James E.R. Ratledge, Reginald B. Gillespie, Jr., and Daniel C. Pope, Jr. have been named North Carolina 2022 Super Lawyers by Super Lawyers magazine! Each year, Super Lawyers recognizes the top five percent of lawyers in North Carolina via a patented multiphase selection process involving peer nomination, independent research and peer evaluation. Congratulations!
Protecting Your Company From Liability During Downsizing
Your organization could resort to downsizing for many reasons, including cost-cutting, restructuring, mergers, and other factors. When you consider laying off employees, you must examine the risks of violating various state and federal laws. Furthermore, in the event of a layoff, several common law claims may be strengthened, and a mass layoff may expose you to multiple claims from several employees in a class-action lawsuit.
Successfully executing a layoff is one of the most challenging problems your company may face. However, a considerable body of best practices has been developed to aid management in carrying out the downsizing in a planned, legally compliant, and humane approach.
Legal Implications of Layoffs
An organization’s choice to downsize may violate several federal and state laws. Almost half of the states have their own notice laws. Some even go so far as to demand that corporations pay a modest severance package or continue to provide health insurance to employees for a limited time following the layoff.
North Carolina, however, does not fit into either of these categories. Because North Carolina lacks its own layoff or plant closure statute, workers are solely covered by the Federal WARN Act.
Worker Adjustment and Retraining Notification Act (WARN)
The purpose of this statute (and its state law equivalents) is to reduce the harm caused by layoffs to workers and communities. WARN requires you to offer at least 60 days’ notice of a downsizing to the affected employees.
A “mass layoff” happens when at least 500 full-time workers lose their jobs within 30 days, or when at least 33% of workers at a single site of employment are laid off in 30 days, unless the percentage amounts to fewer than 50 people. A site of employment is a physical area where you run your business operations and could include a building, an industrial complex, or a campus. Physically separate worksites that are utilized for the same function, are in reasonable proximity, and share the same personnel and equipment may also be considered a single employment site.
The Federal WARN act is limited to larger firms. A large business has:
- At least 100 full-time workers (those who work at least 20 hours a week and have been on the job for at least six of the previous 12 months prior to the notice) or,
- 100 employees who work a cumulative of 4,000 hours or more each week.
Determining whether WARN applies to a given layoff can be challenging. It is advisable to seek legal advice in all instances, even in what may seem to be the most straightforward cases.
Notice Required by WARN
Employees who will lose their jobs during downsizing are entitled to 60 days’ notice. Individual notice is not available to unionized workers. Instead, the employer must inform its union representatives, who in turn notify the impacted employees.
The notice must include specific details regarding the impending layoffs, including whether they will be temporary or permanent or whether the employee will be given bumping benefits. It should also state when the layoffs are slated to begin and when the employee will receive a termination letter.
In some cases, you are not required to give any notice at all or can give less than 60 days’ notice.
No Notice Required
An employer is not legally compelled to give early notice of a mass layoff in some instances. They include:
- Temporary Projects: No notice is necessary if an employer releases personnel employed solely for a temporary project that has been completed or shuts down a facility that was only meant to be open for a limited time. This exception is only applicable if the employees were aware of the temporary situation during hiring.
- Strikes and lockouts: WARN does not apply if a closure or downsizing results from a workers’ strike or an employee lockout.
Shorter Notice Allowed
In select circumstances, you may offer less than 60 days’ notice. You must clearly explain in a written notice why you were unable to provide the mandated 60 days’ notice.
- Unforeseeable business conditions. A shorter notice period is permitted if the grounds for the downsizing or layoff were not reasonably foreseeable at the time, the employer should have given 60 days’ notice.
- Natural calamities. If a natural disaster causes a layoff, you may give less than 60 days’ notice.
- Faltering Enterprise: If your company is facing financial difficulties, it may give a shorter notice. You must, however, demonstrate that your business was actively seeking business or funding that would have enabled it to defer or avert the downsizing and that it reasonably believed that giving a 60-day notice would have gotten in the way of obtaining the necessary money or business. However, this provision is only applicable for plant closures, not mass layoffs.
