The State University of New York’s Small Business Development Center (SBDC) today began offering disaster relief services to business owners affected by Hurricane Sandy.
"SUNY is proud to be able to offer assistance to communities throughout New York State as they recover from the damage left in Hurricane Sandy’s wake, whether it is by providing shelter on our campuses, volunteering in affected communities, or helping businesses get back up and running," said Chancellor Zimpher. "I commend the efforts of the SBDC and our campuses across New York for their efforts to help the state get back on its feet."
"The SBDC is committed to helping businesses throughout the impacted areas that were affected by this tragic event," says James King, SBDC State Director. "Our business advisors are trained to deal with this type of emergency, and our objective is to help these businesses get back to being fully operational as soon as possible."
Highly trained, disaster-experienced SBDC advisors are available to assist with the following:
· Completing U.S. Small Business Administration (SBA) disaster loan applications
· Finding information about available financial assistance and claim filing
· Filling out requests for loans, claims, and assistance forms
· Helping re-create lost financial records, if necessary, to document losses
· Locating and setting up short-term and permanent replacement facilities
· Assessing environmental cleanup options
· Developing an emergency response plan for the business
· Strategic planning for rebuilding the business and marketing to new potential customers
· Identifying and addressing other issues of concern to affected businesses
· Developing a business continuity plan for response to potential future disasters
In addition, business owners located in declared disaster areas may be eligible for financial assistance from the SBA. For small businesses, the SBA offers Economic Injury Disaster Loans to help meet working capital needs caused by the disaster. Economic Injury Disaster Loan assistance is available regardless of whether the business suffered any physical property damage.
Businesses and private non-profit organizations of any size may borrow up to $2 million to repair or replace disaster damaged or destroyed real estate, machinery and equipment, inventory, and other business assets. The SBA may increase a loan up to 20 percent of the total amount of disaster damage to real estate and/or leasehold improvements, as verified by SBA, to make improvements that lessen the risk of property damage by future disasters of the same kind.
Interest rates are as low as 1.688 percent for homeowners and renters, 3 percent for non-profit organizations, and 4 percent for businesses with terms up to 30 years. Loan amounts and terms are set by the SBA and are based on each applicant’s financial condition. Applicants may apply online using the electronic loan application via SBA’s secure website at https://disasterloan.sba.gov/ela.
30 Kasım 2012 Cuma
SUNY's NYS SBDC Offers Assistance for Businesses Affected by Storm
SBA's Advocacy Publishes New Lending Research
The Office of Advocacy has released two items of lending research.
The Small Business Quarterly Lending Bulletin for second quarter 2012 shows that U.S. economic activity increased in the first half of 2012 at a slower pace than at the end of 2011, and total lending to small firms inched downward. The decline was generated primarily by commercial real estate loans; in general, the climate was supportive of economic growth.
A new report, How Did the Financial Crisis Affect Small Business Lending in the United States?, by Rebel Cole, uses data from numerous sources for the period 1994-2011 to analyze lending to U.S. firms. It finds that bank lending to businesses declined significantly after the crisis, and small firms were affected more than large ones. The study was written under contract to Advocacy. The author of the study, Rebel Cole, is a professor of finance in the Kellstadt College of Commerce at DePaul University in Chicago, Illinois. Please note that the report examines total small business lending and does not distinguish SBA lending from total lending.
Should you need further information, please feel free to contact Advocacy Economist Victoria Williams at (202) 205-6533 or advocacy@sba.gov.
Crowdfunding: Disrupting the Old Boys' Network
By David Drake of the SoHo Loft
Crowdfunding for projects and companies is nothing new. In the online arena, however, it is quite young – in 1997 fans of the UK rock group Marillion ran the first recognized internet crowdfunding campaign, raising $60,000 to underwrite the band’s tour of the US. In the years since, other artists have also reached out to their fan bases and successfully invited supporters to finance their recordings and/or tours. Now, the wider business momentum toward crowdfunding is accelerating intensely and is attracting significant attention because the model disrupts the [finance] supply chain and distribution mechanism our Fortune 1000 companies have built and so vehemently protected for a century.
Imagine 200,000 Red Cross blood donors being able to pay $100 each towards the development of the newest leukemia medication? That’s $20 million of funding sourced by the crowd.
Can you hear the vested interests – "No, that’s not possible. Won’t happen. Humbug!"
Really? Get your head out of the sand.
BlogTalkRadio: Hurricane Sandy loan programs (good stuff!)
The November 28, 2012 episode of BlogTalkRadio with Brian Cohen covers the various loans and resources that are being made available, and discusses exactly what you need to do if you have incurred a loss due to Hurricane Sandy.
