Contract Review Checklist: 21 Things to Look For Before Signing

Contract Review

Are you about to sign a contract?

If the contract means anything to you, you should 100% get your contract reviewed before signing!

Businesses both allow and expect the other parties to make changes to the contract before signing it.

As complicated and overwhelming a contract can be, it’s a HUGE  mistake to sign any contract before you get it reviewed.

As a contract review lawyer, I will make sure it matches your needs and I will make sure to clarify your obligations under the contract.

Also, I will make sure the contract accurately reflects your understanding of the terms of the contract, analyze the benefits and risks, and make sure your interests are protected to avoid potential problems down the line.

If you’re looking to get your contract reviewed, email me Sam Mollaei Esq. at [email protected] so I can help you!

 

What is Contract Review?

Contract review is the process of reading and understanding a contract on a line-by-line basis. It is a deep analysis process to make sure the contract is fair.

More importantly, you need to make sure it doesn’t include any loopholes that could work against you. Truthfully, contract review is a long process with a lot of legal terminology mixed in. This is why contract review lawyers exist.

A contract review lawyer can examine the contract, explain the contract to you, and even suggest changes that are in your best interest.

Contract Review Mistakes

The unfortunate truth is business owners make all sorts of mistakes when dealing with signing a contract. Some of these mistakes include:

  • Thinking a legal review lawyer is a waste of money
  •  Thinking a contract is non-negotiable or that signing is mandatory
  • Signing a contract before reviewing it
  • Signing a contract before fully understanding it

Any of these mistakes above can cause you to sign a contract which is not truly in your best interest.

Why Get a Contract Reviewed?

Getting a contract reviewed is important because all of your decisions are made through a contract. Contracts should always be handled in the correct manner to prevent yourself from having a legal problem.

Basically, this means every single contract drafted and negotiated needs to be reviewed by a contract lawyer before it gets signed.

In fact, here are a few key reasons why you should get all contracts reviewed:

  • It prevents people from misunderstanding what they are signing. All terms need to be clear.
  • It guarantees that the terms within the contract are legal and lawful.
  • It prevents – or at least minimizes – future legal problems.

You get a contract reviewed by a legal professional because not doing so is an avoidable mistake. Email me at sam[email protected] for your contract review today:

Why is Contract Review Important?

Contract review is about more than just protecting your company from signing a troublesome contract. It is also about protecting the relationship between you and the other parties involved. The relationship is going to be doomed to fail if all parties do not understand the contract.

You enter into contracts every day and all of the time.

Terms of any contract need to be fair, correctly drafted, and thoroughly reviewed. It is vital to make sure the contract meets the needs of both parties involved.

Contract Review Process

Contract review is basically a four-stop process. These steps include:

  • Drafting
  • Reviewing
  • Negotiating
  • Signing

First, a contract is created.

Second, the contract is reviewed.

Third, you negotiate any changes you want to make to the contract.

Finally, once everyone is happy and the terms are crystal clear, you sign the contract. Sticking to this four-step plan is the key to preventing yourself from signing a contract that isn’t in your best interest.

What Does a Contract Review Lawyer Do?

A contract review lawyer works with contracts. They can create them, revise them, review them, help you understand them, and help you negotiate the terms of any contract.

A contract is basically a legally binding agreement between you and another party. Contracts tend to pop up in both business and personal manners.

Considering a contract is a legally binding piece of paperwork, it is vital to make sure they are done the right way. This alone is the biggest reason why you need a contract attorney.

Now, I know what you are thinking – what on earth is a contract attorney? Truthfully, there is a specific lawyer for just about every legal task you can think of.

A contract lawyer – as the name implies – is a lawyer who specializes in contracts. This is someone who has experience in both creating and revising contracts.

If you are a landlord, a contract lawyer is who would help you create the lease for your tenants.

If you were a singer, your contract lawyer would help you draw up contracts for your career.

If you were an employer, this is the person who would help you draw up the contracts for your employees to sign.

And so on and so forth.

Naturally, the job of a contract attorney works both ways. Say you are someone who is getting ready to sign a big contract for a new job, a contract lawyer could look at the contract. They can explain it to you in a way that you will understand, and then they will help you make any necessary revisions.

Having a contract lawyer on your side before you create or sign any contract is a good idea because you could be created or signing something you wouldn’t normally agree to. I’m here to help, just email me at [email protected] today.

What Are the Different Types of Contract That Should Be Reviewed?