What Happens With A WARN Violation?
An employer who breaches WARN may be held liable for all wages and benefits lost due to the violation, up to the full 60 days mandated by WARN. Any salaries or severance fees paid voluntarily by the employer are deducted from the sum. You may also be required to pay the legal fees and court costs of affected employees who win their lawsuits.
Additionally, you may have to pay $500.00 in civil penalties for every day you fail to notify local authorities. However, if you deliver back pay to every affected worker within three weeks of parting, you can avoid the $500.00 civil penalty.
Because WARN stipulates that an employer’s maximum liability is limited to 60 days, providing your employees with full benefits eliminates any potential liability. However, no provision in WARN allows for payment in lieu of notice, and the laws do not recognize the concept.
Our North Carolina Business Attorneys Can Help
As seen from the above discussion, federal WARN and its state equivalents can be highly complex and technical legislation that should be considered whenever your business is having to downsize.
If your company is considering layoffs or downsizing, the Wilson Ratledge North Carolina business attorneys can help you ensure compliance with all applicable state and federal labor regulations. Call them today at 919-787-7711 or fill out the form online to schedule a consultation!
Chapter 11 Reorganization in North Carolina
There are many forms of reorganization and bankruptcy, but not all are available to – or make sense for – small businesses. Due to recent changes in the law, however, a Chapter 11 reorganization, which used to be somewhat challenging to access for many small businesses, has become much more accessible.
Here, we discuss what a Chapter 11 reorganization is, the benefits of one to a small business, and the beneficial changes in the law that have recently been made.
What is a Chapter 11 Reorganization, and What are its Potential Benefits?
In short, a Chapter 11 reorganization is a process that enables a business to reorganize and continue to operate despite financial struggles. More specifically, a Chapter 11 filing provides for the following:
- Automatic Stay Protection: The automatic stay is a bankruptcy law mechanism that forecloses creditors from collecting on the small business debtor’s debts. Litigation is put on hold, lenders cannot proceed with foreclosures, and sales of business assets are also put on hold.
- Rejection of Unfavorable Contracts: A small business debtor can reject unfavorable contracts, such as a rental lease, allowing him or her to leave a rental location with above-market rent that is no longer financially feasible.
- DIP Loan access: A small business debtor can borrow money through access to a debtor-in-possession, or DIP, loan. These loans allow lenders to obtain super-priority liens, putting them first in line before the small business debtor’s existing lenders (making these loans very appealing to a lender and, therefore, opening up more credit availability to debtors).
- Asset Sales: Further, a small business debtor can sell its assets (such as equipment, machinery, and other property) free and clear of liens and claims (liens will, however, attach to the proceeds of the sale).
- Debt Reprieve: Finally, a small business owner facing financial struggles can find relief through a debt reprieve. This means that the business owner can seek to take a break from paying pre-bankruptcy debts. This allows the business to direct money to more urgent needs or to build up a cash reserve. While the debts will need to be paid back eventually, the temporary reprieve can offer breathing room for the business.
The Small Business Reorganization Act of 2019
While the benefits above may sound too good to be true, until recently, many small businesses have been unable to take advantage of a Chapter 11 reorganization because of certain restrictions and high expenses involved in a filing.
The Small Business Reorganization Act (SBRA), which went into effect on February 19, 2020, aimed to address some of the issues preventing small businesses from taking advantage of a Chapter 11 reorganization. The SBRA created a sub-chapter V of the Bankruptcy Code, which has the main objective of allowing small businesses to quickly and inexpensively emerge from bankruptcy with a court-approved plan of reorganization.
Here are just a few of the many changes the SBRA made:
- Continued Ownership: allows small business debtors to retain a stake in the reorganized entity, so long as the ultimate reorganization plan is fair and equitable. The debtor’s management may also continue to operate the business.
- Plan of Reorganization Confirmation: holds that creditors no longer need to confirm a small business debtor’s plan of reorganization, as long as they meet certain requirements. This means that small businesses will no longer have to negotiate with creditors regarding payments, saving both time and money.
