Lotzar Law Firm P.C.

Legal talent that pays for itself.
480.905.0300 x103 8687 E. Via de Ventura, Suite 115 Scottsdale, Arizona 85258

Asset Protection For Corporations, Joint ventures, LLCs, LPs and Partnerships

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When starting or investing in a business, there is the potential that your personal assets will be put at risk. Business owners may become personally liable for the debts that an organization has incurred. Owners may also face the risk of losing personal assets if an Organization is sued and a Judgment is entered against the business. However, there are certain types of business organizations that provide more protection for assets than other business structures.  corporate asset protection

It is important to understand the rules for Asset Protection for Corporations, Joint Ventures, Limited Liability Companies, Limited Partnerships and Partnerships. An experienced Scottsdale Arizona  business law attorney at Lotzar Law Firm, P.C. can provide information on your options and assist you in selecting the appropriate business structure for your organization. Call today to schedule a consultation and learn more.

Asset Protection for Corporations and Other Business Organizations

A Joint Venture refers to any commercial enterprise undertaken by two or more individuals or entities. For example, a Joint Venture may be organized as a Limited Liability Company, a Limited Partnership or a Partnership.  When a single individual starts a business on his own, he also has multiple options for how to structure the organization; however, he generally has fewer appropriate types of business enterprise than investors who are starting a Joint Venture.

Individuals and groups starting a commercial organization should consider the Asset Protection available to varying types of business structures including:

  • Sole Proprietorships: This is the simplest business structure and involves one owner who operates a business and earns income. There is no Asset Protection. The owner and business are the same legal entity and the owner is personally liable for all debts and Judgments against the business.
  • Partnerships: Partnerships are the simplest type of Joint Venture. Co-owners are not provided with any protection for assets. They may be jointly and severally liable for debts and Judgments against the company. This means either Partner could become partly or wholly responsible if the business incurs too much debt or is sued.
  • Limited Liability Partnerships provide more protection for some co-owners of a Joint Venture. There must be one General Partner who is personally liable and who has no Asset Protection. However, other partners who are limited to investors and who do not actively operate the business are protected from liability. This means that their assets are not at risk and potential loss is generally limited to the money invested.
  • Limited Liability Companies provide the same level of liability protection as a Corporation. Business owners are not personally liable for any corporate debts or liabilities and creditors are not able to seize personal assets of business owners. While LLCs are similar to Partnerships in terms of taxation and general structure, all co-owners can enjoy full protection of assets.
  • Corporations create a separate legal entity. No owner assets are at risk. An owner’s potential loss is limited to money invested and he will not become personally responsible for corporate debts or Judgments.

Forming an LLP, LLC or Corporation can be complicated and it is important that you understand your rights and obligations for each type of business entity. A Scottsdale Arizona corporate law attorney at Lotzar Law Firm, P.C. can help you to choose the best organization for your business. Call today to schedule a consultation and learn more.

How Often Should a Corporation Hold Meetings and Update Its Minutes: In Maricopa County and in Arizona

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When a Corporation does business, the Board of Directors should meet periodically to make important decisions on company operations. Learn more about corporation meetings in Maricopa County and corporation meetings in Arizona in this presentation.

What is a Private Foundation?

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Organizations that promote the public good or serve a public purpose may be classified as Nonprofit Organizations. This means that the organization may earn income and receive donations without paying income taxes on the money coming in. The organization must use the funds it receives to fulfill its goals. Most Charitable or Nonprofit Organizations rely on grants as well as on donations from benefactors. charity-donation

However, a Private Foundation is a different type of charitable organization. Instead of receiving ongoing or periodic donations, a Private Foundation is generally created by a single primary donation that comes from an individual, family or company. The person or entity that makes the initial donation for the Private Foundation will manage and control the money, often along with Trustees or a Board of Directors.

Private Foundations have specific tax obligations and full compliance with tax laws is essential . An experienced Scottsdale Arizona nonprofit corporate law attorney can provide assistance to those interested in starting a Private Foundation or to individuals involved with this type of organization. Call Lotzar Law Firm, P.C. today to learn more and to schedule a consultation with an attorney who can help.

What is a Private Foundation?

