Everything You Need to Know About Litigation Funding
If you’re struggling with handling a lawsuit, litigation finance is an important practice to know about. Litigation finance, or funding as it’s more commonly known as having a third party provide financing to the plaintiff in a case to receive a portion of the earnings from a lawsuit.
What does that mean exactly? It means that a third party is able to file a lawsuit even if they aren’t able to (or don’t want to) pay for the proceedings.
The History of Litigation Funding
Funding may seem like a modern concept, but it’s actually been taking place for the last twenty years.
In the United States, litigation funding was used in the 1990s for personal injury lawsuits but didn’t truly take off until around 2006. That’s when Credit Suisse Securities established a subdivision for litigation risk strategies to focus on litigation funding.
Today, it is used to finance lawsuits and legal claims, reduce risk on balance sheets, and to grow capital. Both companies and law firms have been known to use litigation funding to help them power their case.
The Legal Side of Litigation Finance
While litigation funding might seem like something that would be overseen by the federal government, the laws and legal constraints of the process is actually left mostly to state governments. In the last five years, Congress began taking a greater interest in litigation finance but they haven’t made any acts or policies regarding the process.
In contrast, state governments have been steadily increasing the use of litigation finance for both private and public cases.
Litigation Finance Around The World
The United States isn’t the only country that uses litigation finance in court proceedings. This practice is also common in Australia and the United Kingdom. Both these countries employ this concept but operate slightly differently than the US does.
Similar to the United States, in Australia, it began in the 1990s. In contrast, however, this process was used by law firms and companies at a much faster rate. Once the legislation had been passed legalizing the process in 1992, companies began to spring up and enter the market to offer plaintiffs litigation funding for their cases.
In the United Kingdom, the rise of litigation finance occurred in a slightly different fashion. Also in the mid-1990s, the Criminal Law Act of 1967 was removed. This law was an old act that had legally prevented third-party litigation funding.
Additionally, Parliament passed a new act called the Courts and Legal Services Act which allowed clients to create fee agreements based on conditionality. The removal of the Criminal Law Act and the introduction of the Courts and Legal Services Act combined made it lawful for people to begin using litigation finance. Previously, people would move to Canada to take advantage of the benefits the court system there has to offer.
Today, it is a commonplace practice that helps many people work around the financial strain of paying for a court case. If you have questions about a court case, reach out to our team of attorneys.
America’s economy is built on the backbone of small business. In 2016, of the 5.6 million employers in the US, firms with fewer than 500 workers accounted for 99.7 percent of all employers. From 1993 to 2016, small businesses created 61.8 percent net new jobs.
Of course, being a small business owner comes with many challenges. These include everything from creating a website to marketing your business and finding skilled employees.
While not necessarily the most glamorous aspects of running a business, ensuring employees and bills get paid is critical. While we’re on the topic of the not-so-fun aspects of owning a small business, let’s talk about the elephant in the room, business taxes.
They can make or break your business. So, it’s crucial that you get a handle on taxes now before the IRS starts sending collection notices. Read on for the tips you need to plan ahead for small business taxes.
Don’t Let Business Taxes Paralyze You
Does just hearing the word “taxes” or “IRS” put you in a cold sweat? If so, you’re not alone. However, don’t let this turn into an excuse to procrastinate or remain disorganized when it comes to the IRS.
Instead of putting off the inevitable, proper planning and organization prove essential components of preparing for tax time.
This means implementing processes to organize your taxes that are repeatable throughout the year. This also means performing these processes consistently.
If you don’t get a system in place now, your company risks drowning in debt later.
What You Need to Know About Small Business Taxes
Besides tax anxiety, there are a plethora of other concerns that small business owners must manage. These include things like cash flow, employee legalities and more.
Particularly when you’re in the early stages of launching a new business, many taxpayers fixate on revenue. After all, they not only need to break even on their business, but they also need to make enough for personal expenses.
It can be tempting within this context to put off paying taxes until other debt obligations are handled. Many taxpayers choose to pay immediate expenses before giving the IRS its due. However, this can prove a costly mistake.
