforce a bargain where one of the parties did not knowingly and voluntarily agree to the terms. Accordingly, if there’s evidence of fraud or misrepresentation, duress or undue influence, the contract may not be valid.

The Subject Matter of the Contract Must Be Legal

The courts won’t enforce agreements for the performance of acts that violate laws, statutes or ordinances, or that are contrary to public policy.

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The Difference between a Living Will and a Health Care Power of Attorney

Living-Will

When you are putting together an effective estate plan, one of the most important decisions you’ll have to make will center on the type of medical care you receive, should you be rendered incapable of making your own decisions. For example, you may be averse to procedures that keep you alive by artificial means.

In Pennsylvania, there are two different types of legal instruments that address medical care and medical decisions in these situations—the living will and the health care power of attorney. They’re not exactly the same, though. Here’s an overview of both.

The Living Will

A living will customarily specifies the kinds of medical care that you want or don’t want in the event of a medical emergency. Living wills are often used to address concerns about the use of life support or resuscitation. As a general rule, the living will does not name a person to act as your medical power of attorney or make medical decisions for you. It’s usually limited to specific instructions about the care you want to receive.

Health Care Powers of Attorney

A health care power of attorney specifically designates a person to make medical decisions if you cannot. It can include specific instructions or wishes, but confers a general power on the designated person. The living will is generally viewed as a limited form of a health care power of attorney. Accordingly, if you have a health care power of attorney, and it identifies the type of care you want to receive (or don’t want to receive), a living will may not be necessary.

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Estate Planning in Pennsylvania—An Overview

Estate-Planning-in-Pennsylvania

The Things You Need to Address in an Effective Estate Plan

If you haven’t given any thought to what will happen to your property, you’re not alone. Estimates indicate that less than half of Americans have any kind of estate plan in place. It’s a precarious position to be in, though, even if you don’t have a substantial estate. If you own any property that carries documents of title, such as a house or a car, your survivors could be in for a long and protracted process to transfer the property.

What You Need in an Effective Estate Plan

To fully protect your estate, as well as your loved one, you need:

  • A will or a trust—With a will, your property will pass upon your death according to specific instructions in the document. Property passed through a will must go through the probate process, where the court will ensure that your instructions are followed. With a trust, you can transfer your property into a separate legal entity (the trust) during your lifetime. Because you no longer own the property, it doesn’t have to go through probate after your death.

There are ways, however, of transferring property without a will or trust. For example, you can re-title certain assets, so that you hold them jointly. Upon your death, title will automatically pass to all other joint owners.

  • A power of attorney—A power of attorney actually conveys power while you are still alive, naming a person or entity to manage your affairs if you lack the capacity. You can grant limited powers or powers to manage all affairs.
  • A health care power of attorney—This document names a person who will have the power to make medical decisions on your behalf, should you be unable to do so.
  • A living will—The living will identifies types of medical treatment that you do or do not want to have, should you be unable to make the decision yourself.

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When Is a Contract Enforceable – Offer and Acceptance

Contract Enforceable

If you own or operate a business, you enter into contracts on a regular basis, perhaps many times every day. In this series of blogs, we’ll look at the elements of a valid and enforceable contract:

  • An agreement — There must be offer and acceptance
  • Consideration — Both parties must give something or promise to refrain from doing something they have a right to do
  • Capacity — Both parties must have the legal capacity to enter into the agreement
  • Volition — The parties must voluntarily agree to the terms of the contract
  • Legality — The subject matter must be legal

The Agreement

The first requirement of a valid and enforceable contract is that there must be an agreement. There must be at least two parties, but there’s no upper limit to the number of parties to a contract.

An agreement requires two things—an offer and an acceptance. Though there are certain types of contracts that must be in writing to be enforceable—we’ll address this in a later blog on the Statute of Frauds—most oral offers are sufficient and can be accepted orally, forming a binding contract. There are some situations where what appears to be an offer may not be an offer:

  • Where the offer is clearly made in jest — “I’ll pay you million dollars for that sandwich”.
  • Where the language is clearly exploratory — “Would you consider $500 for that guitar?”

Under contract law, the terms of the offer must be clear and definite, such that a reasonable person would know what his or her obligations would be under the agreement.

As a general rule, a valid offer remains open until revoked by the person making the offer. A counteroffer, though, legally revokes the original offer and becomes a new offer, with new terms. In addition, if the offer states a specific time within which it must be accepted, the offer is no longer valid once that period expires.

