Virgin Islands Law Blog

Virgin Islands Law Blog

U.S. Virgin Islands law & politics

What You Should Know About Operating a Sole Proprietorship

Posted in Business

A sole proprietorship is the simplest business structure you can operate under. It is technically not a legal entity—it is just a single person who owns the business and is personally responsible for its debts. The business can operate under the name of its owner or under a fictitious trade name.

Sole proprietorships are popular because they are simple to establish and relatively inexpensive. All you need to do is register your trade name with the Virgin Islands Corporate and Trade Name Division of the Office of the Lieutenant Governor and secure the proper licenses with the Virgin Islands Department of Licensing & Consumer Affairs, then you can begin doing business.

Of course, the primary disadvantage is that you will be personally liable for any of the business’s debts. If your business runs into financial problems, creditors can direct their lawsuits to you, rather than the structure of your business. If those lawsuits are successful, you’ll have to pay out with your own money, which could be a significant financial burden. You also are not able to raise any capital by selling interest in your business, and the business itself likely will not survive if you retire or pass away, unless you change structures later on.

There are, however, several benefits associated with the structure:

  • As mentioned, it’s easy and relatively inexpensive to establish a sole proprietorship; you do not even need to file any sort of paperwork or form to establish the business structure
  • Sole proprietorships have few ongoing formalities
  • Owners can mix their business and personal assets freely, meaning you don’t have to worry about maintaining and tracking separate accounts
  • You do not need to pay unemployment tax on yourself

What to know about sole proprietorship taxes

Because a sole proprietorship is the same, in essence, as its owner, the taxation for a sole proprietorship is much simpler than other forms of business structures. The income earned through your sole proprietorship is income earned by you as the owner. You report all income and losses/expenses by filling out and filing a Schedule C form, along with your standard Form 1040. The bottom line amount from your Schedule C gets transferred to your personal tax return. This can be beneficial in some circumstances, because any losses suffered by your business could offset income earned from other sources.

You are also required as a sole proprietor to file Schedule SE along with Form 1040. This form calculates how much self-employment tax you owe. You do not need to pay unemployment tax, but if you have any employees, you will need to pay it on their behalf.

If you’re interested in learning more about the advantages and disadvantages of running a business as a sole proprietor, contact a corporate planning attorney in the U.S. Virgin Islands.

Steven K. Hardy is Chair of the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full-service business law firm based on St. Thomas, U.S. Virgin Islands.

How to Find a Sensible Acquisition Target

Posted in Business, Real Estate

One of the many ways to efficiently grow your business is to acquire other companies, taking over their intellectual properties and customer bases. Of course, there is a lot of planning and hard work that goes into an acquisition, and the process of actually finding a company worth acquiring isn’t always easy.

Every merger or acquisition situation is different, but there are some elements you should consider any time you are looking at acquiring a new company. Here are some of the factors to keep in mind while you’re assessing potential acquisition targets.

  • Reasons for selling: This should be the first question you ask yourself when evaluating the company—why is the owner willing to part with it? Is the seller trying to find a new growth opportunity as well, or is this a sinking ship? Are they actually interested in selling the company, or is this just a test to see what sort of interest there is on the market? Carefully consider the seller’s motivations before moving forward with any acquisition.
  • Management: What type of management structure does the company currently have? You should consider who is in charge of making the most important decisions for the company, or if there are any elements of the company’s structure that hamper its efficiency. Consider also the strengths and weakness of the management as a whole entity, as well as individual leaders in the company.
  • Company versus industry issues: As part of your analysis of the company, you should find any issues that are preventing the company from being as good as it can possibly be, then determine if these are problems that solely affect this company, or if they are industry-wide problems. Obviously, a company-specific problem is going to be much more feasible to resolve.
  • Existing financial burdens: What outstanding obligations does the potential acquisition target have with regard to its finances? A significant amount of debt might prevent the acquisition from being profitable or worthwhile for your company. Look out for issues such as frequent late payments to vendors, layoffs or pension/retirement liabilities.
  • Performance: How has the potential acquisition been performing in its market? Current market share is important to look at, but go beyond that as well, and consider whether the company has either recently launched or is preparing to launch any new products or services, and what the prospects of those new offerings are.
  • Reputation: It may hurt your company more than it helps it to acquire a company that has a bad reputation. Talk to people that work with the potential acquisition, including suppliers, customers, employees and competitors. There are always going to be a few negative opinions, but pay attention to frequent criticism or trends of certain types of criticism that may indicate the business does not have a good reputation.