There are many different types of contracts that you should have reviewed before signing anything. Some of the most common types include employment contract, physician employment contract, real estate contract, purchase agreements, and freelancing contracts.

Let’s look at these common types of legal documents in more detail:

Employment Contracts

An employment contract is something that you’ll have any time you are getting ready to start a new job, a new position, or a new contract.

There are many things to look for in an employment contract, and I’ve covered that in more detail below, but the most important thing to remember is don’t sign anything you aren’t 100% clear on.

Physician Employment Contracts

A physician employment contract is just like an employment contract except it’s for physicians. The general employment contract review advice applies to physician contract as well.

However, there’s one important thing for you to remember as a physician: you are literally dealing with people’s lives and you need to minimize any risk or confusion – get a contract review to make sure you are getting a fair offer that doesn’t jeopardize your career.

You should get your physician employment contract reviewed if you’re a physician.

Real Estate Contracts

Real estate contracts are documents that you need to sign when you are leasing or purchasing real estate. These are usually pretty standard, but it is important to have a lawyer review these contracts because they often involve a major purchase.

Your contract review lawyer will review: mortgage loan documents, plot of land survey, title, title insurance, deed, bill of sale, and the legal description of the property.

Purchase Agreements

Purchase agreements are used to transfer property from one person to another. This may be real estate, vehicles, or any other tangible asset.

Just like with the real estate contract review, your contract review analysis will include any necessary titles, insurance, deeds, loan documents, and the bill of sale.

Freelancing Contracts

If you are a freelancer working by a contract basis, you may need a contract review for larger contracts.

It doesn’t make sense to pay for a review for contracts that don’t offer much money, but larger contracts or contracts that will be used often should be reviewed.

Your freelance or entrepreneur contract should include: the scope of the work, the ownership of the work, revisions, deadlines, payment amounts, and termination specifications.

Contract Review Checklist

Having a contract review checklist that you can refer to when you sign contracts may be helpful to you if you aren’t going to hire a lawyer for a contract review.

Here’s what you should look for when reviewing a contract:

  • The terms of the agreement (open to negotiation)
  • The parties involved
  • Nothing is left blank
  • Clear quantifiable terms (price, duration, square footage, etc.)
  • Renewal terms
  • Risk allocation
  • Indemnification and hold harmless agreements
  • Reference documents
  • Default terms
  • Remedies provisions
  • Termination
  • Deadlines and important dates
  • Warranties
  • Representations
  • Responsibilities and rights
  • Dispute resolution

If you are someone who thrives in the business industry, you likely deal with a contract on a pretty regular basis. Property leases, vehicle leases, equipment leases, web development agreements, advertising agreements, banking documents, and employee paperwork are all different forms of contracts.

As a contract attorney, one thing I’ve learned is even people who work with these types of documents on a regular basis do not necessarily take the time to appreciate them the way they should.

Stop for a moment and ask yourself this question – have you ever signed a document only after glancing at it? Have you signed something without reading the fine print?

If so, you are not alone, but you could be making a big mistake.

Contracts are important and legally binding. They should be appreciated and understood with care.

While I certainly encourage you to reach out to a contract lawyer – such as myself – if you sign contracts on a regular basis, here’s a more in-depth review of what you should be looking for:

  • Work out the terms: Keep in mind, a contract is just a starting point. You can negotiate nearly everything. Don’t agree to something you aren’t happy with. Always ask for what you desire. They aren’t going to bite your head off – they might just say no.
  • Identify everyone involved: Use complete names to avoid confusion. Always identify whether or not the individual you are working with is married and if their spouse will be factored into the contract (if applicable).
  • Fill out all the blanks: Don’t leave any blanks in a contract. This makes it possible for someone other than you to go back in and fill out what you didn’t.
  • Triple check the terms: You want to double and triple check any of the business terms within your contract.
  • Automatic renewals: Determine whether or not there are automatic renewals within the contract and whether or not you want them.
  • Risk: Make sure you detail how risks will be allocated. You don’t want to be left with a financial problem down the line and no clear guidance on how to fix it or who is at fault.

Other clauses and fine details you need to check and possibly go over with an attorney include:

  • Causes for termination: How, when, and under what terms the contract may end.
  • Rights and responsibilities: What are both parties entitled to and what obligations do they have to fill?
  • Dates and deadlines: Put any dates on your calendar so you don’t forget to take care of something that’s your responsibility
  • Warranties: Limit as much as possible, and be clear about the terms.
  • Representations: Don’t give any information (or accept any information) unless you know it to be true.
  • Resolution of disputes: The contract should specify how disputes will be resolved.