Acceptance of an Offer

To accept an offer, a person must clearly communicate acceptance of its terms and a willingness to be bound. A person cannot accept an offer that has been revoked. Acceptance can be made orally or in writing, unless the terms of the offer require a specific form of acceptance. Once the offer has been accepted, it cannot be revoked.

In most instances, in what is referred to as a bilateral contract, the person accepting the offer promises to abide by the terms of the offer. However, the law recognizes what is known as a “unilateral” contract, essentially the exchange of a promise for an act. A reward is the classic example of a unilateral contract—a promise of a payment of money for the return of a lost item is enforceable when the act is performed, and does not require any other form of acceptance of the offer.

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Debt Collection Strategies – Judgment Liens in Pennsylvania

Debt Collection Strategies - Judgment Liens in Pennsylvania

If you’ve filed a lawsuit against an individual or business that owes you money and the judge or jury has ruled in your favor, the court will then issue and enter a judgment against the debtor, ordering the defendant to pay the debt. However, that would not necessarily put money in your pocket. A court order, by itself, is typically not enough to ensure payment. That’s why you need a judgment lien.

Understanding the Concept of a Judgment Lien

A judgment lien gives a creditor the right to be paid out of the proceeds from the sale of property. Under the law, the lien is filed and “attaches” to the named property. Accordingly, when the property is sold, the lien goes into effect, giving the creditor named in the lien priority over other potential recipients of the proceeds of the sale, including the debtor.

In some states, a judgment lien can attach to any property owned by the debtor. In Pennsylvania, though, a judgment lien can only be placed on real property.

To obtain a judgment lien, you must first record the judgment with the court of common pleas in the county where the debtor owns property. The lien will stay in effect for five years, but can be renewed, if the debtor does not sell the property within that time period.

Even though you have a judgment lien, there may still be other parties with priority over you:

  • The debtor will have priority if the property is a primary residence (this is known as the homestead exemption)
  • Other parties may have priority in a bankruptcy or foreclosure proceeding
  • Other liens may have been filed first or otherwise have priority

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The Probate Process in Pennsylvania

Probate Title On Legal Documents

If your loved one has died and had a will in place, you may be uncertain about your rights and responsibilities. Will the will need to be filed with the probate court? What is the purpose of probate and what happens during the probate process?

What Is Probate Administration?

The probate process is designed to ensure the supervised settlement of your estate after your death. That includes both the payment of all final debts and the orderly distribution of any property that you own. It’s important to understand that, if you own property as a joint tenant with another person, such as a spouse or child, that property will automatically pass to any surviving joint tenants and will not need to be distributed through the probate court. In addition, any property held in trust at the time of your death will not be subject to probate. Financial accounts, such as checking or savings accounts, that have a “payable on death,” or POD provision, also avoid probate.

However, if you have property that carries documents of title, or where you have sole access, such as an individually titled bank account, ownership of those assets cannot be transferred without the intervention of the probate court. As a part of the probate process, the court will issue what are generally referred to as “letters testamentary,” which allow property of a decedent to be conveyed.

In Pennsylvania, there are two different processes available to settle an estate. If the total value of property is less than $50,000, you can go through what is known as simplified probate. For larger estates, the process is more involved.

The probate process begins when the executor files the will at the office of the Register of Wills in the county where the deceased lived at time of death. There’s a filing fee that must be paid at that time. The court then issues the letters testamentary, which give the executor the power to collect assets and start settling the estate. The executor must provide notice to heirs, beneficiaries, creditors and the general public, and will then prepare an inventory of the assets of the estate. Inheritance taxes must then be paid, and property distributed. The executor then files a final accounting of the estate.

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The Difference between a Will and a Trust

People going over a document

If you’ve decided that it’s time to put an effective estate plan in place, to properly prepare for the orderly distribution of your assets in the event of your death, you’ve likely seen or heard references to the use of certain dispositive instruments—wills and trusts. But you may not have a clear understanding of the difference between the two estate planning tools and which might be best for your situation.

What Is a Will?

Also known as a “last will and testament,” this document includes specific instructions with respect to the distribution of your assets, as well as your debts. It’s also customary to include designation of a guardian for any minor children in your will. However, your will only goes into effect in the event of your death. Your will cannot be used to transfer property or institute any other legal action during your lifetime.

