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Fiffik Law Group understands the issues associated with forming, operating, and growing small businesses because we have years of experience in representing thousands of them. We make an effort to support local and small businesses in as many ways as we can, and one of the ways we do this is by spotlighting one of our clients’ exciting new businesses every month. This month, we are shining the spotlight on Naked Grape Wine Services & Importing, Inc. owned by Ryta J. Mirisciotti. Growing up Italian, wine was always a part of Ryta’s life. Even though she started learning about wine at a young age, she never thought it would become her career. Before realizing her true passion, she worked in the field of higher education at Slippery Rock University for 18 years. “Higher education drove me to drink wine,” Ryta joked. Ryta’s passion for wine became clear toward the end of her career in higher education when she started volunteering at the Wilhelm Winery to learn the winemaking process. She quickly advanced to work their tasting counter, and she even became their business-to-business sales representative. With all the expert experience under her belt, she felt it was time to branch out on her own. “Wine should not be snobbish. It should be something that is approachable and fun to enjoy with people you care about,” Ryta said. Ryta’s initial vision was to own and operate a tasting room, but Pennsylvania liquor laws made it difficult to obtain a license to sell wine without also selling food. Therefore, she decided to open a restaurant instead – The Naked Grape. Ryta and her husband, David, found a beautiful space in Sewickley for their restaurant. While they loved running the restaurant together for several years, they soon realized that their heavy day-to-day involvement – due to their passion for their craft – resulted in an unsustainable amount of work. So, they had to make a change once again. Their next endeavor was opening an Enoteca, which is the Italian word for “wine room.” While this was much closer to Ryta’s dream of owning a wine tasting room, they still faced legal obstacles. Although guests could come in to sample wine and cheese, they had to wait 48 hours before they could pick up any bottles of wine they wanted to order. This cumbersome process turned out to be too inconvenient for everyone involved, so Ryta and David pivoted once again. Now, Ryta and David run Naked Grape Services & Importing, Inc, a wine concierge service where people can order wine from a list of recommendations curated based on personal preferences. Ryta is licensed to import wine from all over the world. The concierge service became especially popular during the pandemic when many people preferred to order things online rather than go into stores. Ryta also hosts virtual wine tastings, and she hopes to begin hosting in-person events as the world continues to reopen. Quoting her favorite country western song “Buy Dirt,” Ryta encourages everyone to, “find something you love and call it work.” Ryta is grateful to Fiffik Law Group for the invaluable insight and advice on the various legal matters and licensing issues that have come up throughout her career in wine. “Pennsylvania liquor law is quite voluminous and complex. You would not want to assume you know how to interpret it if you aren’t a trained attorney,” Ryta said. To join the email list for the concierge service, email Ryta at mirisciotti@comcast.net

1. The Franchise Assessment: Is Your Business Franchisable? Since franchising starts with you, your business and your goals, the first step is to determine if franchising is even right for you and whether or not your business is franchisable. The five key factors that determine whether your business is franchisable are: Is your business successful? Is your business scalable? Is your brand protectable? Are you committed to growing a franchise system? Do you have the right budget? 2. Assessing Your Business and Brand One of the biggest secrets to franchising is that, as a business and legal model, franchising is extremely flexible and when done correctly must be unique to your business and goals and must differentiate your new franchise system from competitors. To do this, you should evaluate your business and brand – their strengths, weaknesses, competitive advantages, unique selling points, legal protections and future development goals. 3. Competitive Franchise Study As a franchisor, your competitors will be other franchisors and franchise systems. Some of these competitors will be in the same industry as you and others may be in a different industry but nevertheless compete with you for prospective franchisees. To establish a baseline, we recommend that you obtain a competitive franchise study to evaluate and compare the metrics associated with three comparable franchise systems. The purpose is not to copy these competing systems but, rather, to understand them and to create a baseline when considering how you can structure your system to stand out and offer better unit economics for franchisees. 