Are Unpaid Interns Really Free?

To a small business trying to stretch a budget, interns seem like a dream come true. They are mostly students, early in their career and eager to prove themselves. Best of all, the economic realities of job-hunting and the catch-22 of needing “experience” to land their first job mean that many students will intern for you free of charge. What’s not to love?

But before you go out and create a part-time workforce of students, know that federal law actually prohibits you from using interns as free labor. If you bring on an unpaid intern for a position that looks and functions just like an employee role, you risk violating the Fair Labor Standards Act (FLSA).

Below are some factors the Department of Labor uses to distinguish between internships vs. employee positions that are simply disguised as internships. If the answer to most of the following inquiries is a firm “yes,” you’re likely safe not paying your intern. If not, your intern might technically be an employee entitled to minimum wage and overtime pay.

1. No Expectation of Pay. Do the employer and intern both clearly understand that there is absolutely no expectation of payment?
2. Training. Does the internship provide training similar to what the intern would receive in school, including at clinics or hands-on workshops?
3. Relationship to Formal Education Program. Is the internship incorporated into the intern’s educational curriculum, and/or is the intern receiving credit for the internship?
4. Accommodation for School Commitments. Does the internship accommodate the students’ education? Do classes and other academic commitments take precedence?
5. Duration. Is the internship for a limited period of time? (It should only last as long as it remains educational.)
6. Nature of Work. Does the intern’s work complement rather than displace employee work?
7. No Job Offer. Does the intern understand that there’s no promise of a paid position after completion of the internship?

True interns aren’t free. Even if they don’t cost money, they cost time — you need to be willing to spend time training and teaching them, more as you would with a mentee or a student rather than a new hire. You need to be giving them opportunities to learn that don’t necessarily “pay off” for you, like letting them sit in on interesting meetings or shadowing you or your employees as they work.

If you don’t invest time to make your intern’s experience truly educational, and if they’re doing basically the same work as your other employees, paying them less than minimum wage may well be an FLSA violation.

Adding New Members to an LLC

Adding new members to an LLC will often mean that you need to write a new operating agreement, or add another agreement, often called a joinder agreement, on top of your current operating agreement. At the very least, adding a new partner will change the percentage of ownership interest that you own, which can have consequences for whether or not you may make business decisions. For example, if your operating agreement states that distributions can only be made with a vote of 75% of the members, and you add a fifth member, you will now need four out of five votes to make distributions. Many times, there are issues caused that are more significant than that, and you will want to be prepared for that before adding a new member. Furthermore, your operating agreement likely requires a new agreement before you can legally add a new member.

What is a Registered Agent

A registered agent can be any person or organization that is physically located in Texas. It doesn’t have to be a member of the LLC, or an employee, but they must have given consent, and they must provide a mailing address. The purpose of the registered agent is to give people the opportunity to officially communicate with you regarding a variety of business and legal issues. If your registered agent ever changes, you’ll have to update that information with the Secretary of State.

What “Powers” does a Texas LLC Have?

Registered Limited Liability Companies in Texas generally have the following “powers”

