State Start-Up Requirements for Small Businesses

April 12, 2011

Learn about state requirements for business owners.

If you are starting a business, the state where the business will be located will require you to get a slew of licenses, permits, tax registrations, and other requirements. These may range from filing organizational papers and getting a license for your occupation to tax registration and environmental compliance.

Licenses — Professions and Products

Professional licenses. States give licenses to people practicing the traditional professions, such as lawyers, doctors, accountants, teachers, architects, and engineers. States also license people in a broad range of trades, from auto mechanics and barbers to real estate agents and tax preparers.

Sometimes licenses are issued to the business, while other licenses are taken out by the individual. You can’t guess which occupation needs a license, so you’ll just have to ask. Your state website or trade association is a good place to start.

Licensing procedures. The licensing procedures will vary, but you’ll probably have to show evidence of training in the field, and you may have to pass a written exam. Sometimes you have to practice your trade or profession under the supervision of a more experienced person for a while before you become fully licensed. Some licenses are good for a limited period before there is retesting. Others require proof of continuing education in the field.

Licenses for products. The state may also want you to get a license if you make or sell certain products, such as liquor, food, lottery tickets, gasoline, or firearms.

Tax Registration

If you engage in retail sales, you probably need to register for or get a sales tax license or seller’s permit. This lets you collect sales taxes from your customers, which you’ll pay to the state. You need this permit even if you’re also selling goods that are exempt from your state’s sales tax. When the time comes, you’ll owe tax only on the taxable sales.

If your business both sells products and performs services, it will be important to keep your labor sales separate from sales of goods, because sales of services aren’t usually taxed (only in some states).

Five states do not impose general sales taxes. In Alaska, Delaware, Montana, New Hampshire, and Oregon, you may not be required to get a state sales permit. However, cities and counties in those states may issue sellers’ permits and charge sales taxes. Further, some transactions may be subject to something similar to a sales tax, although it has a different name. Your state tax agency can give you the specifics.

You’ll probably have to register with your state’s treasury department or department of revenue, except in the few states that still assess no taxes on income. You may also have to register for other business taxes.

Business Entity Filings

If you’ve chosen to start out your business as a corporation, limited liability company (LLC), or limited partnership, you’ll need to file organizational documents with your state’s Secretary of State, Department of Corporations, or similar office. Most states have sample or form documents online.

warning If you share ownership of your business with investors or other owners who do not help you run the business, you may need to comply with state (and federal) securities laws.

If you’re starting off with a partner (a partnership) or by yourself (a sole proprietorship), you may not have any state filing to do. An ordinary partnership is created automatically when you agree to go into business with someone, so you don’t legally have to write anything down. However, a written partnership agreement is generally a good idea, as a record of the terms of your agreement.

Register Your Fictitious Business Name

Sometimes your business name doesn’t contain your legal name as the owner (for a sole proprietorship or general partnership) or doesn’t match the company name that’s on file with the state (for a corporation, limited partnership, or LLC). That’s variously called a fictitious business name (FBN), assumed name, DBA (“doing business as”), or trade name, and you must register it.

Depending on your state, sometimes you register directly with the state, although you usually register with the county clerk in the county where your business is located. (This registration may also be called a certification or filing.) The name will go on a state FBN list.

Employer Responsibilities

Unemployment and worker’s comp. If you have employees, you may have to register with your state department of labor or with the agencies that administer the laws on unemployment compensation and workers’ compensation.

Health and safety requirements. If your state has a version of the federal Occupational Safety and Health Act (OSHA), your business may need to meet certain mandated health and safety requirements.

Tax requirements for employers. A business with employees or independent contractors has a number of tax requirements. You will have to:

  • get an employer ID from state (and federal) tax authorities
  • withhold income taxes and employment taxes (Social Security/Medicare or “FICA”) from the paychecks of employees
  • possibly withhold other items, such as payments for disability insurance
  • report these figures (to the employee, the state, and the IRS), and
  • pay the withheld taxes to the tax authorities.

If you hire independent contractors, you need to report contract payments annually on a Form 1099, which goes to the contractor and to the government.

warning Don’t forget to pay the taxes you withhold. Many small businesses get into big trouble by failing to pay the employment taxes after their cash flow hits a dry spell.