4. The Franchise Blueprint Establishing and creating a franchise system is very much a process that evolves over time. Once you define your goals, your business and your brand and after completing a competitive franchise study, then a blue print mapping out the structure for your franchise system can be created including: Franchise fees and establishing a franchise fee structure that is competitive and encourages potential multi-unit development; Royalty fees and establishing a royalty fee structure that rewards franchisees for success and one that achieves your growth and development goals; Multi-Unit opportunities and whether or not your franchise system will be focused on single unit franchise opportunities or multi-unit franchise opportunities with development agreements; Territory sizes, whether or not franchisees will be granted operating territories, how to manage franchisee operating territories and forms of protection that may or may not be granted to franchisees; Proprietary products and sources of supply, including the identification of core products and services that must be purchased from you or your designees and whether or not you may generate additional revenue from your suppliers; and Many other factors, including factors unique to you and your business and your strategic plan for differentiating your franchise system, attracting franchisees and attracting potential franchise broker interest in promoting your franchise offering. 5. Brand Protection As a franchisor your brand and the legal protection of your trademarks are critical. You must secure and protect core intellectual property including the protectability of your trademarks with the United States Patent and Trademark Office for the federal and nationwide registration of your trademarks. If your trademarks cannot be registered or protected, this will have a material negative impact on the franchisability of your business. 6. Developing Your FDD Your Franchise Disclosure Document (FDD) is and will always be the core legal document from which your franchise system will be created and your franchise sales activities will revolve around. Although a legal document, your FDD must be grounded in a strategic franchise development plan that creates and promotes the unique characteristic of your business and that advantages that franchisees will be afforded by your franchise system when compared to competitors. 7. Developing Your Franchise Agreement Your franchise agreement will be a part of your FDD. They must provide you with the very best protections and must be structured and focused on strategic growth. Depending on your strategic planning goals, your franchise agreement may not be just one agreement. Your franchise system may be structured with multiple development opportunities where a franchise may sign a franchise agreement giving them the right to establish one unit or they may be offered a franchise agreement where they are granted the opportunity to establish multiple units. Your franchise agreements need to reflect your franchise system and must be designed to facilitate franchise sales.

Getting injured at work can be a frustrating and uncertain time, especially when your injury means you will not be able to continue working for a while. Injured workers are entitled to receive compensation to cover their medical bills and wage loss, but how much and how quickly workers receive compensation varies. It is important to consult with an experienced workers compensation attorney to handle your case as quickly and effectively as possible. Recently, Matthew Bole, Partner at Fiffik Law Group, helped a client recover a considerably sized settlement from a workers compensation claim. Matthew Bole’s client was working as a sign installer in early 2020 when he slipped on ice and injured his shoulder. Since this injury left him unable to continue working his physically demanding job, he filed a workers compensation claim. Unfortunately, it is all too common for claims to be denied by insurance companies trying to avoid a payout – and that is exactly what happened in this man’s case. The insurance company tried to minimize the man’s injury by alleging he was not as hurt as he claimed to be and was still able to work. Meanwhile, the man had to undergo multiple surgeries and was fired from his job for a bogus reason that was clearly related to the incident. Thankfully, the man reached out to Attorney Bole to appeal the decision. The defense aggressively contested the man’s claim – they tried to force him to settle by keeping him unemployed and dragging out the process. Nevertheless, after countless depositions and hearings, Attorney Bole was able to convince them to settle for a fair amount of over $85,000. Workers compensation cases only pay out for medical expenses and wage loss – not pain and suffering. This lessened opportunity for payment is a result of a compromise put into law; workers only need to prove that they were hurt to receive compensation, not that their employer was negligent. If you were involved in a workplace incident that left you injured or unable to work, you should consult with one of our experienced Pennsylvania workers compensation attorneys as soon as possible. Schedule a free consultation today to get your case started.