- Appointment of a Trustee: provides that a trustee is appointed and will act to facilitate the reorganization and assist the small business debtor with following its plan of reorganization.
- Streamlined Process: removes procedural hurdles and many of the costs associated with corporate reorganizations.
- Delayed Payment of Administrative Expense Claims: provides that the small business debtor is no longer required to pay administrative expense claims on the effective date of the plan. Instead, business owners are permitted to pay these administrative expenses claims throughout the term of the reorganization plan.
Further Benefits Implemented by the CARES Act
The SBRA provided for a small business, which it defined as a business with debts in an amount not greater than $2,725,625, to restructure its debts through the more cost-effective Chapter 11 process. However, many small businesses did not qualify because they carried too much debt.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) amended the SBRA to increase the debt limit for debtors filing a Chapter 11 reorganization under subchapter V of the Bankruptcy Code. The debt limit was increased to $7.5 million, allowing for more debtors to take advantage of the streamlined Chapter 11 process. This debt limit will return to its prior limit of $2,725,625 after one year (unless further extended).
Is a Chapter 11 Reorganization Right for Your Small Business?
A Chapter 11 reorganization is not the solution for every struggling small business. However, because of the recent changes to the Bankruptcy Code made by the SBRA and the further (temporary) changes implemented by the CARES Act, a Chapter 11 reorganization is now a more accessible option for many small businesses who find themselves unable to pay their creditors or afford their bills.
Contact Our Experienced Business Law Attorneys
There are many complex issues that you must address in the reorganization process to ensure that you are taking the proper steps to protect your business. There is no one-size-fits-all solution, so it’s vital to consult an experienced business planning attorney who can advise you on the benefits, potential pitfalls, and challenges involved in this process.
The attorneys at Wilson Ratledge regularly advises their clients on processes like business reorganization. As a small business, Wilson Ratledge is committed to helping business owners thrive in a post-pandemic climate. For questions or assistance, call one of the experienced North Carolina business attorneys at 919-787-7711 or via the contact form below. Wilson Ratledge looks forward to serving you and helping your business find its way back to success in a turbulent market.
Business Loan Options In North Carolina
Raising money for starting or growing a business is one of the most challenging parts of being an entrepreneur or a business owner. You might have that revolutionary idea for a product or a service, but your resources aren’t just enough. So, where do you turn to get the financing for your business idea?
Thankfully, there are many loan options for you and professionals to help you get the best terms. Various options are available, including state grants, crowdfunding, regional loans, and state-based loans.
In this post, you’ll learn how to get the funds to start your business or keep it running. Here are ten ways to fund your start-up business or get resources to realize your business goals.
#1. Bank loans
Many small and medium businesses are eligible for a bank loan if they have a good credit rating. Banks will need to look at your business’ financial health and your income to determine your eligibility. In North Carolina, many banks have programs designed specifically for small businesses to get off the ground.
#2. SBA loans
If you don’t qualify for a regular bank loan, you may still be able to obtain a Small Business Administration (SBA) loan. The SBA Guarantee Program helps small and medium-sized businesses that may not be able to get funding elsewhere. Working capital loans can last up to 10 years and up to $ 5 million.
The SBA reduces the risk to lenders by guaranteeing repayment of loans. Businesses have a wide range of SBA loans to choose from. Each type has its own parameters and stipulations on using the money and when to repay it.
#3. Private equity
Private equity is a large industry that invests in businesses that are not publically listed. Private equity firms participate in your business and generate operating profit that you can use to build your business.
They usually stay in your company for around four years before leaving. Private equity entities typically make money by selling their position to another investor or back to you.
Some individual investors are focused on many types of businesses. For example, venture capitalists tend to focus on early tech companies, while some focus on late consumer companies.
#4. Strategic partnership
Suppose other companies or organizations are ready to contribute to your success. In that case, they are probably prepared to invest in helping you support yourself. If you can create opportunities for them, they may be interested in supporting your growth by building strategic partnerships.
This mostly happens if your business is up and running and can offer opportunities to potential strategic partners. Strategic partners can be vendors, suppliers, and other people you have a common interest and benefit from the partnership.