As long as you keep all of this information in mind, you should be okay. If you unsure about anything, it’s best to hire a contract review lawyer to review the contract for you so you don’t agree to anything you don’t understand.

Email me at [email protected] for all of your contract review needs.

Employment Contract Review

An employment contract review is vital for the future of your career. Here are 10 things you should consider when signing and employment contract:

  1. Job Security
  2. Start and End Dates
  3. Termination Cause
  4. Compensation and Benefits
  5. Job Description
  6. Exclusivity
  7. Intellectual Property
  8. Non-compete
  9. Non-solicitation
  10. Sale of company

Job security sounds like something you wouldn’t need to check with an employment contract, right? I mean, you’re signing the contract which provides the job security after all.

Not so fast. The contract may imply job security, but it doesn’t provide it unless it clearly states – you need to ask if you are a fixed-term or an at-will employee so you’re clear about your job security in the future.

Start and end dates are necessary because without solid dates that specify when your employment begins and ends, you are just signing an offer letter.

Termination cause is important because it’s how you can lose your job. As an employee, you want cause to be required, but your employer may want the ability to fire you without cause. Read this section carefully and keep in mind the future consequences.

Compensation and benefits should state your base pay, amount and terms of any bonuses, and the benefits you are entitled to.

Job description sounds like a duh factor. Of course the contract will have your job description, right? It may, but it may not be enough.

You want to have your job title clearly defined with your duties listed. Can you imagine thinking your getting one job only to find out you actually accepted another? Ouch.

Exclusivity is something that some professionals refer to as moonlighting – basically, you want to have the ability to do work on the side outside of your employment.

Intellectual Property is the rights to anything you create or invent while you’re employed. Usually, the intellectual property of anything you create on the job or during employment belongs to your employer.

If you are already working on something before you sign the contract, be sure it’s clear that the rights to those things are yours.

Non-compete means that you can’t work for a competitor for a specified list of time after you terminate your contract with your employer. Be sure that the time and restrictions are reasonable so you are employable after the contract ends.

Non-solicitation prevents you from getting your employer’s contractors, staff, or customers/clients/patients. The term is usually for one to two years.

Sale of the company isn’t something you probably think about as you are doing your contract analysis. Which is why contract review services exist.

Basically, you just need to know what happens to your employment contract if the company is sold. Want job security? Ask that the contract remain active.

Having a lawyer to review employment contract could make all the difference in the future for your employment.

Contract Review Attorney Fee

The contract review attorney fee will vary based on many different factors and the contract lawyer you decide to work with.

You may contact me at [email protected] if you have questions about how much a contract review costs.

Some of the things that a contract review fee depends on are:

  • Regulations in your industry
  • The duration of the contract
  • The money being offered
  • The number of pages of the contract
  • If you want the contract review lawyer to look for certain items
  • How often the contract will be used
  • If you’re wanting contract review services or contract drafting services
  • Your personal risk tolerance
  • The purpose of the contract
  • The number of parties involved
  • Your initial impression of the contract
  • Your industry
  • And more

As you can see, there are so many pieces of a contract that come into play when drafting or negotiating.

Some contract review lawyers work by the hour while others work on a flat-rate basis depending on the contract.

As an example, a quick and easy contract review will cost around $250, a mid-level review might cost anywhere from $250 to $1,500, and a complex review might cost a few thousand dollars.

A good tip is to know what you want the attorney to look for or what conclusions you want them to draw. Instead of simply saying, hey can you take a look at this, ask specific questions.

I pride myself on giving solid and transparent quotes before I do any work – so you know exactly what to expect.

Email me at [email protected] and I’ll be happy to provide a free, no-obligation quote.

How Long Does it Take to Review a Contract?

How long it takes to review a contract depends on the length of the contract, the detail involved, and the lawyer’s own caseload and schedule.

If you have a certain deadline for your contract, you should make your contract review lawyer aware of that deadline and ask if they are able to meet it before hiring them.

In most cases, you’ll have a short period of time to review any contract before you are required to sign or turn-down the offer.

Most lawyers are aware of the timeframe and work within it to make sure your contract review services are complete on time.

How to Find a Lawyer to Review My Contract?