A Private Foundation is established in order to serve a charitable purpose or provide a public benefit. The foundation is started by, and receives initial funding, from a person, family or company. Instead of soliciting ongoing to periodic donations, or applying for grants, the foundation generates income from the investment of the initial donation. The bulk of this investment income is then used to fulfill the organizational purpose of the foundation. The Bill and Melinda Gates Foundation is an example of a Private Foundation, and it is controlled by the Gates’ family.

According to the Internal Revenue Service, Private Foundations are required to file Form 990-PF, Return of Private Foundation each year. An excise tax is typically charged on the net investment income made by domestic Private Foundations. Some foreign Private Foundations are taxed on gross investment income that is derived from sources within the United States.  Some Private Foundations are also required to fulfill public disclosure requirements.

Private Foundations can make it possible for wealthy benefactors to contribute funds to causes they believe in and to have more direct control over where the income from those funds is distributed. However, there are restrictions on Private Foundations that limit self-dealing between contributors and the foundation, as well as that limit the amount of holdings in private businesses. Investments made by the Private Foundation cannot jeopardize the ability of the organization to carry out its charitable or exempt  purposes, and a significant portion of investment income must actually be distributed annually in service of the organization’s goals.

An experienced nonprofit corporate law attorney at Lotzar Law Firm, P.C. can assist with the creation and ongoing operation of a Private Foundation to ensure that all legal requirements are fulfilled. To get started so your foundation can begin working towards achieving its important mission, call today to schedule your consultation.

What is Unrelated Trade or Business Income (UTBI)?

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Tax-Exempt Organizations may earn income that is used to fulfill a public purpose. For example, a charity that is organized to provide food for the homeless may receive donations, grants and other funds. Provided the organization meets Internal Revenue Service requirements and uses the funds to purchase and distribute food, the organization will not be assessed taxes on the money received.  Tax-Exempt Organizations need to ensure that they use any income for appropriate purposes only in order to keep exempt status.

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Tax-Exempt Organizations must identify their purpose, which must provide some type of public benefit or charitable service. Under some circumstances, however, a Tax-Exempt Organization may engage in activities that generate a profit and that are outside of the normal scope of operations. For example, a Tax-Exempt free clinic may begin a side operation selling non-prescription pharmaceutical medications at an on-site pharmacy. The free clinic is earning business income that may not be considered Tax-Exempt. This money is called Unrelated Trade or Business Income (UTBI).

When a Nonprofit or Charity earns Unrelated Trade or Business Income, the Tax-Exempt Organization may be charged tax on this specific limited income only while still retaining Nonprofit status. It is important to understand the circumstances in which an organization will be taxed on Unrelated Trade or Business Income in order for an organization to comply with IRS obligations. An experienced Scottsdale Arizona nonprofit business lawyer at Lotzar Law Firm, P.C. can assist with understanding whether your organization is earning Unrelated Trade or Business Income.

Earning Unrelated Trade or Business Income (UTBI)

Unrelated Trade or Business Income is money that a Nonprofit Organization is taxed on. There is a very specific set of requirements that must be met for money that a charitable organization makes to be classified us UTBI. The IRS specifies that the key criteria include:

  • The income is earned through a business or trade.
  • The activities resulting in the income being earned are regularly carried out by the exempt organization.
  • The activities resulting in the income are not substantially related to furthering the purposes of the organization.

According to the IRS, Trade or Business “generally includes any activity conducted for the production of income from selling goods or performing services.” The fact that a particular activity is similar to the activities conducted for the purpose of a nonprofit does not necessarily mean it is not a trade or a business. For example, as the IRS explains, the fact that a pharmacy provides medication and supplies to a nonprofit hospital does not change the fact that its provision of supplies to the general public is a business or trade.

The question of whether an activity is regularly performed or not is also important. For example, if a Charitable Organization has a one-time bake sale, the income would not be taxed even if the production of baked goods was not related to its organizational mission.  If the Charitable Organization begins operating a bakery and routinely sells its products, then the earnings from the bakery may be considered Unrelated Trade or Business Income and will be subject to taxation.

Finally, the IRS indicates that: “A business activity is not substantially related to an organization’s exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds).” This question must be answered by considering the facts in a particular case.

It is imperative your charitable organization follows the rules regarding taxation of unrelated trade or business income. A Scottsdale Arizona business law attorney at Lotzar Law Firm, P.C. can provide assistance in understanding your obligations and complying with tax requirements. Call today to schedule a consultation and learn more.

Do I Have to Have an Accountant and a Lawyer to Buy a Business?

