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September 29, 2008
Know the Fine Print
Does your landlord have the right to move you to another suite? Do you need the landlord’s approval to make improvements to your space? Can the landlord pass through the cost of ADA compliance as a CAM charge? These and other questions point up the necessity to read the fine print in any legal document. And tough documents need the trained eye of an attorney.
September 1, 2008
Do You Need to Register your Name?
In many states your "dba" must be registered. It may be called a fictitious name or an assumed name, but if your business goes by some name other than its legal name, you should check to determine any required registration. That includes a sole proprietorship operating under a name other than your personal name.
July 21, 2008
Health and Environmental Permits
Environmental issues, such as air and water quality are often supervised at the state or regional level. Local health departments will most typically come into play with businesses that sell or prepare food. These business will need a license or permit from the local health department. It is possible, however, that the health department will become involved in other businesses. Examples include businesses that use well water or septic tank systems. Check with your local attorney to determine your requirements.
May 26, 2008
Don’t Sign Until You Know the Zoning
What could be more costly than moving into your newly leased office space only to find that your business cannot be located there because of zoning ordinances. Make your lease contingent on getting the right zoning. Have your attorney look into the laws. Points to consider include off-street parking, placement of signage, approvals required to modify the structure, special rules affecting your type of business, etc.
April 21, 2008
Know Your Licensing Requirements
Businesses are required to be licensed. Sometimes multiple licenses are required. The requirements may be Federal, State or local. There are almost always requirements at the local level. In addition to business licenses, there may be special professional licenses or there may be building code requirements. To know your requirement, you should check directly with the local government agencies. Relying on what other businesses have done or what a broker tells you is a recipe for trouble. The responsibility – and the penalty – will be yours.
April 14, 2008
Check before Transferring Property for Stock
Discuss the facts with your tax advisor before you transfer property to a corporation in exchange for stock. If the property has increased in value since you bought it, you may owe taxes on the transfer. There are transfers that qualify as tax free, your tax advisor will know the rules. The key point is to check before you act.
March 17, 2008
Cost Effective Trademark Search
Obtaining a registered trademark can take months. Investing in the name in the meantime can be a costly mistake if there is a conflict. That’s why is may be wise to hire a search firm to do a thorough search. To control costs, however, learn to do the search yourself. By search your initial ideas on the web, in directories and using the system of the US Patent & Trademark Office, you will turn up obvious conflicts on your own. Only pay to search those names that pass your initial screening.
February 11, 2008
Stockholder Agreements
Ownership in a small corporation is typically in the hands of the operators. Owners whose objectives may not be in line with management are often disruptive. To keep control over who can become a shareholder, the owners often execute a Stockholder Agreement, which limits the ability of current shareholders to sell their stock to outsiders. The agreement will cause shareholders to offer shares to the corporation and/or to the other existing shareholders before selling to an outsider.
December 31, 2007
Get Permission from Directors
If your business is a corporation, the board of directors should adopt a corporate resolution approving significant transactions such as borrowing money or pledging corporate assets. It might even be a good idea to get shareholder approval if there are outside shareholders how might come back later with a complaint about your performance as an officer and director.
December 24, 2007
Don’t Co-mingle your Funds
You form a corporation or LLC to protect yourself from personal liability for obligations of the business. It is critically important that your corporation or LLC maintain its own bank account and that transactions of the business be distinct from your personal transactions. If you personally spend funds on business, submit documentation and have yourself reimbursed. Co-mingling of funds runs the risk that you might void your protection from liability.
December 17, 2007
Estate Planning Basics
The number one point to cover is - - make sure you have a valid will that carries out your wishes. The next step to basic planning is reviewing the mechanics of how your property would be handled upon your death. Will certain property go directly to your survivors with going through probate court? If you have significant wealth, have you minimized the impact of estate taxes? Estate planning evolves and your plan must be reviewed and updated every few years. Your needs at 25 are very different than your needs at 50. If you own a business and have minor children, it is especially important that you anticipate the events that your family would face in the event of your death.