If you use a will to convey the property in your estate, it may be subject to probate. Your heirs may choose not to take your will through the probate courts, but any interested party always has the right to seek the authority of the probate court to settle your estate.
The preparation and execution of a will is typically a much simpler process than a trust, so there’s usually less expense upfront. However, because of the probate requirement, your heirs can end up paying more after your death.

What Is a Trust?

In essence, a trust is a separate legal entity that can hold property. The trust is created by a trust document, and names a trustee. Because the trust is a separate legal entity, you no longer own any property that you transfer to the trust. Because the probate process is set up to resolve the transfer of your property, and because you no longer own property placed in trust, any property placed in trust avoids the probate process.

A trust can be “inter vivos” or testamentary. An inter vivos trust goes into effect during your lifetime, allowing you to transfer assets before your death. A testamentary trust is created upon your death, with assets typically transferred to the trust by your will.
The preparation and execution of a trust is a far more complex process than the preparation of a will. Accordingly, there’s typically more upfront expense involved. However, because property transferred into a trust escapes probate, there’s less expense to your heirs after your death.

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What to Do When You Have Been in a Car Accident

Man feeling pain to the neck after car crash

If you’ve never been in a car accident, count yourself lucky…the National Highway Traffic Safety Administration estimates that the average American is involved in four accidents during his or her lifetime.

When you’ve been hurt because of the carelessness or negligence of another motorist, it’s critical that you take specific steps to protect yourself. Here’s a checklist:

  • Step #1 — Get the Medical Treatment You Need

This is far and away the most important thing to do after a motor vehicle accident. It’s important to remember, too, that it’s not the time to be strong or stoic—it’s the time to accept and acknowledge your injuries and get all the treatment you need. If you can’t move around under your own power, or if you are in significant pain or discomfort, wait until emergency medical technicians arrive. Don’t try to diagnose your injury—they are the professionals and know how to do that. They also know what you need to do to avoid making your condition worse.

Get medical treatment as soon as possible, even if it’s not at the site of the crash. Immediately take yourself to the hospital, an urgent care facility or set up an appointment with your doctor. The longer you wait, the greater the risk of two things—that you’ll have an intervening accident or injury that will allow defense attorneys to shift blame; or that it will appear to a jury that your injuries were not that serious.

  • Step #2 — Gather Information

The more information you can get, the better, particularly if you need to file a personal injury claim to get full and fair compensation for your losses. Get contact information for anyone involved in the accident, as well as all witnesses. Take pictures of everything, including the damage to all vehicles, any injuries suffered, road markings (skids or gouges), weather conditions or roadway defects. The camera on your phone is fine…just get the pictures.

  • Step #3 — Hire an Experienced Lawyer

You want an attorney who has successfully handled motor vehicle accident claims, who knows what to expect from insurance companies and defense counsel, who can accurately determine the value of your claim. You also want to hire a lawyer as soon as possible, so that you can preserve all relevant evidence.

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Veterans Health Care Benefits – An Overview

Veterans-Health

If you have served your country, you are entitled to a wide range of benefits. Some benefits may be based on financial need and the benefits available to you can vary based on when, where and how long you served. One of the most important benefits available to former service members is health care.

Health Care Benefits for Veterans

If you have been honorably discharged from active service, chances are good that you are eligible for health care at one of the VA hospitals or clinics across the nation. If you served before September 7, 1980, there’s no minimum service requirement. However, if you enlisted after that date, you will only be eligible for health care benefits if you served a minimum of 24 months of uninterrupted duty (unless you were discharged for a service-related disability).

To receive health care benefits, you normally have to apply. There are circumstances, though, where you will be entitled to health care benefits automatically:

  • If the care you are receiving is exclusively for a service-related disability, injury or illness
  • If your service-related disability has been rated at 50% or higher
  • If the Veterans Administration has determined that your disability is service-related, but has not issued a disability rating

Veteran’s Access to Health Care

Because the VA lacks the resources to provide the necessary care to all who require it and qualify, a priority system has been established to determine who gets treated first. As a general rule, the higher your disability rating, the higher your priority for treatment. In addition, if you have been a prisoner of war or have received certain medals or honors for your service (a Purple Heart or Medal of Honor, for example), you’ll be given special priority. Veterans who have been discharged within five years of enrollment are also eligible for enhanced health care access.

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  • B&D Law Group 1110 Kennebec Dr, Chambersburg, PA 17201

  • Call for consultation (717) 264-5194