​The 7(a) Program is one of the most popular programs of SBA loan guarantees for small businesses that are unable to obtain loans from banks.  The 7(a) program lets you get loan amounts (up to $5 million) to fund startup costs, buy equipment and more. Here’s what else you can do with 7(a) funds:
    Purchase new land (including construction costs)
    Repair existing capital
    Purchase or expand an existing business
    Refinance existing debt
    Purchase machinery, furniture, fixtures, supplies or materials
However, recently the SBA’s  Office of Inspector General published its management advisory that presents the evaluation results of two 7(a) loans as part of our ongoing High Risk 7(a) Loan Review Program. The management advisory is Report 18-23. The objectives of its evaluation were to determine whether (1) high-dollar/early-defaulted 7(a) loans were originated and closed in accordance with the Small Business Administration’s (SBA’s) rules, regulations, policies, and procedures and (2) material deficiencies existed that warrant recovery of guaranteed payments to lenders.
The review of two high-dollar/early-defaulted 7(a) loans identified that lenders for both loans did not provide sufficient evidence to support that they originated and closed the loans in accordance with SBA’s requirements. Specifically, the lenders did not provide adequate documentation to substantiate reasonable assurance that the borrowers met requirements for repayment ability, size eligibility, and equity injection.
As a result, the lenders’ material noncompliance with SBA requirements while originating and closing the loans resulted in a combined potential loss to SBA of approximately $1.3 million.  The report recommended that SBA require the lenders to bring the two loans into compliance or seek recovery of approximately $1.3 million. That could mean the loan will be called on the borrower.  While this report addresses the responsibility of the lenders to document loans in accordance with SBA requirements, if the bank’s solution is to seek recovery of the loan proceeds, the ultimate consequence will ultimately fall upon the borrower.
 
 
 
John P. McGeehan
VSB #9160
McGeehan Pascale PLC

​The most common type of small business may not be what you think. When people talk about small businesses, the thing that usually comes to mind is an establishment with a couple of employees. However, the most common type of small business, by far, is one with zero paid employees. In government statistics, this kind of business is called a “nonemployer,” and they outnumber employer businesses by four to one.
The Office of Advocacy has just published a fact sheet that answers key questions about nonemployers. “A Look at Nonemployer Businesses” describes how nonemployers fit into the overall economy, where they get startup capital, the industries in which they work, and their ownership demographics. The fact sheet is based on the latest information from the U.S. Census Bureau.
Nonemployer firms are sometimes overlooked because they account for only 3 percent of total U.S. business revenue. However, the latest figures show that four in five businesses are nonemployers. As the economy changes, nonemployer firms are playing an increasingly large role—the number of nonemployers increased 58 percent from 1997 to 2015. 

A new fact sheet by the SBA  Office of Advocacy Research Economist Brian Headd titled, “Why Do Businesses Close,” using U.S. Census Bureau data, states that over the last 25 years, about 7–9 percent of employer firms close every year and a slightly higher share open.
These figures from Census’s Business Dynamics Statistics have been trending down, illustrating a decline in business turnover. According to the Annual Survey of Entrepreneurs, of the businesses with employees that closed in 2015, the top reasons for closing were low sales, the owner(s) retiring, and the owner(s) selling the business. With the next top reasons being opening another firm and illness/injury, it shows that many owners close for personal or health reasons not just business reasons. 
Headd also cited data from the Survey of Business Owners that despite credit being tight; it is having less of an impact on pushing businesses to close. While business credit was a relatively large reason for business closures at the onset of the Great Recession, Headd writes, more recently, it has been a relatively small reason.
​

In 2016, the Federal Deposit Insurance Corporation (FDIC) published regulations, which were authorized by the Bank Secrecy Act, to require all US Financial Institutions to obtain the identity of the beneficial owners of business accounts for a corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction. This is not personal accounts.  The procedures are to be implemented by May 11, 2018.  When a business opens a new account or changes an existing account, financial institutions will have a “control person” obtain information and sign a certification on behalf of the business.  The certification lists for all beneficial owners who have 25% or more of the equity interests in the businesses their names, addresses, dates of birth and some identifying number (Social Security, passport, driver’s license, etc.).  The control person (usually an authorized signer) is someone with significant managerial control over the business.   The regulation does not cover accounts opened and later unchanged as of May 10, 2018, single transactions, wire transfers and other exceptions.  A covered financial institution must establish procedures for making and maintaining a record of all information obtained under this procedure.  Therefore, there is no anonymity as to the beneficial owners in regard to the business’s accounts at financial institutions.

This week, the U.S. Department of Labor issued revised administrative regulations regarding eligibility of workers to receive overtime.  This covers all employers subject to the Fair Labor Standards Act or who are working on federal contracts.  The revised regulations will:

* Raise the salary threshold indicating eligibility from $455/week to $913 ($47,476 per year). 
* Automatically update the salary threshold every three years, based on wage growth over time, increasing predictability. 
* Strengthen overtime protections for salaried workers already entitled to overtime. 
* Provide clarity for workers and employers.