Necrotizing enterocolitis, or NEC, is a serious gastrointestinal disease that affects the intestines of premature infants. Necrotizing means causing the death of tissues. It can happen to any newborn baby, but it is typically found in those that are premature or underweight. Many premature and underweight newborns have trouble breastfeeding, so parents turn to formula to get them the extra nutrients. Parents count on these formulas to be safe, but, tragically, that is not the case with the cow’s milk-based formula brands Similac and Enfamil. Parents are suing the manufacturers of Enfamil and Similac because they failed to warn parents and medical providers about the risk that their products could cause NEC in infants. Similac and Enfamil have still not been recalled, and the manufacturers, Abbott Laboratories and Mead Johnson & Company respectively, have yet to even include warning labels on their products. Could your child have NEC? Fortunately, NEC is rare, and affects just one in 2,000 to 4,000 births, according to Web MD. Formula-fed preterm babies are six to ten times more likely to develop NEC than preterm infants who were given breast milk, according to this study. NEC typically develops in the first two weeks of life in newborns who weigh less than 3.25 pounds. Symptoms of NEC include: (According to Kid'sHealth) a swollen, red, or tender belly trouble feeding food staying in the stomach longer than expected constipation diarrhea and/or dark or bloody stools (poop) being less active or lethargic a low or unstable body temperature green vomit (containing bile) apnea (pauses in breathing) bradycardia (slowed heart rate) hypotension (low blood pressure) If not treated, NEC can lead to serious infection and death. In some cases, surgery is necessary to attempt to repair the newborn’s abdominal and intestinal damage. It is the 10th leading cause of death for babies less than one year old, according to the CDC. If your infant developed NEC after being fed one of the formulas from Similac and Enfamil – or a different cow’s milk-based formula – contact one of the experienced Attorneys at Fiffik Law Group. We will help you get answers and seek justice for the harm done to your children.

By: Michael Fiffik, Esquire I can transfer or retitle my assets right before entering a nursing home and qualify for Medicaid. Saving inheritance taxes is the most important estate planning goal. Putting my children’s names on my deed will protect it from being taken if enter a nursing home. A revocable trust avoids estate taxes. A joint account is not a countable asset for Medicaid purposes. An agent under a power of attorney can make health care decisions on my behalf. A will governs all assets, even accounts with joint titleholders or beneficiaries. You can’t own a home and be eligible for Medicaid benefits. An IRA is always a countable resource for Medicaid purposes. A disabled person cannot inherit money without losing government benefits. The experienced Elder Law and Estate Planning attorneys at Fiffik Law Group are available to assess your family situation and suggest Asset Protection Strategies that are right for you. Contact us today to begin the conversation.

You’re stopped by the police for a minor traffic infraction and the officer asks to search your car for no apparent reason. What would you say? Are you required to agree? Knowing your rights and having legal counsel who you can trust can make a world of a difference in your interactions with the police. Fiffik Law Group Attorney Karyn Coy recently helped to stop the unlawful search of her client’s car during a routine traffic stop. Attorney Coy’s client, a Philadelphia man, was pulled over by police for failing to come to a complete stop at a stop sign. He complied with the police officer’s orders by providing his license, registration, and proof of insurance. After confirming these were all valid and up-to-date, the officer should have either given the client a verbal warning or a written citation and then left the scene. Instead, the officer became aggressive and demanded to search the man’s car. The man was stunned – he had done everything that he was supposed to do. He knew the officer had no legitimate reason to want to search his car. When he asked the officer why he wanted to search his car, the officer accused the man of acting nervous. Not only is the appearance of nervousness not a valid legal reason to search someone’s car, but it is a perfectly normal response when confronted by an agitated police officer. When the man refused the search – after