December 10, 2007
Partners with Multiple Business Interests
Do you have business partners? Do you personally have more than one revenue stream? Does your partner? Let is be clear in your working agreement that either of you is allowed to engage in more than one business so long as it does not materially and directly interfere with the business you run together. Better to document your understanding now that to argue about it later.
December 3, 2007
Keep Your Contracts Simple
There is no reason to fill your contracts with legalese. The best contracts are the ones that are easily understood – written in plain English. That doesn’t mean that it’s unimportant to cover key provisions, such as the term, the jurisdiction, etc. It does mean that long, Latin sounding words can do more harm than good. The most important points to cover in plain English are the two elements that make the document a valid contract: 1) the specific provisions of the agreement between the parties and 2) the items of value that are to be exchanged between the parties.
November 26, 2007
Pre-Nuptial Agreement for your Business
Have a great business idea? You and two other guys? What happens when one of those guys gets nothing done? You need to contemplate in advance the possibility that your business relationship will sour and have a mechanism in place to deal with the departure of a partner. If you don’t want the partner selling to an outsider, then you need a provision requiring that he sell to insiders and you need a valuation methodology that will fix the price.
November 19, 2007
Monitoring Employee Communications
Can employers monitor their employees’ calls or e-mails? Within reason, the answer is yes. Exceptions include such circumstances as listening to personal phone calls after realizing that the calls are personal. The keys are to maintain clear policy statements and follow those policies consistently. Tell your employees that business communications may be monitored. If you indicate that the privacy of employees will be honored with respect to personal calls, then honor your promise. A reasonable approach will result in happier, more productive employees.
November 5, 2007
Unfair Contracts
In most cases, if you agree to a contract that leaves you holding the bag, you have little recourse because “a bargain is a bargain.” There are exceptions, most notably in situations that involve fraud or misrepresentation. There may also be grounds to overturn a contract with terms that are considered by a court to be unconscionable, especially when the terms take hurt a person who is disadvantaged. A contract that requires an illegal action is also invalid.
October 29, 2007
Form of a Written Contract
In most cases, both parties to a contract are best served by a document the clearly sets forth the rights and responsibilities of each party and is signed by both parties. However, a written contract will generally be valid even in the form of a letter or memo, so long as the letter or memo is signed by the party against which it is being enforced. It is helpful, of course, to have an agreement that is clearly labeled as such, so that intent is not called into question.
October 22, 2007
Contracts that Must be in Writing
Generally, an oral contract (although difficult to prove) is a valid contract. In most states, the only contracts that must be in writing are: contracts involving the sale of real estate, contracts for the sale of tangible personal property worth $500 or more, contract that cannot be completed within a one year period and a promise to pay the debt of another party. That said, the issue of proof makes it advisable to memorialize any significant agreement in a signed, written contract.
October 1, 2007
Buying Assets vs. Buying a Corporation
More often than not, a seller will want to sell his corporation to avoid double taxation and take advantage of capital gains rates on the sale. The buyer, on the other hand, will prefer to purchase the assets of the business. The reason is that risks associated with the entity that are left behind in an asset purchase, and the tax basis for purposes of depreciation and amortization is more favorable when assets are purchased. For these reasons, most transactions involving the purchase of a small business are structured as asset purchases.
September 17, 2007
Uncertainties in Purchasing a Business
It is common for prospective buyers to discover that a business has specific risks associated with the purchase. For example, there may be threatened litigation or there may be a particular group of high-risk receivables. There are options available to the buyer to build in protection for these types of risk. Certain risky assets – likely high-risk receivables - can be pulled out of the deal and left for the seller to collect. Funds can also be withheld in escrow until contingencies have been cleared. Purchase agreements are written to include both specific and general contingency escrows. The funds don’t go to the seller until your interest is protected.