For more tips about how to conduct a smooth merger or acquisition, contact our corporate planning attorneys in the U.S. Virgin Islands.

Steven K. Hardy is Chair of the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full-service business law firm based on St. Thomas, U.S. Virgin Islands.

Signs of Economic Improvement: USVI Bonds Pick Up

Posted in Banking and Finance, Business, Corporate & Financial Services, Government Relations, Hurricane

While the U.S. Virgin Islands’ bonds are still rated in junk status, there are some significant signs of improvement and glimmers of hope for economic recovery in the territory. The price of some of the Territory’s bonds has more than doubled since the end of 2017, thanks in large part to a boom in construction during the post-hurricane rebuild and the reopening of the St. Croix oil refinery. Now, economic experts in the Territory feel good about the growth in the local economy believe there is a positive future for the territory’s bond ratings.

This information comes from Electronic Municipal Marketplace Access (EMMA), a website operated by the Municipal Securities Rulemaking Board. On December 28, 2017, a customer bought $2 million worth of U.S. Virgin Islands gross receipts tax bonds maturing in 2039 at 44 cents on the dollar. Recently, a different customer bought $1 million of the bonds at 95 cents on the dollar, representing an increase of more than 100 percent.

In a statement, the President of Capital Markets Advisors, Richard Tortora, said this increase in bond price shows “a reflection of increased investor confidence in the Virgin Islands.”

What’s driving economic improvement?

A major factor in the slip of bond prices in the second half of 2017 was the destruction caused by Hurricanes Irma and Maria, a pair of Category 5 hurricanes that wiped out a significant amount of the islands’ infrastructure, housing stock and businesses and has severely inhibited tourism in its aftermath. Still, the Territory’s government made full bond payments in October 2017, April 2018 and October 2018.

The slow but steady work the Territory has done to rebuild infrastructure and businesses since the storms and restore and even improve on many services and offerings around the Territory has been the main driving force of this economic improvement.

Revenue is projected to increase for the Territory in the next fiscal year, as well. Projections for the 2019 budget currently sit at $1.311 billion in revenue, compared to $1.278 billion in projected revenue for fiscal year 2018. During the last six months, the U.S. Virgin Islands has seen the largest gross receipts tax collection in years at $191.3 million, as well as $452.9 million in income tax and $63 million in real property taxes.

While the Government of the Virgin Islands has already drawn on $215 million of a federal Community Disaster Loan approved after the hurricanes, it may or may not end up needing to draw on the remaining $81 million available to it.

There is still much work to do for the U.S. Virgin Islands to see a full recovery from Hurricanes Irma and Maria, but a significant amount of progress has been made, and officials in the Territory can feel good about the economic prospects moving forward.

Tom Bolt is Managing Attorney and Chair of the Government Relations Practice Group at BoltNagi PC, a full-service business law firm based on St. Thomas, U.S. Virgin Islands.



An Overview of the Short Sale Process

Posted in Banking and Finance, Real Estate

A short sale is when a lender agrees to a person or entity selling property at fair market value even if the outstanding mortgage against the property is more than that value. In such a case, the lender generally forgives the balance due on the loan after the sale occurs, and the borrower is not required to pay off the remaining balance (though this isn’t always true).

Short sales are more likely to fail than standard real estate transactions, especially if there are multiple liens against the property, because all lien holders must consent to the same terms of the short sale. This can make for a tricky process, but one that is still possible to navigate.