The final rule will become effective on December 1, 2016, giving employers more than six months to prepare.  The final rule does not make any changes to the duties test for executive, administrative and professional employees (i.e. “expect employees”) and not all business are “employers” under the Wage and Hour laws.

Employers will have the following decisions:

* Pay all eligible employees who are below the new threshold “time and a half” for overtime
* Limit worker’s hours to 40 hours per week
* Hire more employees to share the time
* Increase workers’ pay to a pay greater than the threshold

Some business organizations may challenge this regulation in court, but overtime laws are complex and when combined with increases by state and local “living wage” laws, the impact can be significant.  You may want to review your policies with us to ensure you are ready to comply with these requirements. ​

We, at MCGEEHAN PASCALE, PLC, have put together, as best we can, a limited liability company designed to carry out the purpose of your business and, most especially, provide limited personal liability for the members from company liabilities. There are recent court cases attempting to “pierce the corporate veil”, which is to disregard the limited liability in an LLC and impose liability for company debts onto the members.  As you move forward, it is up to you to do what you can to maintain your shield.  There also are increasing statutes seeking to hold owners of businesses personally liable for some obligations. The older body of law for corporations is clear on piercing the shield, but there is less law regarding the limited liability shield in an LLC.  The best way to protect yourself against this is:

  1.  Have an operating agreement. If it is not working, amend it.
  2.  Follow the procedures in the operating agreement, including having at least one annual meeting.
  3.  Maintain records (minutes) of important company actions.
  4.  Keep the company’s money in separate accounts from your personal accounts.
  5.  Do not pay personal bills with company money.
  6.  Make the capital contributions that are stated in the operating agreement.
  7.  If you give money to the company, document whether it is a loan, additional paid in capital, repayment of a loan to you by the company, etc.  If you take money from the          company, document whether it is a loan, withdrawal of capital, repayment of a loan from you to the company, etc.
  8.  Be formal in your dealings with those outside the company, that is always use your company name, sign everything using your company title, do not call each other a “partner”. Treat the company as you would a separate person with whom you are dealing.
  9.  Keep your capital in proportion to your company liabilities.
10.  Seek experienced legal advice when you have any doubt as to an action you are contemplating. 

​If you maintain you participation in MCGEEHAN PASCALE, PLC’S PRIORITY BUSINESS CLIENT PROGRAM℠, remember you have access to our No Charge Quick Calls (new topic, no reading, writing or research, less than 10 minutes), reduced hourly fees and experienced attorneys who are familiar with your business. Use this resource.

The 2016 Virginia General Assembly enacted HB 955 changing the Virginia Limited Liability Company Act.  It brings into the Act a new section on entity conversions (changing from one form of business structure to another), aligns LLC conversions with the Virginia Business Trust Act and provides for reorganization of an LLC in bankruptcy, as is provided for corporations.                                        

The House continued HB 130 that would have established a series LLC in which managers, members, or interests can differ as to rights, powers or duties. Series LLC are great for aligning assets with liabilities with respect to specific property or obligations.

MCGEEHAN PASCALE, PLC supports the enactment of HB 955 as it clarifies and removes discrimination against LLCs in the described matters.  MCGEEHAN PASCALE, PLC favors not enacting HB 130 this year.   For more than 25 years we achieved similar outcomes with a “Hershey® bar” structure of LLCs and a Virginia statute is desirable and can be less expensive.  Between 15 -18 states and territories enacted laws permitting series LLCs, but the Uniform Protected Series Act (“UPSA”) was updated in 2016 and the General Assembly should wait and study this more current version. 

One or more companies have sent to Virginia companies, including our clients misleading forms.  The companies are called “Virginia Council for Corporation”, “Corporate Records Service” and “Annual Business Services” and the forms are titled “2015 Annual Minutes” and “2015 Annual Records Solicitation Form”.  The Solicitation Form looks somewhat like the annual report form prescribed by the State Corporation Commission and mailed to corporations of record in the Clerk’s Office of the SCC.  Some corporations have confused the Solicitation Form for the Commission-prescribed annual report and sent money to these companies believing they have legally complied.   In the case of LLCs, legally, the form is wrong.

A search of the Commission’s business entity records in the Clerk’s Office revealed no information about a company with the name Virginia Council for Corporation”, “Corporate Records Service” and “Annual Business Services” or that they are authorized to do business in Virginia although they have a Richmond address.

These enterprises are commercial solicitations and they do not comply with state requirements.  The companies do not file an annual form with the state or pay the annual fee to the state. 

If you are in the McGeehan Pascale, PLC’s  Priority Business Client Program℠ and we are your registered agent, we receive and review the official state form and send it to you with instructions on filing it and paying the annual fee.  If we are not your registered agent, you will receive an official form from the state, but call us if there is a question whether it is a legal form.  We have looked into legal action for clients who believe they have been defrauded.  The cleverness of the form makes that difficult to prove fraud. But, if you have other questions go to https://www.scc.virginia.gov or http://www.oag.state.va.us to make a complaint.