To find a lawyer to review your contract could lead to an endless internet search that takes hours as you review website and website and ask for quote after quote.

Or you could just choose the first reputable lawyer you come across and not worry about competing quotes.

Clients have been hiring me for contract review services for years and I’ve gotten them great results.

I’m transparent and honest about the time and cost of working with me and you have nothing to lose by sending an email today: [email protected]

Do I Need a Contract Lawyer?

Yes, you need a contract lawyer if you are creating or signing a contract that has the potential for causing problems in your life or business should something go wrong.

You live in a fast-paced world. Unfortunately, this results in people saying and doing things a little faster than they really should have. One of the biggest mistakes people make in a fast-paced world is signing paperwork – more specifically contracts and legal documents – without taking the time to understand them.

As a business owner, you are going to encounter a lot of contracts. To be blunt, you really aren’t going to have time to read, understand, revise, and negotiate better terms before signing them.

This is why you hire a contract review attorney. You hire someone who handles all of the work for you. The only thing you will have to worry about is signing when the time is right.

So, the short answer to this question is – yes, you need an attorney for reviewing contracts. You need someone to prevent you from signing or creating something that causes major problems in the future.

Legal Contract Review Services

Depending on the lawyer, you may be offered a variety of legal contract review services.

Personally, I review contracts as well as draft them up and everything in between. If you need a contract from scratch, I can put one together for you.

If you have a contract and you need someone to look it over and help you understand it, I’m your guy.

If you have a contract and you want to renegotiate the terms, I can help you do that as well.

I’m happy to discuss the variety of legal contract review services I offer so you can choose what you need the most. Just send me an email at [email protected] today.

Conclusion

A contract review is an important part of any new working relationship, but it’s often overlooked.
You may think you don’t have the budget to have contract review services or may think you can understand things on your own.

However, I’m suggesting that in most cases, you can’t afford not to have a contract review because you could be agreeing to something that you really don’t want to agree to.

Whether you need an employment contract review, a purchase agreement review, a real estate contract review, or any other type of legal document or contract analysis, I can help you.

► Don’t make the mistake of trying to figure it out alone when you can email me at [email protected] to get started with your contract review.

 

S Corporation: A Step-by-Step Guide (Updated In 2017)

When you’re thinking about starting a business, one of the options you have is an S Corporation.

Because there are so many options, including S Corps, things can get confusing easily. It’s hard to decide which structure is best for your business and why.

That’s where I come in…

As a business lawyer, I’ve helped hundreds of individuals start their business and make informed decisions. I’m here to help you, too.

I hope you’ll find this article informative and helpful.

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Physician Contract Review: #1 Rated by Physicians

After going through years and years of medical school – you are an expert in medical lingo. Legal jargon, though? Probably not so much.

But that’s okay…

In fact, that’s why there are physician contract lawyers and attorneys who specialize in reviewing, revising, and creating contracts.

I’m a lawyer who understands all of the complicated and technical lingo embedded in a contract.

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Best State to Incorporate an Online Business: A Step-by-Step Guide

Best State to Incorporate Online Business

If you’re starting an online business….

you will need to decide on which is the best state to incorporate your online business…

Unless you have a compelling reason otherwise, it’s generally best for you incorporate in the state in which you have actual presence.

For example, if you’re in California, then you SHOULD form your LLC in California.

As a business lawyer, I’m assisted hundreds of clients just like you start their business and I can definitely help you with yours.

If you have any questions about which is the best state to form LLC for online business, email me Sam Mollaei Esq. at [email protected] 

If you choose to incorporate your business (form an LLC or C-Corporation or S-Corporation) in any other state outside of the state where you have actual presence or are physically doing business, you would have to also incorporate your business in your own home state as well.

This is because you need to let your home state know that are you operating a “foreign” company in their state, and as a consequence, you would be responsible to pay filing fees and annual fees in BOTH states — which you do NOT what to do.

So the short answer is:

► If you’re a U.S. resident, you should incorporate your business in the state where you are

► If you’re a non-U.S. resident (living outside the U.S.), you should incorporate your business in Delaware

If your company does not plan to have a physical presence in the U.S. (meaning that it will operate solely from outside of the U.S.), then you should form your LLC in Delaware, the best and most business-friendly state for non-U.S. residents.

If you have any questions about this, email me Sam Mollaei Esq. at [email protected] 

If you would like to learn more about which state is possibly best for you, continue reading below…

What Does It Mean to Incorporate a Business?