When taxes go unpaid, you may not receive a notice right away. That’s because it takes time for the IRS to start communications. However, don’t let the initial delay fool you.
Notices will start coming, and when do, you could be in for some startling news. Small business owners who fail to pay back taxes can face everything from liens to levies against their businesses.
These can result in loss of customers and revenues when you need them most. It can also lead to cash flow problems and the eventual closure of your enterprise.
Know Your Business Type
Businesses can be set up in a variety of ways. These include sole proprietorships, a general partnership, an LLC, or a corporation.
When it comes to taxes, paying employees and more, the way you structure your business matters, for example, a sole proprietorship reports its expenses and income on a Schedule C. This is also known as a 1040.
However, when it comes to corporations and partnerships, they use different tax forms. Partnerships and S-corporations are taxed as pass-through entities. That means they get taxed at the individual level.
How to Avoid Legal Penalties
Knowing how your business is organized from a legal standpoint will help you better understand things such as the importance of HIPAA Requirements, as well as your tax obligations to the IRS. It’ll help you decide whether or not you have to pay quarterly tax estimates and much more.
Also, while we’re on the topic of quarterly estimated taxes, don’t skip out on these. Quarterly estimated taxes are due in mid-April, June, September, and January. They are not optional.
If you fail to pay quarterly estimates on time, you’ll rack up penalties on top of the taxes you owe.
It would help if you also had a thorough understanding of how to report your employees to the IRS. In other words, you need to know the differences between employees and sub-contractors.
According to Romaker Law, business owners are held fully responsible when it comes to payroll taxes for their employees. This includes timely payroll returns and deposits. It also means dealing with state returns and deposits where applicable.
Like quarterly taxes, if you skimp on payroll taxes, you’ll get left holding the bag. The IRS has the authority to charge you both penalties and interest for missed payroll taxes.
So the worst-case scenario? These taxes can even be personally assessed to you, the business owner.
Other Problems with Unpaid Taxes
When it comes to unpaid taxes, they can get you in a variety of ways. Not only do you risk raising the ire of the IRS, but you end up with an inaccurate accounting of your business profits and losses.
This can negatively impact your operational budget. For one, when you don’t pay taxes on time, it can lead to a false sense of security. You may feel that you’re raking in more profits than you are.
It can even result in a business operating at unsustainable expense levels. (Since they assume they have more money than they do.)
Also, when the IRS finally does catch up with you, they could surprise you with a bill that you can’t even begin to scrape together.
Think Consistent When It Comes to Recordkeeping
Think of consistent tax recordkeeping as a way to better understand your enterprise’s actual financial state. It should be done consistently. This means a minimum of once per week.
That way, you’ll not only be able to decide how much your business owes, but you’ll also build a more thorough understanding of how your business is performing.
It is knowing where you stand, which matters for a variety of reasons. After all, the IRS has been known to make mistakes. If you’re able to catch errors in their assessment, you may be able to reduce some of the debt you owe.
For this and so many other reasons, it makes sense to hire a tax professional to help you keep track of your company’s earnings and expenses. That way, you’ll have a more solid case if an IRS mistake does happen.
Keeping up on these records will also help you ensure that you’re not missing out on claim expenses. Trying to wade through a year’s worth of receipts on April 14th will result in inaccuracies, and many missed exemptions and deductions.
Businesses that are Already in Legal Trouble
What do you do if you already find yourself in the unenviable position of owing unpaid taxes? Remember that time is of the essence.
Don’t put off getting to the bottom of the problem any longer. Or else your issues with the IRS will balloon.
There are a variety of legal options available to you. Especially when it comes to paying off a tax debt.
However, what if your business also proves unable to meet its current tax obligations? Then, it would be best if you made financial adjustments ASAP.
Paying off your current taxes in a timely fashion is paramount to your business’s future success and financial health. Only then should you conquer back taxes.
When it comes to legal assistance, get in contact with an attorney who can help you navigate the legal process, and follow the correct resolution path for your business.