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The purchase of a business enterprise is a major investment and it is essential that you conduct proper due diligence before acquiring an organization. Having the right professionals to advise you on risks is key to making a smart and informed investment.

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It is advisable for individuals and organizations to have an accountant and a lawyer to buy a business.  These professionals can review the terms of the transaction as well as the characteristics of the business enterprise and assist you in both protecting your rights and making smart choices throughout the purchase process. Call today to speak with a Scottsdale corporate acquisitions attorney at Lotzar Law Firm, P.C. to learn more about how your attorney can help you.

Why You need an Accountant and a Lawyer to Buy a Business

 

 

You may need both an accountant and a lawyer to buy a business because attorneys and CPAs provide advice on different aspects of the transaction. The accountant can review financial statements from the enterprise you are considering acquiring and help you to get a clearer picture of the company’s financial stability. The accountant can also look carefully for any irregularities in disclosures or financial statements from the company that is being sold to identify accounting tricks that may make the organization look more profitable than it is. Finally, an accountant can provide advice on the tax implications of the purchase of the business and can assist with a comprehensive business valuation.

A corporate attorney who has extensive experience with business acquisitions can assist with some of the tasks that accountants do, such as reviewing disclosures and explaining tax implications of a business acquisition. For some business transactions, you may not necessarily need to hire a separate accountant if you work with a lawyer who is experienced enough and who has the necessary understanding of corporate finance. However, you almost always need a lawyer to buy a business even if you do not hire a separate accountant. This is because an attorney does many essential tasks to protect your rights throughout the transaction.

When you acquire an organization, your lawyer can:

  • Review the transaction and explain all potential risks. For example, when you acquire a new company, you must conduct Environmental Due Diligence or you face becoming responsible for the costs of cleaning up and remediating hazardous waste if the business has a history of polluting. If the company made a defective product and you acquire the business, you could be sued by consumers in the future unless you properly indemnify yourself. These are just a few possible risks; your attorney will provide a comprehensive explanation of potential liabilities you are taking on with your acquisition.
  • Mitigate risks. A Scottsdale Arizona business acquisitions attorney can help you to draft a contract and structure a transaction that includes appropriate indemnity clauses to mitigate future risk. Your lawyer will also advise you on other ways to reduce the potential for future costly litigation.
  • Negotiate and draft a Purchase Agreement. Your lawyer can help to negotiate the terms of the acquisition and draft a legally binding contract that protects your interests.

These are just some of the things that your attorney will do to help throughout the process of purchasing an organization. Call Lotzar Law Firm, P.C. today to learn more about why you need a lawyer to buy a business and about the legal services that we can provide to you throughout your transaction.

To learn more, please download our free  Good Idea to Have a Buy-Sell Agreement in Arizona here.

Does a New Owner Need to be Concerned About a Property’s Environmental Past?

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When an investor or developer wishes to acquire an interest in real property, a thorough Environmental Due Diligence investigation must be performed.  A property’s environmental past can impact the usability of the property. If there are any potential hazardous substances on or near the property site, the new owner also faces significant potential legal liability.environmental past

An experienced Scottsdale Arizona real estate development lawyer at Lotzar Law Firm, P.C. can explain the risks of a contaminated property and can assist you in doing your due diligence to mitigate the risk in a property transaction. If you are concerned about a property’s environmental past, our attorneys can also help you to determine the best approach to take to protect your investment. Call today to schedule a consultation and learn more about how we can assist you.

Why You Must be Concerned About a Property’s Environmental Past

When you acquire a property that contains hazardous substances or that has contaminated land or groundwater, you inherit many problems and potential legal risks.  For example:

  • The property may be unfit or unsafe for its desired use. A developer who intends to construct residential or commercial rental property will be unable to do so on a plot of land that has hazardous waste or contaminated substances.
  • You or your organization may become responsible for paying for the cleanup of the property and the mitigating of environmental hazards. The Federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) makes the owner of a property responsible for the cost associated with environmental cleanup. The expense of cleaning up and remediating hazardous chemical waste can be millions of dollars and could bankrupt your enterprise.
  • You or your organization could face environmental tort lawsuits. If third parties such as neighbors or workers on the property are exposed to the environmental hazards and become ill or suffer injury, you could be sued as the owner of the property.  Judgments against property owners who have polluted land have totaled in the millions of dollars after victims exposed to the contaminants have suffered health problems including cancer and an increased risk of birth defects.