the officer repeatedly attempted to intimidate the man into consenting to it – the officer called in backup. With the situation escalating from what was, in reality, a minor traffic violation, the man knew he needed help. Black drivers are searched about one and a half to two times as often as white drivers even though they are less likely to be carrying illegal contraband compared to white drivers, according to a study done by New York University. Another study done by the University of South Carolina found that black people are 63 percent more likely to be stopped even though, as a whole, they drive 16 percent less. Knowing those statistics and being familiar with news stories of police interactions with minorities going horribly wrong, one can imagine how scared the man must have been in this situation. While the man anxiously waited for additional police officers to arrive, he called the LegalShield® Emergency line and was immediately connected with Attorney Coy. After he explained the situation, Attorney Coy advised her client of his rights, which was that there was absolutely no reason for the officer to search his car. She then made her presence known to the officer through speakerphone, stating she was advising her client not to consent to the search, and that he should either write him a citation or let him go. As soon as the officer realized the man had an attorney on the phone, he changed his tune and let him go without a citation or even a verbal warning. “Access to justice means having the resources to defend yourself when you are not being treated fairly according to the law. I’m thankful I was able to get in contact with my client before the situation escalated.” - Karyn Coy | Attorney, Fiffik Law Group, PC This altercation with police might have gone very differently if the client had not called Attorney Coy. The LegalShield® Emergency line is crucial for situations like this one where you need to get in contact with an attorney immediately. There is no body camera requirement for police officers in Pennsylvania, so, without an attorney present, whether or not you consented to a search comes down to your word against the police’s. It is not only important to be aware of your rights, but it is also crucial to have an attorney on your side advocating for you. Fiffik Law Group's mission is to provide access to justice for all. If you find yourself in a similar situation where you need to contact an attorney on the spot, call the LegalShield® Emergency Line at 1-877-825-3797. If you are interested in becoming a LegalShield® member, learn more here.

Fiffik Law Group, PC  is pleased to announce that Matthew A. Bole  has been promoted to Partner. Matt has worked with our firm since graduating from Duquesne University School of Law in 2011. He focuses on plaintiff’s personal injury, workers’ compensation and civil litigation matters. His clients have recovered millions of dollars as a result of his zealous advocacy. From 2015-2021, Matt was named to the list of Pennsylvania Super Lawyer – Rising Stars, which places him in the top 2.5 percent of attorneys in Pennsylvania who are 40 years old or younger. Matt has also served as a Hearing Committee Member for the Disciplinary Board of the Supreme Court of Pennsylvania for the past four years. “I am thrilled to assume this new role with the firm I have been with for my entire professional career. I look forward to the opportunity to further serve our clients and continue to grow with Fiffik Law Group.”   - Matthew A. Bole | Partner, Fiffik Law Group, PC Matt lives in Robinson Township with his wife, Jessica, and his son and daughter. SEEN IN: Explore Clarion

Take a look at your life and your assets to see if you fit into one or more of these situations that can impact your finances: You're in a second (or later) marriage You own one or more businesses You own real estate in more than one state You have a disabled family member or you've become disabled You have minor children You have "problem" children You don't have any children You want to leave some or all of your estate to charity You have substantial assets in 401(k)s and/or IRAs You were recently divorced You've recently lost a spouse or other family member You have an incapacitated spouse in need of long-term care You have a taxable estate for federal and/or state estate tax purposes You will need the counseling and advice of one of the experienced estate planning and elder law attorneys at Fiffik Law Group to assist with your future plans if one or more of these situations apply to you.