Typically, “incorporating” means forming a Limited Liability Company (LLC) or Corporation.

Incorporating a business is the process by which a business entity becomes viewed as a separate legal entity within the eyes of the law.

That means the LLC or Corporation is afforded the same rights and allowed to function within those rights the same as an individual citizen.

There are many benefits of incorporating your business to become a separate entity. The corporation can initiate law suits the same as individuals, protects its shareholder’s personal property from seizure in the event of a law suit, and acquire personal assets, and remain in existence beyond the dispersal of shareholders.

Factors for Considering Which State is the Best for Incorporating

When deciding to incorporate your business, choosing to incorporate in a particular state simply because of your physical location is typically enough.

Typically, you want to incorporate your online business in the state where you will be conducting your business.

It does not matter that you are operating an online business. So for example, if you are currently in California and operating a Shopify store, you want to incorporate your LLC or Corporation in California.

The term in “doing business” is defined in California as “entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.”

However, if you are a non-US resident, you have many options on which state to incorporate.

Each State offers various incentives and penalties for incorporating, providing tax breaks or imposing hefty charges and fees. Therefore, several factors must be considered before deciding in which State to incorporate:

  • Tax filing fees – these are the costs associated with filing the various corporate tax forms with the IRS.
  • Laws and regulations for businesses.
  • Income tax – this is in consideration income tax for the corporation, because the corporation is now considered a separate entity.
  • Sales tax
  • Franchise taxes and regulations – this is only relevant for a business establishing a branch of an already existing business.
  • Whether you are willing to live there

Best State for Incorporating

Again, if you are an online business, you should incorporate your LLC or Corporation in the state where you will be doing business. So if you physically live and do business in California, then incorporate in California.

However, if you are a non-US resident, the best state for incorporation is 3 states: Delaware, Nevada, and Wyoming.

Why Delaware is the Best State for Incorporating Your Online Business

Delaware is considered to be the most business-friendly state for incorporating.

Delaware offers several tax breaks for LLCs, feature lower than market average tax filing fees, and have limited regulations in transacting business across state lines. Furthermore, Delaware is unique because of the Chancery Court. This is a Court established specifically to hear law suits for or against corporations.

In fact, Delaware is America’s most popular state to form an LLC or Corporation. More than half a million business entities have their legal home in Delaware including more than 50% of all U.S. publicly-traded companies and 60% of the Fortune 500.

Why Nevada is the Best State for Incorporating Your Online Business

Nevada offers the best incentives in terms of taxes. This is because Nevada lacks business income tax, franchise fees, capital gains tax, state corporation tax, or inheritance tax. If you are unsure, that means there are zero specific taxes geared towards business. Furthermore, Nevada does NOT have an IRS Information Sharing Agreement at all. This makes Nevada the ultimate tax haven.

Why Wyoming is the Best State for Incorporating Your Online Business

Wyoming offers the same exact benefits as Nevada, meaning zero business specific taxes. It also offers one other benefit nice for publicly traded corporations. Wyoming allows a “lifetime proxy”. Essentially, one person can control the stock options while a proxy places a vote for them. This way stockholders may remain anonymous.

What Happens If You Incorporate in the Wrong State

Note that even if you incorporate in a foreign state like Delaware, your company may still be subject to registration as a “foreign entity” and compliance with the laws of states you transact business in.

A corporation or LLC conducting business in one state when incorporated in another is considered a foreign corporation and must qualify as a foreign LLC or corporation to legally do business in that state.

For example, a business incorporated in Nevada that wants to do business in California would be considered a foreign corporation in California, and as a result, the Nevada corporation must qualify (or register) as a foreign corporation to do business in California.

The biggest downside to incorporating in a different state is that your company will be required to file for authority to do business in the state where the business is located, and most likely will also have to purchase a Certificate of Good Standing or Certified Copy of the Articles of Incorporation (or Formation) from the Secretary of State where the company is incorporated.

These additional filing and documents fees make the use of an alternative state substantially more expensive than incorporating at “home.”

Conclusion

Unless you have a compelling reason otherwise, it’s generally best for online businesses and entrepreneurs to incorporate in the state in which it will principally be doing business.

Otherwise, if you are a non-US resident, then I would suggest forming your LLC or Corporation in Delaware.

Delaware is very efficient and foreigner-friendly. Forming your company in Delaware is generally the easiest and most efficient.