• Sue, be sued, and defend suit in the entity’s business name;
• Have and alter a seal and use the seal or a facsimile of it by impressing, affixing, or reproducing it;
• Acquire, receive, own, hold, improve, use, and deal in and with property or an interest in property;
• Sell, convey, mortgage, pledge, lease, exchange, and otherwise dispose of property;
• Make contracts and guarantees;
• Incur liabilities, borrow money, issue notes, bonds, or other obligations, which may be convertible into, or include the option to purchase, other securities or ownership interests in the entity, and secure its obligations by mortgaging or pledging its property, franchises, or income;
• Lend money, invest its funds, and receive and hold property as security for repayment;
• Acquire its own bonds, debentures, or other evidences of indebtedness or obligations;
• Acquire its own ownership interests, regardless of whether redeemable, and hold the ownership interests as treasury ownership interests or cancel or dispose of the ownership interests;
• Be a promoter, organizer, owner, partner, member, associate, or manager of an organization;
• Acquire, receive, own, hold, vote, use, pledge, and dispose of ownership interests in or securities issued by another person;
• Conduct its business, locate its offices, and exercise the powers granted by this code to further its purposes, in or out of this state;
• Lend money to, and otherwise assist, its managerial officials, owners, members, or employees as necessary or appropriate if the loan or assistance reasonably may be expected to benefit, directly or indirectly, the entity;
• Elect or appoint officers and agents of the entity, establish the length of their terms, define their duties, and fix their compensation;
• Pay pensions and establish pension plans, pension trusts, profit-sharing plans, bonus plans, and incentive plans for managerial officials, owners, members, or employees or former managerial officials, owners, members, or employees;
• Indemnify and maintain liability insurance for managerial officials, owners, members, employees, and agents of the entity or the entity’s affiliate;
• Adopt and amend governing documents for managing the affairs of the entity subject to applicable law;
• Make donations for the public welfare or for a charitable, scientific, or educational purpose;
• Voluntarily wind up its business and activities and terminate its existence;
• Transact business or take action that will aid governmental policy;
• Renounce, in its certificate of formation or by action of its governing authority, an interest or expectancy of the entity in, or an interest or expectancy of the entity in being offered an opportunity to participate in, specified business opportunities or a specified class or category of business opportunities presented to the entity or one or more of its managerial officials or owners; and
• Take other action necessary or appropriate to further the purposes of the entity.

Business Organizations Code – Title 1. General Provisions – Chapter 2. Purposes and Power of a Domestic Entity

Texas Limited Liability Companies are required to have one of the following in their official company name: 

• limited liability company
• limited company
• LLC 
• L.L.C. 
• L.C. 
• LC
• Ltd. Co.
• Some other abbreviation meaning limited liability company

Texas LLCs are forbidden from having the following in their name:

• Lotto
• Lottery
• Any name that implies you’re a veteran or a company for the benefit of veterans
  • Veteran
  • Legion 
  • Foreign 
  • Spanish 
  • Disabled 
  • War 
  • World War
• Any name that implies you are in a business you are not authorized or licensed to pursue, for example:
  • Medical Doctor Alliance
  • Supreme Court Justice Burgers 
• Any name already in use, or any name too similar to one already in use

Business Organizations Code – Title 1. General Provisions – Chapter 5. Names Of Entities;  Registered Agents And Registered Offices

A limited liability company is a type of business entity that provides the business owner with liability protection. The types of liability that might be protected by a limited liability company, or LLC, might include lawsuits, debts, and other financial issues that might arise while running your business. Basically, if your LLC is set up and run correctly, then no one will be able to get your personal assets due to problems within the company.

Limited liability is an attractive feature for a lot of business owners because it reduces the risks associated with running a business. For example, if someone slips and falls in your retail shop, and they try to sue you, they would only be able to get to the money owned by the company, not the money you personally own. This type of protection is similar to the protection you’d get from having a corporation, but running a corporation can be expensive for a number of reasons. The limited liability company is generally less expensive to run because complying with state laws is simpler for LLC’s, and because taxes can be simpler.

LLC’s are state entities; every state has an LLC structure that provides the liability protection described above. By state entity, I mean that the federal government doesn’t see the LLC quite like a normal corporation. When you go to file for your EIN (Employer Identification Number), you are telling the IRS what type of business you are, so the IRS knows how you should be treated for tax purposes. There’s no option to be treated as an LLC. Instead, you can choose to be taxed as a pass-through entity, or you can be taxed as an S-Corporation.

Corporations get taxed twice – once for the business and once for the owners. It doesn’t necessarily mean that you’ll pay more as a corporation than if you were a pass-through entity, but it’s usually more complicated and can mean additional costs in hiring an attorney or accountant to help you pay your taxes. However, if you choose to be a pass-through entity, then the IRS doesn’t tax your business, they’ll tax you on the money you make from the business as an individual: only you get taxed instead of both you and the company.

So if you opt for an LLC, you not only get to protect your assets from liability, but you also have the option to avoid double taxation. The right option for you isn’t always obvious, but hopefully this article will help you get started.

Check out the table below with the laws for limited liability companies across the country.

[table id=1 /]

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