#5. Crowdfunding
Crowdfunding is a novel way for small and medium businesses to fund their activities. These platforms use technology to connect the right entrepreneurs and investors.
Crowdfunding can save time and effort by successfully creating a single business environment for all potential investors using profiles. The most popular funding platforms in the United States are Indiegogo and Kickstarter.
Remember that crowdfunding forums differ significantly in terms of performance, features, and requirements. Therefore, it is best to determine which one best suits your goals.
#6. Angel investors
Angel investors invest in promising business ventures that need quick funding for a piece of the business.
Angel investment is quite similar to private equity though it functions differently. It typically focuses on the earliest stage of technology start-ups. If you’re an innovative start-up with a bias to technology, this is one of the best options for funding your business.
One of the issues with this is that you will need to provide the angel investor with equity in your company and, most likely, some power in decision-making. Therefore, the angel investor approach must align with your vision and the company’s purpose.
#7. Grants
Government agencies and charities provide grants to businesses in various areas. A business grant is money given to companies in need when repayment is not expected. The money you’re given is not a loan, and therefore no interest is attached.
Generally, businesses that qualify for grants will have to offer some form of ‘public good.’ There are research and development grants programs, environmental companies, social services, child care, etc.
#8. Business credit card
If you’re short on cash, a business or personal credit card can be good to use to help your new venture get off the ground. Be careful with these, though, as interest rates can be high and terms can be onerous.
#9. Short-term loan
Not all companies (or business owners) have good credit scores, but funding options are still available. You can get the funding or capital you need with a short-term loan. Generally, the repayment period is only a few months, and interest rates can be higher than other options.
#10. Invoice financing
If you charge a customer, you may have to wait weeks or months for payment to be made. However, you can get your money earlier with one of the many programs which offer invoice financing, which borrows money based on the value of unpaid invoices.
Our Raleigh Business Lawyers Can Help With Your Startup
Starting a business is hard – the team at Wilson Ratledge can help your firm with legal and startup advice to put you in the best situation as you launch your new venture. Call them today at 919-787-7711 or fill out the online form to schedule a consultation today!
Navigating Changes in Tax Law After Relocating To North Carolina
North Carolina is a great state to live in. Whether you are an individual who has just moved here or a business owner, some changes to the tax law that you may not be aware of could affect your finances. This blog post will introduce those changes and offer advice on how to adapt after moving to the Old North State.
1. Sales tax
In a move to make the sales tax system fairer, effective October 1st, 2020, North Carolina State Sales and use tax is currently at 4.75% plus an applicable local rate ranging between 6.75% to 7%. Additionally, items or goods at the general rate attract an additional local option sales tax rate capped at a flat rate of 2.25% for all counties in North Carolina.
Under the NC sales tax, goods subject to this levy include physical property, like furniture, home appliances, and motor vehicles. On the other hand, groceries, prescription medicine, gasoline fall, electricity storage, and consumption are sales and use tax exempted.
Sales Tax on ‘Remote Sales’ in NC is also capped at 4.75%. However, the levy applies if the cumulative sales exceed $100,000. You are also required to charge sales tax if you did 200 or more separate transactions in North Carolina within the tax year understated or the previous year.
2. Income tax for new NC residents
Under North Carolina law, a person who moves to the State for a “definite term or particular undertaking” and abandons the intent to return to their original state of residence is subject to North Carolina income tax. This provision covers all income earned or derived from any source in North Carolina after all applicable deductions and exemptions. This includes salary, wages, commissions, and self-employment such as business income. The new resident’s income is reported on Form D-400, Part B.
The exemptions under North Carolina law that may affect your tax bracket include retirement income received during the year but did not work in NC all year round, or if you worked fewer than 6 months in the state. You’ll only be taxed on the income earned in NC. Other exemptions include unemployment benefits and qualified military wages earned outside North Carolina.
According to the 2020 Personal Taxes Bulletin, a taxpayer can also take credit for personal income taxes paid to their previous state of residence. However, the amount of the credit cannot exceed the North Carolina tax liability.