If you are still in doubt about which state is the best state to incorporate your online business, contact me, Sam Mollaei, Esq., business lawyer, and I will assist you.

Mollaei Law is a law firm specializing in business law serving businesses and entrepreneurs. We provide legal expertise in all stages of business development by drafting and reviewing contracts and agreements, assisting transactions and negotiating, forming LLC’s and Corporations, registering trademarks and copyrights, business planning, and answering any legal questions you may have about your business.

Email me at [email protected] if you have any questions!

S Corp VS LLC – Which is Better? (Find Out Inside!)

Almost every new business idea eventually gets to the important question:

Should you be an S Corp or LLC?

The two options are very similar, yet their key differences can make all the difference for your business.

But when it comes down to S Corp VS LLC, which one do you choose and why?

What is the real difference between LLC and S Corp anyway?

That’s what I’m here to answer today and I hope that you’ll find the following informative and helpful as you make your decision – LLC vs S Corp.

As always, I’m here to answer any questions or help you with the process as you incorporate.

Just drop me an email at [email protected] and I’ll get right back to you.

Let’s get started…

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Sweat Equity Agreement: How to Add a Partner to Your Business

What can you do as a partner if you do not have money but are looking to get equity in a business?

One way to contribute to a business is with “sweat equity.”

Sweat equity is a contribution to a business, project, or enterprise that is given in effort and work — thus the name “sweat equity.”

A Sweat Equity Agreements itself does not have any monetary value, but it offers work and value-enhancing actions performed by owners and investors.

Looking to have your Sweat Equity Agreement drafted or reviewed? Email me at [email protected] to get started…

 

Why is Sweat Equity Necessary?

Sweat equity is as valuable equity when the partner does not have money to contribute.

Sweat equity works to build up value of the business to be more valuable than the original value, and this is an important part of business ownership.

Many Sweat Equity Agreements will rely on one party investing funds to a business, whilst the other invests time and effort of the same value so that the business can progress and become more successful.

Investors and entrepreneurs alike always want to see their venture translate into financial success, and investors are always weary of the risk.

The concept of Sweat Equity is a term that is broadly defined as the increase in value that is created through the direct result of hard work. To be specific, it’s a preferred mode for entrepreneurs who don’t have the initial funds for their ventures. It’s literally the sweat off your own brow, quantified into a price tag. 

 

Understanding Sweat Equity

Let’s taking Jane, she’s an entrepreneur who invested $25,000 dollars into her own start-up. After a year, her business takes off. She sells 30% of the stake to an investor for $60,000. This clearly defines the value of the company at $200,000 and of which Jane’s share is $140,000. Subtracting her initial investment of $25,000, her sweat equity is $45,000.

So in a way sweat equity quantifies hard work. It quantified Jane’s effort of putting in her time, without having access to a larger source of investment.

In large part, sweat equity can be also seen as a party’s contribution to a project in the form of an effort, as opposed to financial equity, where every member of the party supports a project, financially. 

 

What is a Sweat Equity Agreement?

When you are establishing a partnership in business, you are entering into an agreement in order for the both of you to reach a common goal as partners. 

Partnerships can be more efficient by sharing knowledge and resources so that you can reach a goal much faster and far more effectively that going in solo.

In a partnership, each party puts up a capital in resources or property in order to achieve the project, but sweat equity agreements are a little different. Rather than capital, each party pledges the value of an amount of work rather than capital values.

Regardless of the terms of a Sweat Equity Agreement, you always need to make sure you have a WRITTEN Sweat Equity Agreement in writing to make sure your terms are protected.

 

Are You Looking to Draft a Sweat Equity Agreement?

If you would like to draft your Sweat Equity Agreement or to have it reviewed, contact me, Sam Mollaei Esq., Business Lawyer, at [email protected]

 


References

http://www.mosaichub.com/answers/question/what-terms-should-be-included-in-a-sweat-equity-ag http://www.ehow.com/how_8511996_structure-sweat-equity-position.html  

LLC vs Inc – Which is Better For Your Business? (Updated In 2017)

Whether you are starting a new business or restructuring an older one, you have a big decision to make.

What type of business structure do you want to use?

Namely, are you going with an LLC or corporation?

The two have so many similarities, it can be hard to figure out which one is right for you.

Fortunately, having a better understanding of the two can really help.

Starting with the difference between LLC vs Inc.