Environmental Regulations

Many small businesses need to think about what they must do to avoid contaminating the environment. You may need a special permit (and do more record keeping) if any of the following apply to your business:

  • Your equipment vents emissions into the air.
  • You need to discharge or store waste water.
  • Your business involves or produces hazardous wastes.

Environmental regulation isn’t limited to manufacturers. Small businesses, such as stained glass makers, dry cleaners, and photo processors, need to know how to dispose of the dangerous metals or chemicals used in their work.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Business Plan Basics

April 7, 2011

All business plans must show two things: a winning idea and a clear shot at a profit.

A good business plan has two goals: It should describe the fundamentals of your business idea and provide financial data to show that you will make good money. Beyond that, the content of your business plan depends on whether it’s for potential investors or a financial projection just for yourself.

How Will You Use Your Business Plan?

Depending on whether you’re trying to attract investors or are creating a blueprint for your own use, a business plan can take somewhat different forms.

Attracting Investors

If you will use your business plan to borrow money or interest investors, you should carefully design your plan so that it sells your vision to skeptical people. Normally this means your business plan should include:

  • a persuasive introduction and request for funds
  • a statement of the purpose of your business
  • a detailed description of how the business will work (including what your product or service will be, whether you’ll have employees, who will supply your goods, and where you will be located)
  • an analysis of your market (who your customers are)
  • an evaluation of your main competitors
  • a description of your marketing strategy (how your business will reach plenty of customers and fend off your competitors)
  • a résumé setting forth your business accomplishments, and
  • detailed financial information, including your best estimates of start-up costs, revenues and expenses, and your ability to make a profit.

Together, all the parts of your plan should reveal the beauty of your business idea. You want to show potential lenders, investors, or people you want to work with that you’ve hit upon a product or service that customers really want. In addition, you should prove that you are exactly the right person to make your fine idea a roaring success.

Get Help If You Need It
Because your business plan will be submitted to people you don’t know well, the writing should be polished and the format clean and professional. Your numbers must also be accurate and clearly presented. However, not all business people are great writers or mathematicians. Consider paying a freelance writer with small business savvy to help you polish your plan. Similarly, if you are challenged by numbers, find a bookkeeper or accountant to provide needed help.

Funding the Venture Yourself

If you’re not looking for outside money, your financial projections will be the most important part of your business plan. These projections will tell you the cost of your products or services, the amount of sales revenue and profit you can anticipate, and, perhaps most importantly, how much you’ll have to invest or borrow to get your business off the ground.

Because you won’t use your plan to ask for money, you can create an informal business plan that omits some of the elements listed above. For example, you don’t need to worry so much about making a sales pitch or a slick presentation, and you may decide to skip the résumé of your own business accomplishments, but think twice before leaving out too much. Any new business will need to introduce itself to people — for example, suppliers, contractors, employees, and key customers — and showing them part or all of your business plan can be a great way to do it.

Financial Projections

Forecasting the finances of your business may seem intimidating or difficult, but in reality it’s not so bad. Good planning consists of making educated guesses as to how much money you’ll take in and how much you’ll need to spend — and then using these estimates to calculate whether your business will be profitable. Here are the financial projections you should make:

  • A break-even analysis. Here you’ll use income and expense estimates to determine whether, in theory at least, your business will bring in enough money to meet its costs.
  • A profit-and-loss forecast. Next, you’ll refine the sales and expense estimates that you used for your break-even analysis into a formal, month-by-month projection of your business’s profit for the first year of operations.
  • A cash flow projection. Even if your profit-and-loss forecast tells you that your business will have higher revenues than expenses — in other words, that it will be profitable — those numbers won’t tell you if you’ll have enough cash on hand from month to month to pay your rent or buy more inventory. A cash-flow projection shows how much money you’ll have — or how much you’ll be short — each month. This lets you know if you’ll need a credit line or other arrangement to cover periodic shortfalls.
  • A start-up cost estimate. This is simply the total of all the expenses you’ll incur before your business opens. If you need to pay off these costs during the first year or two of business, they should be included in your month-to-month cash-flow projection.

Again, no matter who your audience is, you should be as thorough as possible when calculating your break-even analysis and profit-and-loss forecast. The last thing you want is to experience the very real misery of starting a business that never had a chance to make a solid profit.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Mistakes Made by New Businesses: The Top Ten

March 28, 2011

Learn about the most common mistakes that new business owners make and how to avoid them.