3. State income tax deduction for federal taxes paid
The state income tax deduction for federal taxes paid is limited to $10,750 per individual or $16,125 for the head of household and $21,500 for married taxpayers filing jointly. This restriction applies only to the extent that the taxpayer itemizes deductions on Schedule A (Form D-400). It should also be claimed in the taxable year 2017 and each taxable year after that.
4. NOL carryover deduction
As of June 30th, 2020, Governor Cooper assented into law Session Law 2020-58 House Bill 1080. The new Notice under the State and Federal provisions suspended the 80% NOL carryforward deduction limit until the end of the tax year 2021. This suspension also covers NOLs incurred during the tax years 2018, 2019, and 2020.
For this reason, filers can now carry over NOLs indefinitely without worrying about the 80% limit. This reduces tax liability by allowing the business owners (S-Corps & C Corps) to file for NOL deductions on their personal income tax returns.
5. Corporate income tax
The North Carolina Senate, on June 10th, 2021, passed House Bill 334 with their own amendments. The amended Bill that seeks to reduce the state’s 2.5% corporate income tax, provide a moratorium of three years between 2024-2026 before the rate is reduced by 0.5% and completely phased it out by 2028. This law is meant to attract foreign investments, resulting in job creation and growth for the state’s economy.
Contact Our North Carolina Tax Attorneys
The tax attorneys at Wilson Ratledge can help you navigate all your tax issues. We understand that it can be very complicated or stressful to deal with tax controversies or tax planning. This is why we do all we can to help our clients and ensure that they have nothing to worry about. Contact us today for more help in adjusting to the local tax laws as you continue settling in North Carolina.
The Mergers & Acquisitions Process In North Carolina
People use the terms mergers and acquisitions interchangeably, but they have different meanings. In an acquisition, a company takes over another one and becomes the new owner. A merger refers to two firms, roughly the same size, that come together to do business as one company or a merger of equals.
For example, Daimler-Benz and Chrysler merged to become Daimler Chrysler. They surrendered their stocks and issued new company stock for the new company. Asset acquisition refers to the purchase of a company’s assets instead of its stock
A business acquisition describes when your company buys most or all shares in another company to get control of the company. When you purchase over 50% of a firm’s stock and assets, you can decide what to do with the assets without waiting for approval from the other shareholders.
Benefits of Mergers and Acquisitions (M&A)
A merger or acquisition can have several benefits for your company:
Better Economies of Scale
If you join forces with another company, the new and larger company has higher material and supply needs. When you purchase the necessary materials or supplies in larger volumes, your business improves scales with lower costs, and you can pass the lower costs to your customers.
Lower Costs of Labor
Mergers or acquisitions mean eliminating extra staff that might be doing the same job. It means lower wage costs and the maintenance of a more dynamic workforce. You can review the worker’s performance doing similar roles and choose the best one for each position.
Enhanced Market Share
When you merge your company with another in the same industry, the new company enjoys a better market share. The company taps into the resources both companies bring to the table.
Improved Financial Resources
When you get into an M&A deal, you pool your finances, increasing your new company’s financial capacity. You may encounter new investment opportunities, and you can now reach a bigger audience because you have a more significant budget for marketing and more inventory.
Potential Pitfalls of Mergers and Acquisitions
Mergers and acquisitions also can have their pitfalls despite their many benefits. Carefully consider the pros and cons of M&A. Some of the pitfalls include:
Increased Expenses
You have to pay all the professionals involved in the M&A logistics. If you acquire another company, you have to pay a lump sum for its assets. This cost may be a disadvantage to your business.
Loss of Potential Opportunities
The energy, financial resources, and time that go into a merger or acquisition might mean your company and the other company have to forego opportunities that may arise during the process.
The M&A Process
Mergers and acquisitions are complex processes that require the help of professionals like lawyers, accountants, and risk management professionals to guide you towards a successful deal conclusion.
Contact An Experienced North Carolina M&A Attorney
This process is time-consuming and complex. You need experienced professionals who know how to navigate the process – Wilson Ratledge has the experience and expertise to guide you and your company through the challenging process of a merger or acquisition. Contact us today to schedule a consultation to talk more about your situation and how we may be able to help!