Here is an overview of some of the steps of the short sale process:

  • Property valuation: A lender isn’t going to approve a short sale if the property owner has enough equity in that property to sell it and at least break even. A key component of a short sale is the homeowner being upside-down on the loan (owing more than the home is worth). Therefore, an accurate valuation of the home is crucial to determining whether or not the short sale will ultimately get lender approval. This is typically accomplished with the services of a professional real estate appraiser, in some cases requested directly by the lender.
  • Hardship letter: Beyond just having a value on the property, the lender will want to know why the property owner cannot maintain ownership of that property. The seller must draft a hardship letter that provides the lender with a list of reasons and in-depth explanations of their inability to continue making mortgage payments. The letter must be highly persuasive for the lender to approve it—a real estate attorney can be of great assistance in drafting this letter. Include details about income versus debts and other assets owned.
  • Fill out the application: Lenders will be hesitant to give out short sale applications, so this might not be as easy of a process as one might expect. Be persistent in seeking your application so you do not get shrugged off by a lender who is unwilling to initiate the process.
  • Prepare the contract: You’ll need to actually have an offer from a potential buyer for the lender to be able to approve (or reject) your short sale. The sales contract should state the deal is contingent upon the approval of the lender. Your lender may also be interested to see the listing agreement, as well as proof of the buyer’s ability to purchase the property.

The short sale process can be complex, so it’s highly recommended you do not attempt to get through the process without the assistance of a real estate attorney. Contact us today to learn more about our services.

J. Nash Davis is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full service business law firm on St. Thomas, U.S. Virgin Islands.

What to Include in Your Employee Handbook

Posted in Labor & Employment, Sexual Harassment

Employee handbooks or manuals are frequently used in corporate settings to provide an overview of employee responsibilities and rights, as well as certain company regulations. The purpose of these manuals is twofold: to ensure all employees are aware of their rights and obligations, and to protect the company in the event of labor lawsuits.

There are some Virgin Islands and federal labor laws you are required to put into your employee handbook. Examples include information about the Family Medical Leave Act (FMLA) and employee rights under that law, equal employment and non-discrimination policies enforced by the Department of Labor, mandatory sexual harassment prevention training and polices and workers’ compensation policies that inform employees of their right to seek compensation for workplace injuries (and the steps involved in doing so).

Beyond these types of required policies, most of the rest what you put into your handbook is up to you. Here are some examples of common policies and stipulations put into employee handbooks:

  • A note that the handbook is not a contract: Many companies add language that clarifies that the handbook is simply meant as a guide for employees, and is not an express or implied contract and does not guarantee employment for a certain length of time.
  • Handbook is the primary policy source: The longer your company has been around, the more documentation you’re going to accumulate, and the more policies will change over time. There should be a stipulation in the handbook that the book is the primary, ultimate source for all company policies, trumping any other documentation or understanding of the rules that may exist.
  • Paid time off: If your company offers paid time off, include information such as how that vacation time will be earned, how to schedule time off, the holidays observed by the business and how employees are compensated if asked to work holidays (if applicable). This is also a good area to cover sick leave, family medical leave and any other types of leave.
  • Behavior: It is a good idea to include a section in expectations of employee conduct. You should absolutely have a clear policy against employee harassment, as well as policies for conduct on the internet and company email, a dress code, a substance abuse policy and anything else you think necessary. Make sure you include a process for how you will address behavioral issues in the workplace, and how victims of harassment or abuse in the workplace can report these incidents to prompt an investigation.
  • Benefits: Provide an overview of the types of benefits your company offers, but don’t get too specific, as your benefit packages may change relatively frequently. The information should instead focus on eligibility and its criteria.
  • Pay structures: Include information about pay grade structures, promotions, overtime policies and work hours to ensure everyone is on the same page.

For more tips about policies and disclaimers you should include in your company’s employee handbook, contact an experienced employment attorney in the U.S. Virgin Islands.

Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor & Employment Practice Group at BoltNagi PC, a full service business law firm based on St. Thomas, U.S. Virgin Islands.