Most small businesses fail within the first five years, often from a lack of planning at the outset. There are a number of financial pitfalls that new businesses must avoid in order to survive. You can improve your new business’ chance of succeeding by learning about, and taking steps to avoid, the top ten mistakes new business owners make.

1) Starting Your Business With a Large Loan

Many small business owners make the mistake of borrowing large amounts — either from banks, credit card companies, home equity loans, or friends and family — to start their businesses. Because these business owners start off owing so much money, they feel pressured to make a profit immediately — and they may have to make high monthly payments on the loans. A wiser approach is to save a good amount of money and to rely mostly on those savings when you begin your business.

2) Planning on Making a Profit Right Away

Most small businesses are not profitable within their first year or two. You should have a reliable source of income from something other than your new business to sustain yourself during your start-up period.

3) Spending Too Much Money at the Beginning

Many small businesses spend too much money “setting up shop,” buying equipment and furniture, and investing in business cards and brochures. Plan to start on a shoestring. And remember, if you spend a lot of money, that’s more money you can lose if the business fails.

4) Hiring Employees You Don’t Need

Hiring employees subjects you to registration and record keeping requirements and can be very expensive. You’ll have to pay unemployment taxes, withhold state and federal income taxes (as well as Medicare and Social Security taxes), pay for workers’ compensation insurance, and comply with safety regulations to avoid injury to your workers.

You may face severe penalties — and may even be found to be personally liable — if you don’t comply with all of these requirements. If you need help with your business, consider hiring an independent contractor or a worker from a temp agency rather than a permanent employee.

5) Renting Space You Don’t Need

Renting space is usually not necessary when you’re just starting out. Often times, you can work from home. Running your business from home can save you tax dollars too.

Renting commercial space is expensive, and if you need to make modifications to the space, can be even more so.  If your business doesn’t work out or you can’t afford to rent and have to move, you’ll probably owe the landlord rent until your lease runs out. You will most likely be personally liable for these payments because most landlords require small business owners to sign personal guarantees, even if the business is officially an LLC or a corporation.

6) Not Developing a Business Plan

Even if you’re not soliciting money from investors, business plans are useful. Come up with a financial forecast to see if your business can make money and will have money year-round. Among other things, consider:

  • what your initial financing needs are
  • what challenges your business will face (in terms of competition and marketing), and
  • how your business will survive and grow past the initial start-up period.

Your business plan should include a break-even analysis, profit-and-loss forecast, and a cash flow analysis.

7) Not Knowing How to Collect Bills

One of biggest problems new small businesses face is collecting bills. You should be aware that some clients may not pay their invoices on time. So plan to spend some time collecting what is owed to you — you might need to re-bill clients or to contact them personally when they are late in paying you.

8) Not Planning for Cash Flow Problems

There may be times when your business runs low on cash, either because business is slow or because your clients or customers are late in paying you.  You should either apply for a credit line with a bank or develop some other emergency plan for how you are going to pay your bills when you don’t have enough cash to do so.

9) Not Planning to Protect Personal Assets

You don’t want your business debts to endanger your personal assets, such as your home or your savings account. Some options for protecting your personal assets include purchasing liability insurance for your business, and structuring your business as a corporation or an LLC.

10) Choosing the Wrong Ownership Structure

Choosing an ownership structure is one of the most important decisions you’ll make for your new business.

Consider your specific needs. The following factors can help in making your decision:

  • What are the potential risks and liabilities of your business? (For instance, building houses, making edible goods, fixing cars, and selling alcohol carry inherent risks.)
  • How willing are you to spend the money it takes to set up and maintain the records for a separate business structure (such as an LLC or a corporation)?
  • What are your expected profits or losses in the first couple of years? Unincorporated business structures let you deduct business losses from your other income, but corporations do not.
  • What are your plans for seeking investors? Sophisticated investors often prefer the stock structure of a corporation.

Consider your potential liability. Here is a summary of the amount of liability you may face depending on how you structure your business:

  • Sole proprietors. Because sole proprietors are personally liable for all business debts, you could potentially lose everything you own if your business debts are not paid.
  • Partnerships. Because your partners can make commitments that bind the entire business, your liability may be even greater than in a sole proprietorship. Make sure you can trust your partners to protect your interests.
  • Limited Liability Companies (LLCs). LLCs are often subject to annual taxes or annual reporting fees. The amounts vary by state, but can be as high as $500-$800 per year, whether or not you turn a profit.
  • Corporations. Corporations are required to keep many different records, including recording every major decision and holding annual formal meetings. If you fail to do so and are sued, a judge can find that the corporation was a sham (this is often called “piercing the corporate veil”). Investors can also sue you if they think you’re not operating the business in their best interests.