While I hope this article gives you some great information when it comes to considering an Inc vs LLC, I’m also here to answer your questions.

Email me at [email protected] and I’ll get back to you soon.

Let’s get started…

 

Incorporated vs LLC

Incorporated vs LLC is a decision that every business owner has to make. There are compelling advantages and disadvantages of both types.

Incorporated is just a way to say that your business is a corporation.

This article looks at all the similarities and differences between forming an LLC or incorporating your business.

Incorporating or forming an LLC for your business is a big decision and one that you should make with as much knowledge as possible.

I’ve tried to cover the information you’ll need to help make a decision, but please reach out to me at [email protected] if you have any further questions.

 

What is Better LLC or S Corp?

When it comes to which is better, an LLC or S Corp, the answer depends on your business.

There are various advantages and disadvantages to both. I cover those later in the article.

However, it’s not a one-size fits all solution.

In some cases, an LLC is definitely better – such as for internet businesses or businesses that want the ease of an LLC with limited liability protection.

In other cases, an S Corp is the better choice because it provides the same limited liability as an LLC but also offers tax advantages.

In most cases, if you can qualify for an S Corp status, you should go ahead and start with that from the beginning to enjoy the perks of a corporation from the start.

I can help make this important decision is you email me at [email protected]

 

What is Inc in a Company?

Inc in a company name stands for incorporated.

This abbreviation isn’t just part of the business name. It is a separate legal entity that stands for the word incorporated. It tells you there is a shareholder or shareholders who have a stake in the business and are responsible for running it.

Being incorporated, also provides a business owner from liability protection.

Someone may try to sue an incorporated business for everything they are – or are not – worth. You’re your assets as a business owner are generally protected.

The only rare exception to this is if the business and/or business owner did something to commit fraud. Then, the liability protection provided by being incorporated may not shield you from the lawsuit.

 

Why Should You Incorporate?

Incorporating your business is a smart decision because it provides protection, legitimacy, and other perks.

The first reason why you should incorporate is a reason a lot of people don’t talk about. Perpetual existence.

Basically, this is the best option for allowing your business to live beyond you. After all, that’s what every great businessman wants right?

Do you really want your business to die when you do?

That’s what happens if you opt for Sole proprietorship or partnership. For some, this isn’t a desired outcome and in this case, they may want to form an LLC and establish the limitations in the foundational documents.

The second reason is kind of a drag to talk about, but we still have to go there – taxes.

Being incorporated gives you a lot of flexibility when it comes to taxes that you won’t get with any of the other business structure options.

The key is making sure you are an S corporation. This will give you the most flexibility on your taxes.

The next reason is about taxes as well, but I promise it’s a good one. Expenses. Who doesn’t like deductible business expenses?

All of those typical business expenses you have to have in order to keep your business afloat can be written off.

This includes everything from salaries to equipment to employee benefits. It just doesn’t get much better than writing off something you had to spend money on.

Let’s talk about what is the biggest reason why you get your business incorporated – protection.

As a business owner, you should want to do anything you can to protect yourself. Incorporation will help you with just that.

Even though you are a business owner, you are still an individual. You have individual assets such as your home and your car which have nothing to do with your business.

If something bad happens to your business, you don’t want it to leak over into your personal assets or you could end up losing your car and your home because of business related debt.

While no one wants to think about their business failing, you have to. And, you need to make sure it won’t completely destroy you. Incorporate, then you don’t have to worry about it.

The fifth and final reason is credibility. There’s just something about a business name that has “Inc.” at the end of it that makes people trust it more.

Vendors, potential partners, and customers are all going to be more comfortable working with you because of those three little letters at the end of your name. As a new business – or newly restructured business – you need every little advantage you can get. Incorporation is the way to make that happen.

If you are unsure about incorporating your business, email me at [email protected] with any questions you may have.

 

What Are the Advantages of an LLC?

The advantages of an LLC are limited liability, ease of formation and compliance, and legitimacy.

A lot of new and restructured businesses opt for limited liability (LLC). After all, this structure offers a number of advantages you just don’t get with other options.

This is because some consider LLC to be the perfect blend of partnership, corporation, and sole proprietorship. While state laws may cause LLCs to vary from one state to the next, the benefits of opting for LLC are basically the same across the board.

 

What Are the Disadvantages of an LLC?

The disadvantages of an LLC include limitations and taxes.