In a recent blow to a common tactic of small- and medium-sized companies attempting to do business as subcontractors on federal government contracts, Judge James C. Cacheris of the U.S. District Court for the Eastern District of Virginia ruled that a Teaming Agreement between a prime-contractor and its former sub-contractor was too vague and indefinite to be enforced by a court. This ruling serves as yet another warning to government sub-contractors to carefully examine any Teaming Agreement to ensure it includes concrete, enforceable obligations, or otherwise, accept the risk that if the relationship between prime- and sub-contractor turns bad, the sub-contractor may be left with no legally-enforceable rights at the end of the road.
The case, Cyberlock Consulting, Inc. v. Information Experts, Inc., No. 1:12-cv-396 (E.D. Va.), involved a sub-contractor that had already successfully completed work for the prime-contractor under a contract from the U.S. Office of Personnel Management (“OPM”), and ironically, involved an earlier teaming agreement between the prime and the sub. When the prime learned of a new contract that would soon be awarded by OPM, the prime and the sub entered a new teaming agreement that was significantly less-detailed than the first teaming agreement, notably including a provision that said it would terminate if there was a “failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations.” Relying upon information provided by the sub-contractor, the prime successfully bid the new OPM contract, but the prime and sub later failed to agree to a sub-contract. The sub-contractor then sued the prime, claiming that the Teaming Agreement formed an enforceable, legal contract, and that the court should look to the surrounding circumstances of the relationship, including the successful work done under the previous Teaming Agreement.
Judge Cacheris disagreed and ruled in favor of the prime-contractor, holding that the Teaming Agreement could not be enforced under Virginia law. Judge Cacheris focused on the written terms of the Teaming Agreement as a whole, and citing long-standing Virginia law that bars the consideration of evidence from outside the written document (known as the “parol evidence rule”), refused to consider the prior course of conduct between the prime and sub. Stating that it is “well settled under Virginia law that agreements to negotiate at some point in the future are unenforceable,” the judge ruled that the Teaming Agreement “read as a whole indicates that this particular language was not meant to provide a binding obligation but rather set forth a contractual objective and agreed framework for the negotiation of a subcontract in the future along certain established terms.” Judge Cacheris even went as far as to note that “calling an agreement something other than a contract or subcontract, such as a teaming agreement or letter of intent, implies that the parties intended it to be a nonbinding expression in contemplation of a future contract.” While the Teaming Agreement did contain seemingly mandatory language requiring the prime to award the sub with a portion of the contract, that language was modified by other tentative, indefinite language that recognized the parties would still negotiate a future agreement regarding the work. This proved fatal to the sub-contractor.
Attorneys and practitioners in the field of federal government contracts should also pay attention to Judge Cacheris’s criticism of a 2002 case that is routinely cited by attorneys attempting to enforce Teaming Agreements on behalf of sub-contractors. That 2002 case, EG&G, Inc. v. Cube Corp., 63 Va. Cir. 634, 2002 WL 31950215, was issued by the Fairfax County Circuit Court and favored a sub-contractor after examining not only the language of the Teaming Agreement, but the surrounding circumstances, including the parties’ intent and performance on the government contract. Judge Cacheris criticized this approach, stating “[t]o the extent that EG&G suggests that teaming agreements are a special arrangement to which Virginia’s standard rules of contract interpretation, including the parol evidence rule, do not apply, the Court concludes that that case is incorrect and should not be followed.” Thus, practitioners (especially those representing sub-contractors) should be aware of this new development.
Judge Cacheris issued his Opinion and Order granting the prime-contractor’s motion for summary judgment while denying the sub-contractor’s motion for summary judgment on April 3, 2013. The sub-contractor appealed the decision to the U.S. Court of Appeals for the Fourth Circuit (Case No. 13-1599), and its opening appellate brief is due to be filed with that court by July 1, 2013 while the prime-contractor’s response brief is due on August 8, 2013.
Cyberlock v Info Experts Opinion (PDF)
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