Consider what most people do. For most people starting a one-person business, operating as a sole proprietor at the outset makes sense. But, if your business is especially likely to be sued, is funded by outside investors, or might be profitable right from the start, consider forming an LLC instead.

For most people starting a business with more than one owner, an LLC is preferable to a partnership — you get limited liability but need to do less record-keeping than a corporation, and the same taxation as a partnership.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Start Your Own Business: 50 Things You’ll Need to Do

March 21, 2011

From insurance to accounting to taxes, here’s what you need to do to start a business.

Thinking about starting a business? You’re not alone. Every year, thousands of Americans catch the entrepreneurial spirit, launching small businesses to sell their products or services. Some businesses thrive; many fail. The more you know about starting a business, the more power you have to form an organization that develops into a lasting source of income and satisfaction. For help with the beginning stages of operating a business, the following checklist is a great place to start.

Evaluate and Develop Your Business Idea

1. Determine if the type of business suits you.

2. Use a break-even analysis to determine if your idea can make money.

3. Write a business plan, including a profit/loss forecast and a cash flow analysis.

4. Find sources of start-up financing.

5. Set up a basic marketing plan.

Decide on a Legal Structure for Your Business

6. Identify the number of owners of your business.

7. Decide how much protection from personal liability you’ll need, which depends on your business’s risks.

8. Decide how you’d like the business to be taxed.

9. Consider whether your business would benefit from being able to sell stock.

10. Research the various types of ownership structures:

  • Sole proprietorship
  • Partnership
  • LLC
  • C Corporation
  • S Corporation

11. Get more in-depth information from a self-help resource or a lawyer, if necessary, before you settle on a structure.

Choose a Name for Your Business

12. Think of several business names that might suit your company and its products or services.

13. If you will do business online, check if your proposed business names are available as domain names.

14. Check with your county clerk’s office to see whether your proposed names are on the list of fictitious or assumed business names in your county.

15. For corporations and LLCs: check the availability of your proposed names with the Secretary of State or other corporate filing office.

16. Do a federal or state trademark search of the proposed names still on your list. If a proposed name is being used as a trademark, eliminate it if your use of the name would confuse customers or if the name is already famous.

17. Choose between the proposed names that are still on your list.

Register Your Business Name

18. Register your business name with your county clerk as a fictitious or assumed business name, if necessary.

19. Register your business name as a federal or state trademark if you’ll do business regionally or nationally and will use your business name to identify a product or service.

20. Register your business name as a domain name if you’ll use the name as a Web address too.

Prepare Organizational Paperwork

21. Partnership:

  • Partnership agreement
  • Buyout agreement (also known as a buy-sell agreement)

22. LLC:

  • Articles of organization
  • Operating agreement
  • Buyout agreement (also known as a buy-sell agreement)

23. C Corporations:

  • Pre-incorporation agreement
  • Articles of incorporation
  • Corporate bylaws
  • Buyout agreement (also known as a buy-sell agreement or stock agreement)

24. S Corporations:

  • Articles of incorporation
  • Corporate bylaws
  • Buyout agreement (also known as a buy-sell agreement or stock agreement)
  • File IRS Form 2553, Election by a Small Business Corporation

Find a Business Location

25. Identify the features and fixtures your business will need.

26. Determine how much rent you can afford.

27. Decide what neighborhood would be best for your business and find out what the average rents are in those neighborhoods.

28. Make sure any space you’re considering is or can be properly zoned for your business. (If working from home, make sure your business activities won’t violate any zoning restrictions on home offices.)

29. Before signing a commercial lease, examine it carefully and negotiate the best deal.

File for Licenses and Permits

30. Obtain a federal employment identification number by filing IRS Form SS-4 (unless you are a sole proprietorship or single-member limited liability company without employees).