Conducting adequate environmental due diligence can help to protect your organization from lost investment dollars and crippling litigation costs or government fines.  When you are concerned about a property’s environmental past and you conduct due diligence, you can uncover potential liabilities before the property is purchased.   If problems are discovered, you will have the option of shifting the risk through an indemnity; lowering the purchase price; or walking away from the transaction.

A thorough environmental due diligence investigation also allows you to qualify for a defense from CERCLA liability called the “bona fide prospective purchaser defense.”  If you took required investigatory steps before completing the real estate transaction and assuming ownership of the property, you can establish this affirmative defense and will not be held liable for remediation costs.

Lotzar Law Firm, P.C. has extensive experience helping clients to conduct environmental due diligence before the purchase of a property.  Call today to schedule a consultation with a Scottsdale real estate development lawyer to learn more about how we can protect you.

What are the Requirements to Get Low-Income Housing Tax-Credits (LIHTCs)?

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Low-Income Housing Tax-Credits (LIHTCs) are available through a federal program created by the Tax Reform Act of 1986. The purpose of the Tax-Credits is to encourage investment in constructing or improving properties that provide affordable rental housing. The Tax-Credits can make it easier to finance these types of properties by reducing the cost of development through significant tax saving.low income housing tax credit

If you believe you are developing qualifying property for low-income residents in your state, you need to understand the requirements to get Low-Income Housing Tax-Credits. The experienced Scottsdale Arizona housing tax-credit lawyers at Lotzar Law Firm, P.C. can help you to determine if you qualify and guide you through completing the process of securing your eligibility for tax-credits. Call today to schedule your consultation with a legal professional who can assist you.

Requirements to Get Low-Income Housing Tax-Credits (LIHTCs)

 

Low-Income Housing Tax-Credits are awarded to sponsors of eligible housing projects on a competitive basis. These credits can reduce tax liability on a dollar-for-dollar basis by offering credits instead of deductions, thus maximizing the benefit of qualifying for this tax-advantaged funding.

Section 42 of the Internal Revenue Code establishes the rules for LIHTC Program but individual states award the credits to qualifying developers. The Arizona Department of Housing indicates that the state’s Qualified Allocation Plan (QAP) “encourages “targeting” of the units to income levels lower than the federal limits.” The minimum federal limits for a project to qualify for credits under the federal program require that one of the following must be true:

  • At least 20 percent of the residential rental units within the development are rent restricted and are occupied by people with incomes that are 50 precent or less of the median gross income in the area.
  • At least 40 percent of the residential rental units within the development are rent restricted and are occupied by people with incomes that are equal to 60 percent or less of the median gross income in the area.

The tax credits are eligible to be claimed only on units set aside to participate in the Low-Income Housing Tax-Credit Program. The proposed development that will provide the affordable rental housing must either be a new construction, or must involve substantial rehabilitation of an existing property. Investors/developers may also meet the requirements to get Low-Income Housing Tax-Credits if they acquire a building for the purpose of substantially rehabilitating it to provide affordable housing.

The rental program for which credits are granted must remain in compliance with the LIHTC program requirements for a period of at least 30 years from the first taxable year in which a credit is claimed.

Because of the financial benefits to developers of qualifying for Low-Income Housing Tax-Credits, the process of qualifying for the credits can be very competitive. It is essential you are represented by a qualified and experienced legal professional who can assist you with meeting the requirements to get Low-Income Housing Tax-Credits. Call today to speak with a Scottsdale real estate development lawyer at Lotzar Law Firm, P.C. to get help.

What are the Benefits of Having Private Activity Bonds (PABs) Issued?

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Private Activity Bonds (PABs) make it possible for organizations in the private sector to use Tax Exempt Bonds to finance projects that make a contribution to the public good.  Private Activity Bonds can be issued for specific projects that benefit the community including for healthcare facilities; transportation projects; low-income housing complexes; facilities that provide water, gas or electrical energy; for plants to store hazardous materials; for heating and cooling facilities; and for plants that treat or dispose of solid waste.

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There are myriad benefits of having Private Activity Bonds issued when an organization undertakes a qualified project. It is important to consult with an experienced Scottsdale Arizona real estate and development lawyer for assistance in understanding the advantages of PABs and determining if your project may be eligible.  Lotzar Law Firm, P.C. has helped many clients to successfully obtain bond financing so call today to schedule a consultation and learn more about how we can assist with your project.