Study: USVI Lost 4,500 Jobs After Hurricanes of Fall 2017

Posted in Business, Hurricane

Information gathered by the Federal Reserve Bank of New York’s Research and Statistics Group shed some light on the effects of the hurricanes of Fall 2017 on the economy of the U.S. Virgin Islands, including the statistic that the territory lost 4,500 jobs in the wake of the hurricanes.

That figure accounts for a 12 percent job loss between August 2017 and November 2017, before and after Hurricanes Irma and Maria. As of May 2018, only about 600 of those jobs had returned, leaving many people out of work and many companies still struggling to get back to pre-hurricane levels.

This means the economy in the territory suffered a more significant blow from the storms of 2017 than it did from other major storms like Hugo (1989) and Marilyn (1995), though not as severe as other areas have suffered from other storms, such as New Orleans from Hurricane Katrina in 2005.

In addition, while Puerto Rico has received more headlines in the continental United States for its disaster relief efforts and humanitarian crises in the wake of the storms, the economic effect was actually substantially more severe in the U.S. Virgin Islands. Puerto Rico suffered half the job loss percentage that the Virgin Islands did, and has reversed half of that job loss already.

This can be explained in part by the geography of the territories. Almost everyone in the Virgin Islands lives within several miles of coastline, compared to Puerto Rico, where many settlements are in the mountains that are miles away from the shore. This means that while job loss might not have been as severe in Puerto Rico, people were more cut off from utilities, transportation and communication, which made for a greater disruption of everyday life

Tourism hit hard

Still, the economic effects of the storms were far more severe in the U.S. Virgin Islands, mostly because of the territory’s dependence on tourism. Puerto Rico has a much more diversified economy, with tourism accounting for only about two percent of its total economy versus about 13 percent in the U.S. Virgin Islands.

Predictably, the storms devastated tourism in the territories. Few people want to visit an area that has suffered significant storm damage, is without many basic utilities and is focused on rebuilding its infrastructure and buildings.

Before the hurricanes, there were about 600,000 to 700,000 cruise ship visitors to the territory in a given four-month period. However, from September to December 2017, only 241,000 passengers arrived on cruise ships, which made for a 57 percent drop from the previous year.

The economy in the U.S. Virgin Islands continues to rebound, but it will be a long, slow journey to get back to pre-storm employment and earnings. For more information about how your company can continue to recover, contact a corporate planning attorney in the U.S. Virgin Islands.

Tom Bolt is Managing Attorney of BoltNagi, a full service business law firm located on St. Thomas, VI.

How to Convert an LLC to a Corporation

Posted in Business, Corporate & Financial Services

The process of converting an LLC to a corporation can vary depending on the circumstances of your business. There are three types of conversion available—which method you choose depends on where you primarily do business and whether you meet the requirements for each method.

Here’s an overview of each of them.

Statutory conversion

This type of procedure is relatively new, and offers business owners a more streamlined means of converting an LLC to a corporation. All it takes is filing a few forms with the Secretary of State’s office. Every state and territory that allows statutory conversions has its own specific forms that you must fill out, but in general, the steps involve:

  • Preparing a conversion plan, which must be approved by the LLC members
  • Filing a certificate of conversion and, as needed, an LLC certificate of formation and any other legally required documents

The effects of a statutory conversion are the same as other forms of conversion—those who were members of the LLC are now stockholders in the corporation, and all assets and liabilities of your LLC are now assets and liabilities of the corporation. The legal structure of the LLC then ceases to exist. These effects all occur automatically, rather than through separate individual agreements that require additional filings, making it a speedier method.

Statutory merger

This process is a bit more complicated than a statutory conversion, and is frequently used in states and territories that do not allow statutory conversions. The basic steps are as follows:

  • Form a new corporation (LLC members become stockholders)
  • LLC members vote to approve the merger as both LLC members and stockholders
  • LLC members exchange membership rights for corporate shares
  • File a certificate of merger and other legally required documents with the Secretary of State’s office

The main difference between this process and statutory conversions is that you must create your corporation as a separate business entity before transferring the LLC’s assets and liabilities. This process generally involves extra fees and additional steps. You must also formally exchange membership rights for corporate shares through a drawn-up merger agreement, and file a separate form to officially dissolve your LLC.