31. Obtain a seller’s permit from your state if you will sell retail goods.

32. Obtain state licenses, such as specialized vocation-related licenses or environmental permits, if necessary.

33. Obtain a local tax registration certificate, a.k.a. business license.

34. Obtain local permits, if required, such as a conditional use permit or zoning variance.

Obtain Insurance

35. Determine what business property requires coverage.

36. Contact an insurance agent or broker to answer questions and give you policy quotes.

37. Obtain liability insurance on vehicles used in your business, including personal cars of employees used for business.

38. Obtain liability insurance for your premises if customers or clients will be visiting.

39. Obtain product liability insurance if you will manufacture hazardous products.

40. If you will be working from your home, make sure your homeowner’s insurance covers damage to or theft of your business assets as well as liability for business-related injuries.

41. Consider health & disability insurance for yourself and your employees.

Set Up Your Books

42. Decide whether to use the cash or accrual system of accounting.

43. Choose a fiscal year if your natural business cycle does not follow the calendar year (if your business qualifies).

44. Set up a recordkeeping system for all payments to and from your business.

45. Consider hiring a bookkeeper or accountant to help you get set up.

46. Purchase Quicken Home and Business (Intuit), QuickBooks (Intuit) or similar small business accounting software.

Set Up Tax Reporting

47. Familiarize yourself with the general tax scheme for your business structure. (See Tax Savvy for Small Business, by attorney Frederick Daily.)

48. Familiarize yourself with common business deductions and depreciation. (See Deduct It! Lower Your Small Business Taxes, by attorney Stephen Fishman.)

49. Obtain IRS Publications 334, Tax Guide for Small Business, and 583, Taxpayers Starting a Business.

50. Obtain the IRS’s Tax Calendar for Small Businesses.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Use Written Service Contracts for Your Clients

March 14, 2011

Independent contractors can avoid trouble by putting client agreements in writing.

When you agree to perform services for a client, you are entering into a legal contract — you promise to do the work, and the client promises to pay you for it. Many independent contractors rely on handshake agreements with their clients. But if something goes awry with the deal, you may have trouble enforcing the agreement. To protect yourself, get the agreement in writing.

Why You Need a Written Service Agreement

If a client refuses to pay, insists that you agreed to perform more or different work, says that you agreed to charge less than your usual rate, or otherwise won’t live up to his or her end of the bargain, you’re in a bind. You could try to convince a court that your version of the contract is correct but, without a written contract, it will be your word against the client’s, and there’s no telling whom a judge or jury will believe.

Fortunately, there’s an easy way to avoid these problems: Always get your agreements in writing. Using written contracts will help you prevent misunderstandings, clearly define the expectations you and the client have about the job, and prove your case in court, should it come to that.

What’s more, a written client agreement can help you establish that you are an independent contractor, not the client’s employee — which will be very useful if the IRS or another government agency questions your status.

What to Include in the Service Contract

A written client agreement should cover at least these topics:

  • the services you will perform
  • how much you will be paid
  • how and when you will be paid (for example, whether you will receive a set fee or an hourly rate; whether you will be paid up front, at completion, or in installments; whether the client will have to pay a fee for late payments; and so on)
  • who will be responsible for paying expenses (most ICs pay their own)
  • who will provide materials, equipment, and office space (again, most ICs provide their own, but there are exceptions)
  • how long the agreement will last
  • the circumstances under which you or the client have the right to terminate the agreement, and
  • information relating to your independent contractor status — that is, that you are an independent contractor, that you have all of the necessary permits and licenses to do the work, that you will pay your own state and federal taxes, and that you have your own liability insurance.

There are also a few standard legal provisions you should include, such as a statement that you and the client are not partners in business and that you and the client have no outside agreements about the deal except what’s been included in the contract.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Get Clients to Pay Up

February 28, 2011

What to do if a client won’t pay.

You completed your latest project on time, sent an invoice to your demanding client, and are eagerly awaiting payment… and waiting … and waiting … and waiting. Does this scenario sound all too familiar?

The sad fact is that even the most seasoned independent contractors (ICs) can have difficulty getting paid. Some clients feel free to pay late; others never pay at all. There is no government agency that will help you get your money. It’s entirely up to you to take whatever steps are appropriate and necessary to get your clients to pay up.

What’s worse, many clients are aware of these hard facts of life and will take advantage, knowing that many self-employed people don’t have the will or know-how to collect what they’re owed. You don’t have to accept this type of unethical behavior. There are many legal methods available to get deadbeat clients to pay.