Pennsylvania business applications were up 24 percent in 2021 over the previously record-breaking year of 2020. In 2021, Fiffik Law Group, PC helped clients form over 175 new businesses. Each month, we spotlight one of our clients’ exciting new businesses. This month’s business is Affirm Candle, owned by our client, Gardith. Born and raised in Port-au-Prince, Haiti, Gardith lost her family to the devastating earthquake in 2010. To cope with and heal from this trauma, Gardith began to explore aromatherapy, affirmations, and candle making. As time went on, she decided to create Affirm Candle as a way to connect with and help heal other people who have also been through trauma. “I have always been interested in aromatherapy and herbal medicine as a result of my upbringing on the Islands. When humans don't have many resources, we are forced to use the Earth, the best resource!” - Gardith Gardith’s business is beyond an interest for her – she is an expert with several degrees in an array of fields: Bachelor's degree in Africana studies from Cornell University Master of Arts degree in Teaching from the Relay Graduate School of Education Master of Science degree in Interdisciplinary Health Sciences from Drexel University Certificates in ACT (Acceptance and Commitment Therapy), Aromatherapy, and Hypnotherapy She is also currently pursuing a dual degree in Academic Medicine and Research focusing on Trauma Therapy. For Gardith, her craft involves more than just making candles smell good - she uses her impressive educational background to scientifically craft her candles. For example, she uses a distillation apparatus to make her own essential oils. Purchasing essential oils outright can be highly expensive, but her homemade process allows her to reasonably price her products for her customers. Gardith first connected with Fiffik Law Group through her LegalShield membership that she obtained when she started the process of opening her own business. “I needed someone that I could constantly call to answer all my questions…I am a perfectionist – I like to master one thing before moving on to the next. I stay in my lane of science, so I need someone else who is an expert in law to help me.” -Gardith Fiffik Law Group helped Gardith with a wide variety of issues related to starting your own business, many of which Gardith would not have otherwise been aware of. Registering trademarks for her brand and products Only including legally required ingredients on the candle labels so competitors cannot copy her recipes Requiring customers to sign an authorization form to protect Gardith from liability Including product disclaimers to protect Gardith from liability Applying for a membership to the National Candle Association “LegalShield is super efficient and affordable.” -Gardith Check out the Affirm Candle website to browse all of Gardith's products and learn more about affirmations and aromatherapy. Fiffik Law Group, PC assists business owners at every stage of their business journey. Whether you have questions on business formation or you're planning for succession, our group of business attorneys has the experience to help you. Call or email us to request a consult today! Visit our website to learn more about what Fiffik Law Group, P.C. can offer you.

By Michael Fiffik, Esquire Americans’ entrepreneurial spirit is alive and well despite the continued COVID pandemic. Nearly 5.4 million new business applications were filed in 2021 according to data released this month by the U.S. Census Bureau. That’s an all-time record and a 23% increase over 2020, which was also a record-setting year 4.4 million new applications. This is great news for workers as well because small businesses have accounted for over 65% of net new job creation since 2000 according to the Small Business Administration’s Office of Advocacy. Thirty-two percent (32%) of the record-breaking business applications in 2021 are categorized as “high propensity” applications, which means they are associated with a high likelihood of transitioning into a business with payroll. Companies with fewer than 10 employees account for 78.4 percent of all companies with employees. Small business truly does drive our economy. Pennsylvania Applications Way Up in 2021 Pennsylvania business applications were up 24% in 2021 over the record-breaking year of 2020. There were 158,000 applications in 2021 compared to 127,000 in the prior year. Philadelphia county led with an eye-popping 61% increase over 2020, followed by Allegheny, Montgomery and Delaware Counties. Nationally, northeastern states trailed only the western states in gains over 2020 formations. Activity was somewhat lower in the Midwest and South. We also experienced a significant increase in business formation activity among Fiffik Law Group business clients. In 2021, we formed 175 new businesses. Most of these were limited liability companies. That’s a 25% increase over 140 formed in 2020, a year in which we experienced a surge over the prior year. Industries highly affected by the pandemic showed the largest gains The new business surge is broad-based and happening across almost every industry sector, as applications for new likely