September 10, 2007
Due Diligence Checklists
Before purchasing an ongoing business, you have to know what you’re buying. Is the market for the product drying up? Have the taxes been paid? Are there open or threatened lawsuits? These are questions you must consider in looking for a business to purchase. And there are many others. Once you have identified a business to purchase, and perhaps reached a letter of intent, you will go through a process called “due diligence”. During this process you will have an opportunity to examine the business in depth. A prudent buyer will approach this task armed with a comprehensive checklist to cover each business discipline, including Legal, Financial, Marketing, Human Resources, etc. Most often, unless you have a large internal staff, you will also call on your outside attorney and accountant for assistance in completing the process.
August 13, 2007
Dealing with Building Codes
Building codes are constantly being changed and new requirements implemented. Typically, the changes are not retroactive and the current use by the current owner is provided with an exception. That exception may not cover you as the purchaser of the business or the property, especially if you plan to do any renovations. It is critical that you do your homework and know the code before completing your cost analysis. And, by the way, it is even more critical to complete your cost analysis before obligating your business to purchase or lease the property.
August 6, 2007
Potential Pitfall in Signing a Lease
Once you sign on the line, the building is yours for the term of the lease. You need to be absolutely certain that the property can be used for your intended purpose. Some communities will require that you get a zoning compliance permit before you start business, while others will only react to a complaint. A request for a building permit to remodel the building will often cause authorities to look at your zoning. The best thing to do in working out a lease, is to make the lease contingent on your ability to get any required zoning approvals or variances.
July 22, 2007
Registering a Trademark or Service Mark
In addition to the actual name of the business, it is important to consider protecting the various names under which products and services are marketed and sold. A trademark is a word, phrase, design or symbol that identifies a particular product. A service mark serves the same purpose with a service. Often, the company name, as well as individual product names, is used as a trademark. Trademarks are registered with the U.S. Patent and Trademark Office. The registration fee is $325. Complete instructions and application forms, as well as a searchable database of registered marks, are available online at http://www.uspto.gov/main/trademarks.htm
July 15, 2007
Tax Treatment of an LLC
An LLC (Limited Liability Company) is formed as a separate entity under state law for the purpose of limiting the personal liability of its owners from debts of the business. Federal tax law does not provide a separate set of tax rates and rules for an LLC. Instead, the members of the LLC can elect to have the LLC taxed as a partnership or as a corporation. Thus, an LLC is clearly an option worth considering by entrepreneurs embarking on a partnership. One member LLC’s electing to be taxed as a partnership report results on Schedule C, just as it the business were a sole proprietorship.
June 18, 2007
Effective Use of Trade Names
A trade name of a business might be different than the formal name of the corporation that owns the business. This is especially common when a single corporation owns multiple businesses. The corporation as a legal entity has a name registered with the State. Each business will likely have a fictitious name (or d/b/a), which will also be registered with the State. The business then can be legally recognized by its fictitious name and linked through the State corporations office with the entity that owns the business. Often each business is separately incorporated and uses its corporate name, but there is flexibility when it makes sense to house multiple businesses in a single corporation.
June 11, 2007
Cost to Incorporate versus Benefits of Incorporation
The cost to form a corporation or LLC under state law using an Incorporation Service such as BizFilings is typically less than $300. There is, however, a cost to maintain that corporate status. The additional cost includes conducting the required meetings, documenting those meetings with minutes and otherwise maintaining the records required for a separate legal entity. Compare that cost to the extent of your limited liability. In a small service business, you will likely have to personally guarantee loans and leases, and may have very small open balances with trade vendors. Your exposure to law suits may be adequately covered through insurance. In this case, after consultation with your attorney, you may conclude that operating as a sole proprietor works just fine. You can always convert to a corporation of LLC later. The answer will likely change if you have a partner in the business, since your partner would be able to obligate the business.
June 4, 2007
Building a Buy-Sell Agreement
A buy-sell agreement is often created as a separate, stand-alone document. But not always. The agreement can also be drafted as part of other governing documents, such as the corporate bylaws, the partnership agreement or the LLC operating agreement. The desired results can be accomplished either way. The key warning is: cross-check your documents to make sure there are not conflicting provisions. It might be, for example, that the buy-sell agreement you put together allows the transfer of an ownership interest to outsiders under certain limited circumstances, but your LLC operating agreement prohibits any transfer to outsiders. In such a case, your LLC operating agreement will need to be amended in order for your buy-sell agreement to be totally binding.