How to Demand Payment

Your first step in collecting an unpaid bill should be to send a statement or a collection letter requesting payment of the invoice. (Nolo’s Quicken Legal Business Pro software provides 30-day, 60-day, and 90-day collection letters for this purpose.) Some firms routinely wait 60 or 90 days to pay bills because of cash flow problems of their own. If your clients follow this practice, sending a routine collection letter might prompt them to put the check in the mail.

Get Personal

If letters don’t work, it’s time to get personal. It’s a lot harder to withhold payment from someone you know than from a stranger. For this reason, you shouldn’t rely solely on successive collection letters. Instead, telephone the client. If you’re dealing with a large company, you may have to first contact someone in the accounts payable or purchasing department. But if that person isn’t helpful, don’t hesitate to call higher-ups, including the president of the company.

Explain that cash flow is important to your business and that you can’t afford to carry this unpaid receivable any longer. If phone calls don’t work, make an appointment to personally visit whomever is in charge of paying you.

Be Persistent

When it comes to collecting debts, the squeaky wheel usually gets paid first. A client who is struggling financially and has only enough money to pay one creditor will likely pay the one who makes the most fuss. However, don’t lose your temper, make threats, or otherwise harass the client. This kind of behavior can get you into legal trouble.

If letters, phone calls, and personal meetings don’t get you what you’re owed, you have a few options.

Formal Methods of Getting Money From Your Client

If you know the client has the money to pay you, or you think the client will have the money some time in the future, don’t give up. There are a number of legal means available to collect debts.

Sue the Client in Small Claims Court

If the debt is not too large, the first option you should consider is suing the client in small claims court. All states have courts called small claims courts that are set up to resolve disputes involving relatively modest amounts of money. The limit is normally between $2,000 and $7,500, depending on your state. If you’re owed more than the limit, you can still sue in small claims court and waive (that is, give up your right to collect) the amount that exceeds the limit.

Small claims court is particularly well suited to collecting small debts because it’s inexpensive and fairly quick. In fact, debt collection cases are by far the most common type of cases heard in small claims court. And you don’t need a lawyer to bring your case. Indeed, a few states — including California and Michigan — don’t allow anyone to be represented by a lawyer in small claims court.

If you file a suit in small claims court and your client doesn’t show up when he or she is supposed to, you’ll win by default. A substantial percentage of clients don’t contest claims for unpaid fees in court because they know that they owe the money and can’t win.


Sue the Client in Superior Court

If the client owes you substantially more than the small claims court limit for your state, you may wish to sue in a formal state trial court, usually called the municipal court or superior court. Debt collection cases are often very simple, so you can probably handle them yourself or hire a lawyer for the limited purpose of giving you advice on legal points or helping with strategy. In truth, few collection cases ever go to trial. Usually, the defendant either agrees to settle before trial or fails to show up in court (which gives you a default judgment for the amount owed).

Take the Client to Arbitration

Before you sue the client in court, be sure to look at your client agreement to see whether it contains an arbitration clause. This type of provision — usually entitled “arbitration” or “dispute resolution” — requires you to submit any disputes with the client to arbitration, rather than going to court.

If your contract has such a clause, you’ll be barred from suing the client in small claims court or any other court. This is not necessarily a bad thing. Arbitration is similar to small claims court in that it’s intended to be speedy, inexpensive, and informal. The main difference is that an arbitrator, not a judge, rules on the case. An arbitrator’s judgment can be entered with a court and enforced just like a regular court judgment. (To learn more about arbitration, see Arbitration Basics.)

When to Give Up

If the client has gone out of business or vanished from the face of the earth, or you know that he or she will likely never be able to pay you anything (either now or in the future), your best option may be to write off the debt. As the old sayings go, you can’t get blood out of a turnip — and you shouldn’t throw good money after bad.

Unfortunately, if your business provides only services, you can’t take a tax write-off for the bad debt. The rationale behind this rule is that it would be too easy for independent contractors to inflate bills and claim large deductions for bad debts that were never really incurred. (If any part of the bad debt is for goods, however, you can deduct the cost of goods that the client received but never paid for.)