You are protected from liability and you have a lot of tax benefits. With all good things, however, there are going to be some bad. Basically, an LLC structure could be good for your business, unless it’s not.

How do you know?

Well, you have to be aware of the downsides as well.

For starters, you need to make sure your business can legally be an LLC.

Depending on what type of business you have and where you live, it might not even be an option – from a legal standpoint.

The limited liability protection isn’t bullet proof.

It is intended to protect you from someone trying to liquidate your personal assets in order to covert business related debts or lawsuits. While you have this protection in most cases, there are some exceptions.

If your company commits fraud, for example, you are going to have to repay the debt and lawsuits. Your liability protection isn’t going to protect you in this case.

LLC structure isn’t going to get you out of fees and paperwork. In fact, you are going to have to pay more to set up an LLC than you would if you opted for a partnership or sole proprietorship.

But it’s important to keep this in perspective because an LLC is cheaper than forming a corporation.

Keep in mind that you may not even be able to operate as an LLC depending on what type of business you are.

Finally, there’s the dreaded self-employment tax.

As an LLC, you are subject to this type of tax. This means more complicated tax paperwork and fees you may not want to pay.

 

What Are the Advantages of a Corporation?

The advantages of a corporation include protection, legitimacy, existence, and taxes.

Protection is the number one reason to opt for a corporation.

Sure, no one wants to think about what if someone sues my business one day or what if my business has more debt than profit. But, you have to think about both the good and the bad.

More importantly, you really just need to think about all the what ifs. What if someone sues your business? After all, it could happen.

If you don’t have protection for your personal assets, the lawsuit could allow the other party to come after your personal assets in order to get their compensation. If your business gets incorporated, this isn’t something you have to worry about.

Incorporating your business is also going to make you look good to prospective individuals who may do business with you.

Whether you are interacting with customers, vendors, business parents, or potential investors, they are going to feel a little more comfortable working with you because you took the time to get your business incorporated.

After all, would you rather invest in Purple Hats or Purple Hats Inc.? There’s just something about “Inc.” at the end of the name that makes you look more authoritative as a business.

Becoming incorporated will also allow your business to become timeless. Essentially, this means your business isn’t going to die when you do.

Do you really want to build a business that only lives as long as you do? Or, do you want to build one of those businesses that everyone can’t stop talking about for years and years to come?

If it is the later, you need to incorporate.

Tax wise, you are also going to find corporations to be in your favor.

You get a lot of flexibility and more or less loopholes as long as you are a subchapter s corporation.

Furthermore, you get to claim most of your business expenses as tax deductions.

Doesn’t get much better than that.

 

What Are the Disadvantages of a Corporation?

The main disadvantages of a corporation are double taxation and the paperwork required upon start up and throughout the year.

Corporations have to deal with the struggles of double income taxation. This is because they are taxed both as a business and as a shareholder.

As an LLC, you will get a “pass through.”

This makes it possible for each member of the LLC to only be taxed once. After all, who wants to get taxed more than once for the same income?

As a corporation, you’ll file more paperwork and pay more fees to start your business than if you formed an LLC.

Additionally, throughout the year, you have to hold meetings, keep corporate minutes, and make sure the business is staying compliant because the regulations on a corporation are more strict than on an LLC.

If you want to talk about how to deal with the disadvantages of a corporation for your business, email me at [email protected]

 

Should I Incorporate or LLC My Business?

The decision on whether to incorporate or LLC your business depends on your situation.

Generally, an LLC is a great option for small businesses who need some protection but don’t want all the hassle of compliance and regulations that come with a corporation.

An S Corporation is also a good choices for small businesses because it offers a lot of the benefits of an LLC while offering a tax break. Not every business qualifies, though.

When it comes to deciding whether to incorporate or LLC your business, email me at [email protected] and I can advise you based on your unique situation.

 

Conclusion

Sam Mollaei, Esq., Business Lawyer

Sam Mollaei, Esq., Business Lawyer

There are many differences with an LLC vs Inc that a business should consider before jumping in with a decision.

The question on whether you should incorporate or LLC isn’t something that can be answered completely in an article.

It requires a look at your personal situations and your visions for your business.

I’ve helped many individuals make the decision and then form the business structure that best fits them.

► Email me at [email protected] and I’ll help you every step of the way.

 


References:

http://www.nolo.com/legal-encyclopedia/key-advantages-llc.html

https://www.incorporate.com/comparing_corporations_llcs.html