May 21, 2007
Using a Buy-Sell Agreement
There are three clear benefits to using a buy-sell agreement with your business partners:
1. You control the admission of new owners – you can’t be forced to accept a business partner with whom you would have trouble working. A buy-sell agreement will typically provide the remaining owners the right to purchase the shares of someone wanting out.
2. You have a buyer locked in when the time is right for you to exit the business.
3. There will be a mechanism in place to establish a fair value for the shares being bought or sold, using objective criteria.
The Buy-Sell Agreement takes the uncertainty out of a transition that will eventually occur in a successful business.
May 14, 2007
Personal Liability Even with a Corporation
When you form a corporation or an LLC, you expect to protect your personal assets. Then to fund your operations, you get a business line of credit at the bank. The bank wants a personal guarantee. Or perhaps your major supplier won’t extend credit without a personal guarantee. The hard fact is that, until your corporation has established its own credit history, an informed lender is going to require that you personally stand behind these debts. Over time, however, you will be able to separate the credit of a successful business from your personal credit.
April 30, 2007
Protect Your Limited Liability
When you form a corporation or an LLC under state law, you create a separate legal entity and provide a layer of insulation to protect your personal assets from debts of the business. Forming the entity is a great first step, but it is critically important to maintain the integrity of the separate entity. If the affairs of a corporation become inseparable from your personal affairs, the corporation can be set aside and your personal assets exposed. That means that the corporation or LLC must maintain its current status with the state and must be diligent in conducting and documenting required meetings. Decisions should be made by shareholders and directors and documented through resolutions. By acting as a separate entity, the business will be able to maintain its status as a separate entity.
April 23, 2007
Forming a Business with a Partner
Stop and think before you start a business as a general partnership. As a sole proprietor, you are personally liable for the debts and obligations of the business, but at least you’re in control. As a partner in a general partnership, you’re personally liable with respect to transactions executed by your partner, even without your knowledge. It often makes sense to incorporate or form an LLC, so that debts and obligations of the business are limited to the business and don’t put your personal assets at risk.
April 9, 2007
Advantages of Arbitration
Arbitration has several clear advantages over litigation:
1. Results are achieved on a much shorter timeline
2. The proceedings are private – so outsiders do not learn about the issues
3. Costs are much lower
4. Rules of evidence are less strict, making it easier to get to the truth
5. There is less emotion, making it easier for the parties to deal with each other going forward
April 2, 2007
What is Arbitration?
Arbitration is the use of a qualified person to hear the arguments of both parties and make a final, binding decision. Arbitration differs from mediation in that it is binding and that it generally seeks to establish which party is “in the right” rather than seeking a compromise as a solution.
March 19, 2007
What is Mediation?
Mediation is basically a form of negotiation with a facilitator. It does not lead to a binding decision, but instead uses an impartial third-party to encourage the antagonists to find a mutually acceptable solution. A good mediator can greatly increase the chances of settling a dispute before expensive litigation.
March 12, 2007
Profit from a Quick Settlement
Realistically assess your situation. If you are likely to come out of pocket for a settlement, consider going into an early round meeting with an offer of quick cash settlement. You can often negotiate a favorable deal with cash as an enticement, and cut your overall cost in the process.
March 5, 2007
Draft the Settlement on your Nickel
When documenting a settlement, offer to have your counsel draft the agreement. That way, the small provisions that color the agreement will be to your favor, not to your detriment.
February 26, 2007
Make a Clear offer of Compromise
If you are attempted to settle a dispute, make sure to clearly label your compromise as a compromise. By establishing that it is a compromise, you are not sticking yourself with that position if the other party refuses to settle.
February 12, 2007
Put Yourself in Your Opponent’s Shoes
Try to think like your opponent is thinking. Understand his priorities. You may be closer than you think to a workable solution. This is particularly true if money is not the prime motivator on one side or the other. To reach the best settlement, however, you need to understand what the other side really wants.