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Demand Letters

June 3, 2010

In the legal world, a demand letter is commonplace.  Attorneys often send a demand letter on behalf of a client to a person who has either damaged the client in some way or is continuing to act in a certain manner which is damaging to the client.  Demand letters in of themselves have no legal authority.  What a demand letter represents is an offer to resolve the situation prior involving the courts and pursuing litigation.  Demand letters do not necessarily mean that a lawsuit will be filed in the event that the person does not comply, only that a lawsuit is being considered.  In the event that you receive a demand letter, you are legally entitled to ignore the request made by the attorney.  However, there are reasons that a demand letter should not be ignored.

First, a person should only completely ignore a demand letter if they believe they have not engaged in the conduct or caused the damages complained of.  But even if you do not believe that you engaged in any such behavior, one should consult an attorney to see if they may have some liability stemming from the conduct complained of or pursuant to some legal authority unknown to the average person.

However, if a person believes that they may have done some of the acts complained of or otherwise may be subject to liability, it is in their best interest to contact an attorney to discuss their liability and the reasonableness of any offer.  Moreover, it may be in the persons interest to contact the attorney who sent the demand letter, either personally or through an attorney.  The reason that it may be in a person’s interest to contact the attorney that sent the letter is due to the fact that legal proceedings have not been commenced,  and therefore the complaining party has not yet incurred court costs and legal fees.  Due to this fact, the complaining party may be more willing to take pennies on the dollar.  What would be recommended in such a case is to make an offer which may be less than is owed or which is less than requested.  This may allow the person to get this issued resolved early and for less than what they might owe.  Additionally, the person is not paying legal fees and court costs associated with litigation, if it comes to that, and thus saving their own time and money.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Collection of Personal Property After Death

March 30, 2010

When a loved one has died, there are avenues to pursue in order to collect their property and monies owed to them without having to go through a long probate process.  Of course, in order to do so, one must meet certain requirements.  Pursuant to ARS § 14-3971, a person is able to collect a small estate of a person upon the drafting of an Affidavit for Collection of All Personal Property or Affidavit for Transfer of Title of Real Property.

For personal property, such as money owed, the property sought, wherever located, cannot exceed $50,000.00 after deducting all liens and encumbrances.  Additionally at least 30 days need to have passed since the loved ones death.  You must show that you are the person who has a legal right to submit an affidavit claiming the property  because you were named in the will as to receive the property or the person did not have a will and you are their heir.  Heir can receive in the following order: first is the surviving spouse, next is the child if no surviving spouse or there is a spouse but they are not your parent and your parent had property which is outside the purview of their joint community property, third is a parent if no surviving spouse or child, or lastly a brother or sister if no surviving spouse or child or parent.  If there are people who are above you in that order, they must have assigned all of their interest in that property to you which can be proven by a tangible document.  You will have to avow that to the best of your knowledge that on one has filed an Application or Petition for Appointment of a Personal Representative and no Application or Petition has been granted in any state or that if an application has been granted that the Personal Representative has been discharged or more than one year has elapsed since a closing statement has been filed and the amount does not exceed $50,000.00.  You will have to describe each pierce of property you are claiming, the value, and the location of the property.  Or, if the property is monies owed, you must describe the debt, the amount owed, and the name of the person who owes the debt.  Additionally, spouses can use this affidavit to collect up to $5,000.00 in wages owed to the deceased.

For real property, such as a house, located in Arizona, cannot exceed $75,000.00 after deducting all liens and encumbrances.  Additionally, at least 6 months need to have passed since the loved ones death.  You will have to state whether the person who died was living in Maricopa County, Arizona at the time of death or where they were city and state that they were living in at the time of death and that they owned real property that is located in Maricopa County, Arizona.  You will have to state what your relationship to the deceased was and give a legal description of the property as written on the deed of title for the property.  Additionally, you will have to show what interest the person who died had in the property, thus proving how the title was held.  You will have to avow that to the best of your knowledge that on one has filed an Application or Petition for Appointment of a Personal Representative and no Application or Petition has been granted in any state or that if an application has been granted that the Personal Representative has been discharged or more than one year has elapsed since a closing statement has been filed and the amount does not exceed $75,000.00.  You will also have to attest to the fact that funeral expenses, expenses of last illness, and all unsecured debts of the person who died have been paid.  Then you will have to show why you are entitled to the property, i.e. you are the heir lawfully entitled to take the property as detailed in the personal property section above.  Lastly, state that no other person has a right to the interest of the deceased in described property and that there are no federal or Arizona estate tax due on the person who died.