employer businesses in 2021 were up across virtually all major industry categories. The biggest gains were in the food service, retail and healthcare sectors. These sectors experienced extreme shocks to their normal operations throughout the pandemic. The jump in intent to form new businesses likely reflects a necessity to adapt in response to job losses during the downturn as well as an opportunity to fill new economic needs amid changing consumer preferences, supply chain issues, and novel circumstances brought on by the pandemic. Why the Boom During a Pandemic? Why would so many new businesses be formed during the uncertainty of a pandemic? Is this the best time for people to be taking risks? It seems paradoxical that people would choose the pandemic as a time to start a new business. There’s no one answer. From our experience with our own clients, we see a few common themes. The first is simple necessity. Over the past two years, a number of people filing paperwork for new businesses lost their jobs in the pandemic and decided to become self-employed. Over 22 million people became suddenly unemployed or underemployed as a result of the pandemic. Starting a business is an aspirational dream for many but during the pandemic, it became an economic necessity to pay the bills and put food on the table. People laid off became free lancers, uber drivers or gig workers. The second reason is availability of start-up capital. Stimulus payments, pandemic unemployment kickers, and the stock market surge created capital that was used to fund start-ups. Already established businesses received Paycheck Protection and other SBA loans and grants. They invested that money in diversifying and expanding their businesses. Even those who were still working had more time on their hands due to remote work and consequently could devote that time to pursue business opportunities. Many others walked away from stable careers, convinced there was no better time to chase their dreams. Opportunity was a driver as well. The pandemic exposed the vulnerabilities of already weak or poorly managed businesses. It forced those businesses to close, creating opportunities for new entrepreneurs to fill the gaps with new ideas and ventures. Online shopping exploded, adding $800 billion to the online retail marketplace. Many stay-at-home workers used the time previously devoted to work travel or socializing to start up online stores on Etsy, eBay and Amazon while holding down their regular jobs and income. For example, the number of sellers on Etsy increased by over 60% from 2019 to 2020. These sites experienced increased numbers of sellers again in 2021. Will the Business Surge Last? It will take months to evaluate how many of these expressions of entrepreneurial intent reflected in the business formation statistics actually turn into new companies that go on to hire workers. Research shows there has historically been a high correlation between the number of applications and lasting business formation. If the past is any guide and a substantial number of these applications turn into real new companies, their survival and growth will help power the economic recovery. The experienced business attorneys at Fiffik Law Group have launched and guided thousands of businesses.We can help you make informed decisions about your business to help achieve your goals and dreams. Contact us today for a free consult.

The Pennsylvania Commonwealth Court issued a decision on January 28, 2022 finding that Pennsylvania’s no-excuse mail-in voting law is unconstitutional. Members of the Pennsylvania House of Representatives petitioned to block the mail-in voting law which was passed in 2019 ahead of the 2020 elections. That law allowed any qualified voter to submit a ballot by mail up to 50 days before and election. It also placed voters on a list to permanently received ballot applications by mail and extended mail in and absentee submission deadlines. “No-excuse mail-in voting makes the exercise of the franchise more convenient and has been used four times in the history of Pennsylvania. Approximately 1.38 million voters have expressed their interest in voting by mail permanently.” - Commonwealth Court Judge Mary Hannah Leavitt, who authored the ruling. “If presented to the people, a constitutional amendment to end the Article VII, Section 1 requirement of in-person voting is likely to be adopted. But a constitutional amendment must be presented to the people and adopted into our fundamental law before legislation authorizing no-excuse mail-in voting can ‘be placed upon our statute books.’” - Leavitt Over 2.6 million Pennsylvanians voted via the mail in the 2020 general election. That number includes both no-excuse mail voting and absentee voting. Absentee voting in Pennsylvania is similar to mail voting and has existed for years, but voters need a valid excuse — like an illness or being out of the area on Election Day — to use it. Absentee voting is unaffected by Friday’s court ruling. The state is expected to appeal the ruling to the state Supreme Court, which turned back other challenges to the law in 2020. This is a developing story so stay tuned for additional updates.