Nonstatutory conversion

The final available conversion process is nonstatutory conversion, the most complicated and expensive method of conversion. In most cases, it is recommended that you avoid using this process if at all possible—most businesses that would look at this category are eligible for a statutory conversion or statutory merger.

The main steps of this process are as follows:

  • Form a new corporation
  • Transfer the assets and liabilities of the LLC to the corporation
  • Arrange a formal exchange of LLC membership interests for corporation shares
  • Formally liquidate and dissolve the corporation

For more information about the process of converting an LLC to the corporation and to obtain legal advice for this process, contact a skilled corporate planning attorney in the U.S. Virgin Islands.

Steven K. Hardy is an Associate Attorney in the Corporate, Tax and Estate Planning Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.

U.S. Department of Labor Investigating Wage Issues in the U.S. Virgin Islands

Posted in Labor & Employment

The United States Department of Labor’s Wage and Hour Division (WHD) recently paid a visit to St. Croix and St. Thomas to investigate some reported wage issues, as well as to offer compliance assistance with regard to recovery efforts still ongoing after Hurricanes Maria and Irma.

According to a press release issued by the Department of Labor, federal agents were reviewing local employers’ compliance with the McNamara-O’Hara Service Contract Act (SCA), the Contract Work Hours and Safety Standards Act (CHWSSA), the Fair Labor Standards Act (FLSA) and the Davis-Bacon and Related Acts (DBRA). Particular issues they were investigating included missed payroll, unpaid work hours and failure to provide required fringe benefits and wages under federal construction and service contracts.

There had been some concerns that employees who were working on hurricane recovery efforts were not receiving the wages and benefits they had earned and that were, by rights, theirs to be compensated with. The Department of Labor also wanted to ensure all employers in the territory were competing on a “level playing field.”

Any employees or employers in need of compliance information, wish to file a complaint or intend to schedule a meeting with a representative from the WHD can contract the Caribbean office of the WHD at 787-775-1947 or 1-866-4-USWAGE, or get in touch online. Any conversations had with these representatives, regardless of medium used, are strictly confidential.

DOL recovers pay for 13 employees

The investigation did yield some tangle results—the WHD forced one construction contractor based in Alabama, KW Construction Work, Inc., to pay out nearly $15,000 to 13 Texas-based employees who were stranded without pay and transportation in the U.S. Virgin Islands after doing some hurricane recovery work.

According to the Caribbean District Office of the WHD, the contractor committed several violations of the FLSA, including failure to pay minimum wage, failure to pay overtime, failure to keep records of how many hours the employees were working and misclassification of employees as independent contractors.

WHD officials stated the department received a back wage compliance agreement and payment from the company within just 24 hours. The employer also arranged for transportation that would return the employees to Texas within several days.

There are likely more employees in the U.S. Virgin Islands being affected by these kinds of issues. While recovery efforts are winding down in comparison to where they were earlier this year, there are still many people temporarily in the U.S. Virgin Islands, and if they do not get the compensation or transportation they were promised, they could find themselves in difficult financial situations.

For more information about the work being done by the WHD in the U.S. Virgin Islands, contact an employment law attorney in the territory.

Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor and Employment Practice Group at BoltNagi PC, a full service business law firm serving the U.S. Virgin Islands.

Supreme Court Approves Use of Class-Action Waivers by Employers in Arbitration Agreements

Posted in Labor & Employment

On May 21, 2018, the United States Supreme Court ruled that employers may require employees to enter arbitration agreements that waive their rights to seek class-action claims against the employer. The split, 5-4 decision was authored by Justice Neil Gorsuch, rejecting the position held by the National Labor Relations Board (NLRB) that any of these types of class-action waivers violated employees’ rights to engage in “concerted activities” with regard to terms and conditions of employment, a protection afforded by the National Labor Relations Act (NLRA).