In order to collect personal property, all you need to do is take the affidavit to the person who has the personal property.  If you are claiming title to a vehicle, the MVD will transfer title to you upon payment of any required fees.  It is not necessary to file any papers or pay any fees to the Court to use the affidavit.

In order to collect real property, you must take the affidavit, original will if one exists or certified copy of the will from the court record, a certified death certificate and a copy of the closing statement if there was a probate in a county other than Maricopa County to the Probate Registrar at any of the Superior Court locations.  There will be a fee to file for this process.  If the Probate Registrar determines that your affidavit is complete, they will issue a certified copy of the affidavit, at which time then you must record the certified copy with the county recorder in the county where the real property is located.

Many of the required documents and assistance can be found using the Superior Courts website and the Self-Service Center:

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Miranda Updates

March 30, 2010

Two cases have come down this year which have brought new light to Miranda.  Both of the cases have dealt with deviations from the standard Miranda warnings and the legality of the deviation.  The 9th Circuit case dealt with an officer who tried to explain the Miranda warnings and clearly deviated from the Miranda form.  During his long explanation of Miranda, the office down-played the significance of Miranda and stated that the suspect had a right to an attorney if he was involved.  This deviation implied, incorrectly, that a person is only entitled to the assistance of counsel during the interrogation if they were involved in a crime.  This made it so invoking your right to have counsel present was an indication that you had committed the crime since you only had that right if you had committed the crime.  The confession was thrown out because the Miranda warnings were constitutionally deficient as they did not clearly and reasonably inform the suspect of their right to counsel, in addition to other reasons.

The Supreme Court also addressed the issue of Miranda Deviations but in contrast to the 9th Circuit found that the Miranda warnings were sufficient.  In that case, the officer stated that the suspect had the right to talk to a lawyer before answering any questions and later stated that the suspect had the right to use any of the enumerated rights at any time they want during the interview.  The Supreme Court upheld the deviation because the essential information was conveyed.  Miranda requires that a suspect is clearly informed of their right to consult with a lawyer and that they can invoke that right at any point of the interview.  The decision states that the deviation conveyed both the right to have counsel present and that the right to have counsel present can be invoked at any time, and even though the officer had deviated from the typical Miranda warnings, the message was still present.  The Court clearly states that even though the two warnings were separated, it still clearly informed the suspect that the right to counsel was available at any time.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Dwane Cates Law Group PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020


Arizona State Enforced Child Support

March 18, 2010

Pursuant to Title IV-D of the Social Security Act, U.S.C.A. § 601 et seq., the State child support enforcement agency the Division of Child Support Enforcement (DCSE), a division of the Department of Economic Security (DES) has an interest in IV-D cases (known as 4-D).  There are two ways in which a case can become a 4-D case.  One such way is when a person applies for cash assistance under the Temporary Assistance for Needy Families (TANF) or the Arizona Health Care Cost Containment Service (AHCCCS) and assigns all of their rights to the State while they are on the program, automatically creating a 4-D child support case.  The second way a person can have a 4-D case is upon the filing of an application for 4-D services, something that can be done by anyone at any time, and there is no requirement that a person receive assistance from the State.    A.R.S. § 25-509(A) states that the “attorney general may initiate an action or intervene in an action to establish, modify or enforce a duty of child support … regardless of welfare or non-welfare status of the person to whom the duty of support is owed.”  A case where there is current assistance in state or out-of-state, and former assistance in state or out-of-state involve an assignment of rights by one of the parents and therefore will likely result in a 4-D assignment.  However, regardless of whether it is a 4-D case or a regular case involving child support, the only difference is the State’s involvement in the case.  A 4-D case can be beneficial because the State has an interest in seeing that child support is paid.  The State has many resources which they are willing to use to ensure that a person is paying child support.  These remedies to ensure payment of child support include income withholding orders, credit reporting, license suspension/revocation, tax intercepts, passport denial/suspension, asset levy/seizure, lottery winnings intercept, worker’s compensation benefits intercept, and unemployment insurance benefits intercept.

This blog is meant to be informative and does not constitute legal advice, and while I do encourage others to post and discuss this topic, I can not and will not respond to any questions as it can create a conflict of interest and possible ethical violations.

Cates, Hanson, Sargeant & Schoenau PLC

1747 E. Morten Ave, Suite 205

Phoenix, AZ 85020