By Michael Fiffik, Esquire Many small businesses depend on infusions of cash from their owners in order to start up, meet cash flow needs or finance expansion plans. The infusions can be nominal, such as small sums needed to meet an unexpected emergency, or can be substantial, as a way to start a business. How the advance is treated by the owner and business impacts tax treatment and whether the advance is repayable to the member who made it. Three Types of Investments in Small Business There are three primary ways to secure capital for your business: equity investments, debt investments, and convertible debt. Equity Investment: When the company receives an equity investment, an investor contributes funds to the business in exchange for a stake in your company. These are also referred to as capital contributions. A capital contribution can be cash, property, services rendered, or other obligation to contribute cash or property or to perform services. While accepting these investments means giving up a portion of your company’s earnings, it can also mean bringing on well-qualified partners who are motivated to help your business succeed. Debt investment: A debt investment is simply a loan you accept to get your business up and running. This is the most common form of capital for new businesses. Generally, a business owner will set an interest rate they are willing to pay and a general time frame for repayment when seeking out debt investors. The members of the business may also loan money to the company, separately from their capital contributions. The terms of a member loan to a business, like any other owner loan, should be documented carefully in a business loan agreement specifying the amount, interest rate, repayment terms, and default provisions. A loan by a member does not change the member's capital contribution or distribution of profits and losses. To receive a debt investment, you will usually need some collateral to back up your loan. While it’s possible to receive a loan without it, lack of collateral will often limit the amount of money you’re able to secure or will make the costs of the loan much higher. Convertible debt: This is essentially a combination of the other two options. When a business owner takes on a convertible debt they accept a loan while agreeing to either repay the money or convert the debt into equity at some time in the future. Typically, the business owner will offer a discount of 20% to 25% when the debt is converted to equity, meaning a $1 million investment could potentially yield $1.25 million worth of equity at the time of conversion. Pros and Cons of Capital Contributions vs. Loans The classification of the advance of money to the company by a member or lender has a variety of implications for the company and the person making the advance. Capital Contributions Equity investments are an attractive option to business owners because they provide funding that does not need to be repaid. In addition, they are not reflected as company liabilities on the company books. When the company is seeking a loan, the lender looks at company liabilities to determine the creditworthiness of the company. Having fewer loans on the books will be viewed favorably by the lender. The downside for members making capital contributions is that they are not necessarily repayable. Most operating agreements for limited liability companies provide that members are not entitled to a return or repayment of their capital contributions, even when they leave the company. Loans If it is a loan, then the repayment of principal is tax free to the lender although interest paid on the loan is taxable. The company can also deduct interest paid on the loan, reducing the amount of profit that is passed through to the owners and taxed at their individual rates. For the member/lenders, they are entitled to be paid back and get a priority in the pecking order of payments that the company makes. In short, loans must be paid before members receive distributions. Document Capital Contributions and Loans Often, business associates feel as if they do not need to have everything in writing. This is particularly true if they have gone into business with friends or relatives. Not taking the steps to secure written financial details can have disastrous effects on the business as well as on the relationship between the partners. These usually happen when the business or the relationships between the parties breaks down. A recent business divorce case provides an excellent example of why it’s important to document member investments into the business. Two acquaintances formed a real estate development company in the form of a limited liability company (LLC). When the business failed, a lawsuit ensued over whether each partner had made a capital contribution – which would be a business asset – or a loan to the LLC – which would be payable as a business debt. Partner number one alleged that he made capital contributions totaling $523,000.00 while the business was operating. He also argued that the second member, who had not invested money into the company, owed a like amount to the company. If successful, this would have forded partner number two to contribute a like amount, that would be used to pay debts or at least reduce the debts paid from partner number one’s investment. The second member argued that he had no obligation to make any capital contributions because the operating agreement did not list any capital to be contributed by either member. The second member never signed an agreement obligating himself to make capital contributions to the company. Partner number two alleged that the funding provided by partner number one was in the form of loans, not capital contributions. The Court agreed with the second member, finding that the operating agreement was ambiguous as to whether initial capital contributions were required by each member of the LLC. At the end of the day, despite an arrangement where the first member thought he was responsible for only half of the business debt, the first member lost out on hundreds of thousands of dollars. Let that serve as a wake-up call: if your capital contributions and other important financial agreements are not well-documented, you are at risk. It is impossible to predict which business arrangements are destined to break down. Businesses co-owned by friends or relatives are just as likely to run into problems as any other business. The experienced business attorneys at Fiffik Law Group launch hundreds of businesses each year and have guided thousands of business owners in making smart decisions for their companies. We can help you too. Contact us today and get your business on the right track.