Benefits of Having Private Activity Bonds (PABs) Issued

Developers, investors, municipal governments and the public all reap the benefits of having Private Activity Bonds issued.

Organizations, investors and developers who can finance projects with Private Activity Bonds benefit from:

  • A lower interest rate paid on borrowed money, providing substantial cost savings for project expenditures.
  • Reduced project risk.
  • Easier access to capital for certain projects that require alternative financing.
  • The opportunity to complete projects with a tangible positive benefit for the community.
  • Secure Tax Exempt financing to fund capital expenditures.

Private Activity Bonds can finance the acquisition of property, as well as new construction, reconstruction and property improvements.  Developers and investors should consult with an experienced Scottsdale Private Activity Bonds attorney for help determining if they can qualify for this special tax-advantaged alternative financing method.

Benefits of Private Activity Bonds (PABs) for the Public

Private Activity Bonds also have many benefits for the public as a whole.  Some of the many benefits of having Private Activity Bonds issued include the following:

  • Private investments in infrastructure is incentivized. Because PABs can be more competitive than other privately available bonds, the bonds encourage investment in transportation projects and other projects that provide for the public good.
  • Reduced need for new taxes or borrowing. When Private Activate Bonds make it possible for investors to finance projects that develop infrastructure, local and state governments do not need to increase taxes to provide the necessary services.

Finally, investors who make the decision to purchase Private Activity Bonds can benefit by earning a return on a relatively safe investment.

To take advantage of the many benefits of having Private Activity Bonds issued, it is essential to get help from an experienced Scottsdale real estate development lawyer in securing bond funding for your qualifying project. Lotzar Law Firm, P.C. can assist in determining if you qualify for PABs and can advise you throughout the process of applying for bond financing for your next development project. Call today or contact us online to speak with an experienced lawyer and learn more about how we can help.

What is the Difference Between a Material Breach and a Non-Material Breach?

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Contracts create legal obligations that the parties to the Agreement must fulfill. If any party to a Contract fails to honor the negotiated Agreement, this failure is considered a Breach of Contract. The other party may respond by taking legal action to compel performance or to recover monetary compensation for losses caused by the breach.  The other party may also be excused from performing his part of the contract after a breach has occurred.

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Contracts can contain many specific terms and there may be many requirements imposed upon each party.  A failure to fulfill any one of the requirements does not automatically constitute a breach that would allow for the Contract to be cancelled or that would make it possible for monetary damages to be recovered.  It is important to understand the difference between a Material Breach and a Non-Material Breach so you can understand the options available to you. A Scottsdale Arizona business litigation attorney at Lotzar Law Firm, P.C. can help you with all types of contract disputes so call today to schedule a consultation and learn more.

Understanding the Difference Between a Material Breach and a Non-Material Breach

A Material Breach of Contract is a major failure to perform according to the terms of the Agreement.  The failure to perform goes to the heart of the Contract and negatively affects the value of the contractual arrangement.

A Non-Material Breach, on the other hand, is less serious. It pertains to a more minor detail of the contract or to ancillary provisions of the Agreement that do not go to the heart of the Contract.

Determining whether a breach was material or non-material requires a careful analysis of the specific failure to perform.  For example, if two parties contract for a home to be painted with white primer and a yellow finish coat, it may be considered a Non-Material Breach if a cream primer is used instead of white but a Material Breach if a blue finish coat is used instead.

The use of the cream primer deviates from the terms of the Contract but does not effect the functionality of the Agreement.  The use of the blue paint instead of the yellow paint, on the other hand, goes to the heart of the contractual Agreement because the home owner does not end up with the desired yellow house.

Your Rights After a Material or a Non-Material Breach

Your rights differ depending upon whether a breach was material or non-material. In both cases, you may take legal action to recover the actual value of losses caused by the Breach.  However, you typically must fulfill your part of the Agreement when a Non-Material Breach occurs. A Material Breach, on the other hand, may excuse you from your performance obligation.

An attorney can help to determine the difference between a Material Breach and a Non-Material Breach and can assist you in making a Breach of Contract claim. Call Lotzar Law Firm, P.C. today to schedule a consultation with a Scottsdale business litigation lawyer to learn more.

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