The ruling drew criticism from Justice Ginsburg, who voted with Justices Breyer, Kagan and Sotomayor as the dissenters and called the ruling “egregiously wrong.”

About the case

The case in question, Epic Systems Corp v. Lewis, actually featured three cases combined into one. In each of these cases, an employer and employee entered into a contract that required individual arbitration processes to settle labor and employment disputes.

As background, the NLRB ruled in 2012 that the NLRA essentially nullified the Federal Arbitration Act’s policy favoring enforceability of these arbitration agreements when any class-action waivers are involved in the case. At the time, the NLRB reasoned that any class-action claims related to employment disputes are a type of concerted activity protected under the stipulations of the NLRA. Since that ruling, courts have been split as to whether or not they must defer to this precedent set by the NLRB. The Supreme Court’s ruling clarifies the issue.

The impact

So what does this decision by the court mean moving forward for class-action employment cases?

Now, employers across the nation are allowed to include clauses in contracts or other arbitration agreements that make it mandatory for employees to resolve their employment disputes in individual arbitration proceedings rather than entering into class-action suits or other collective acts in cases where those agreements are governed by the Federal Arbitration Act.

Any clauses that require individualized arbitration allow employers to handle disputes in the workplace more efficiently on a one-on-one basis, and these employers are now protected from elevated risk of large judgments and major class-action suits.

It is expected that, moving forward, employers will be more likely to include mandatory arbitration agreements that have collective and class action waivers as a condition of employment. This means fewer class-action suits nationwide, less risk of employer liability for workplace disputes and less expense faced by employers in defending these types of cases.

For more information about how this case could impact businesses throughout the United States, get in touch with an experienced corporate planning attorney in the U.S. Virgin Islands today.

Ravinder S. Nagi is Assistant Managing Attorney and Chair of the Labor and Employment Practice Group at BoltNagi PC, a full service business law firm that serves the U.S. Virgin Islands.

How to Write an Effective Business Plan

Posted in Business

A strong, concise business plan is crucial when starting a new business. Not only will it give you a roadmap for how you will grow your business in its early years, but it will also be useful for investors, who want to see that you have a well-thought-out venture that has a good chance of being viable and sustainable before they invest their money into it.

Here is what you should include in your business plan:

  • An executive summary: This should sum up your entire business plan. What are the goals you have for your company? What do you hope to achieve? What are you looking for out of potential investors? Clearly state exactly what you’re looking for, and do not mince words.
  • Business description: Begin with a short description of the industry in which your business will operate, discussing the outlook for that industry at the present and in the future. Discuss any new products or other developments that could benefit or impact your business in any way.
  • Market strategies: Before you launched your business, you presumably (or at least should have) conducted some in-depth market studies, allowing you to familiarize yourself with all aspects of the market. In this section of your business plan you will identify your target market and properly position your company in a way that you can serve that market and garner sales.
  • Competitive analysis: Identify all of the competitors you have in your market, their strengths and weaknesses and strategies you have that will give you a distinct advantage over these competitors. As part of this, consider how your business will differ from your competitors, and any barriers you can develop to prevent potential future competitors from taking over your market share.
  • Operations and management plans: Describe how your business will operate on a day-to-day level. Your operational plan should include the responsibilities of your management team and all tasks assigned to the company’s various departments.
  • Design and development: If you’re selling a product, you should use this section to give potential investors a description of the design of that product. You should also be able to clearly map out how it’s been developed in the context of production and marketing. This section should also contain a development budget that will realistically allow you to achieve your goals.
  • Financial data: Keep financial data toward the back of the business plan, but still be as thorough as you can. Include any financial factors that could affect your company, as well as any financial backing you’ve already received for your venture.

These are just a few of the categories you’ll need to include in any business plan you prepare for your company. For more information, we encourage you to contact an experienced corporate planning attorney in the U.S. Virgin Islands.

Tom Bolt is Managing Attorney at BoltNagi, a respected and well-established corporate law firm, proudly serving entrepreneurs and business owners throughout the U.S. Virgin Islands.