February 5, 2007
Check your Emotions at the Door
When you are discussing contentious points, don’t let your logic be overruled by your emotions. Avoid personal attacks. If you opponent has an emotional outburst, let it work against him.
January 29, 2007
Listen to Your Opponent
A legal dispute is no different than a sports contest in the need to understand your opposition. Listen carefully and acknowledge the points made by your opponent. Even though you disagree, you will learn from listening and you will increase your chances of negotiating a decent settlement.
January 22, 2007
Seek a Negotiated Settlement
Even if you are so mad you can’t see straight, you are better off trying for a negotiated settlement before you go to court. Leave the emotion behind and think long and hard about the financial and legal realities.
January 15, 2007
Why do I Need a Lawyer?
I run a simple business. I stay organized and follow the rules. I have never needed a lawyer. Why should I pay fees to have an attorney for my business? The answer is simple. It’s like insurance. You don’t expect anything to happen, but when it does, you need someone to call. That’s not the time you want to be searching for an advisor. You need to have you advisor identified and if your business is at all complex, you want that advisor to be familiar with the issues you face in running your business.
January 8, 2007
Contingent on What?
Before you agree to a deal, make sure that your concerns are addressed. If timing has not allowed you to completely investigate all of your concerns, then make closing contingent on getting what you need. Whether is a zoning approval or a commitment by the other party to complete a task, be certain that the contingency is spelled out to your satisfaction.
December 4, 2006
Real Law: Talk to Someone Who’s Been There
Don’t agree to terms just because the deal might go away. Finish your homework. Make enough calls and talk to someone who’s been down that path before. There are negatives to every deal – make sure you find them.
November 27, 2006
Rule Number One for Financial Problems
What is the number one rule? Pay your taxes. Remember that money you withhold from your employees is not your money. If those taxes are not remitted to the government, you are personally liable – even when you are incorporated. Bankruptcy won’t remove the debt, either. So avoid a horrible trap by paying your payroll taxes as soon as you know the amount.
November 20, 2006
Be Cautious about using a Home Equity Line
Financing your business is tough. Sometimes the only resource available is the equity in your home. But proceed with caution. While your gamble may pay off many times, poor business decision could result in the loss of your home. Go there if necessary, but only if you have confidence that your business will succeed.
November 13, 2006
Does a Contract Need to be Written?
There are special types of contracts that must be written – such as contracts for the sale or long term lease of real estate. Most contracts are valid, however, even if there is no written document. Of course, any important agreement should be documented in writing to reduce the likelihood of dispute or misunderstanding.
October 30, 2006
What Makes a Contract Valid?
First off there must be a meeting of the minds. There will have been both an offer and an acceptance – resulting in agreement. Then there must be consideration – meaning that both parties exchange something of value. If value only comes from one direction, the value that is exchanged is a gift – not subject to enforceability like a contract.
October 16, 2006
Can’t Get the Customer to Pay?
What are your options, if you’re not willing to write off the debt?
*1 – Pursue a claim in small claims court. This will be inexpensive, but will require your time and energy.
*2 – Hire an attorney. Attorneys can be expensive, but using an attorney to simply write a collection letter does not have to cost a lot.
*3 – Using a collection agency. Agencies take a high percentage, but can be useful with difficult customers or hard to find customers.
And when the time comes, recognize the advantages to writing off some accounts and moving on.
October 2, 2006
Getting Out of a Lease
There are two options that an entrepreneur can use to shed the lease obligations of a failing business:
· Buy out the remaining obligation – offer the landlord a quick lump sum in exchange for a quick and orderly exit. You may get by with losing your security deposit and a month’s rent. In tough markets, you may have to offer more.
· Find a new tenant – With a long-term lease, your best bet may be looking for a replacement tenant. Present the landlord with a credit worth tenant. Even if you are not allowed to sublet, the landlord will be obligated to mitigate his losses by looking at the new company. You may need to pick up a portion of the new tenant’s rent to close the deal.
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