Listen to Edward Gregory Dawson, Public Affairs Specialist
Field Operations Center- East for the Small Business Administration
and
Gloria Glowacki, Associate Regional Director, Stony Brook SBDC, who brings "an expansive background of over thirty years in new business development, small business advocacy, and sales and marketing initiatives to her responsibilities over the past 17 years at the SBDC."
I learned a lot! For instance, there is a December 31, 2012 deadline for some loans, but a July 31, 2013 deadline for economic injury loans, because it takes a while ascertain economic injury.
The FEMA loans don't require a specific credit score, and can be done online, though SBDC assistance is available, and suggested to ease the process. However, the Empire Loan of $25,000 requires a credit score of 650, and must go through the SBDC; there's no payment due in the first sixth months, and interest only in month seven.
Contact any local NYS SBDC office, as the folks there are trained in all of these products.
Also:
FEMA - 800 621-3362
SBA - 800 659-2955; SBA disaster loan page.
StartUP! 2013 Business Plan Competition Orientation
StartUP! 2013 Business Plan Competition Orientation
Thursday, November 29, 2012, 6 - 7:30 p.m.Program Locations:Science, Industry and Business Library (SIBL), Conference Room 018 (Map and directions)
The New York Public Library in conjunction with its sponsor, Citi Foundation, is proud to announce the 4th Annual New York StartUP! Business Plan Competition for New York-based startup entrepreneurs with cash prizes totaling over $30,000. The Orientation will start you off by giving you the basics of the competition. Attending one orientation session is the first requirement of the competition.
29 Kasım 2012 Perşembe
More On Limited Liability Companies' Fiduciary Duty
"In Fairness and Good Faith as a Precept in the Law of Corporations and Other Business Organizations, 36 Loy.U.Chi. L.J. 551 (2005), Murdock addresses the fiduciary duty of good faith and fairness that controlling interests of a business owe to minority interests. Noting that this internal duty is a fairly recent legal phenomenon, he surveys caselaw on the subject from around the country that applies to closely held corporations, public corporations and LLCs. Noting that the Uniform Limited Liability Company Act (ULLCA), a model law adopted by several states, doesn't include language that gives members of an LLC fiduciary duties to one another, he praises Illinois for modifying that language to protect members in the updated Limited Liability Company Act."
The Independent Contractor Trap: Don't Misclassify Your Employees
I. Why do Businesses Often Prefer to Classify a Person as an Independent Contractor?
Whether because a company may be a start-up or an emerging or larger company is concerned about the difficult economic environment, businesses often prefer to classify a person as an independent contractor for the simple reason of cost. Hiring an “employee” means the company has to withhold taxes and pay social security, and will have to offer health insurance and possibly other benefits (i.e., vacation/maturity leave, etc.)
II. Can't I Just Label the Person an Independent Contractor?
No, it is a common misconception that employees/companies can avoid the "employee" label by simply stating the person is an independent contractor in a services agreement between the parties. Moreover, the fact that the person waived any rights as an employee, signed a statement asserting he/she is an independent contractor or is issued a 1099 instead of a W-2 does not give the employer any cover. The tax authorities (and courts) examine the nature of the relationship between the person and the company, look at the facts as to how the person provides the services, and does not care about labels or other efforts made to classify an employee as an independent consultant.
III. What Distinguishes an Employee from an Independent Contractor?
There is no single factor distinguishing an employee from an independent contractor. Instead, courts examine all the facts to determine the degree of supervision, direction and control the company exercises over the services. If the company controls the manner and means by which the person provides the services, the worker is likely an employee rather than an independent contractor.
A. An Employer-Employee Relationship May Exist if the Employer:
1. Controls when, where and how the services are to be performed
2. Provides the tools to perform the services (facilities, equipment, tools, supplies)
3. Engages and requires the person to work exclusively for the employer
4. Exercises supervision over the person, requiring reports, setting the work schedule, establishing the pay rate, retaining the right to review and approve the work product and/or evaluate the person's performance
5. Offers compensation in the form of a salary or an hourly rate, and/or reimburses expenses
6. Engages the persons who are unskilled or casual workers (therefore requiring supervision).
B. Independent Contractors Generally Supervise, Direct and Control the Performance of their Duties.
1. When performing the services, the independent contractor is not supervised or subject to the direction of the company, instead controlling its performance of the services.
2. The independent contractor generally offers his/her services to the public, operating their own business separate from the company engaging the services.
3. Indicia of independence include:
(a) Using own tools, equipment and supplies
(b) Operating under a business entity (has a business) that assumes risks
(c) Seting fees, project schedule, paying own expenses
(d) Offering services to other companies
(e) Marketing the services
(f) Engaging own employees or third parties to assist
For additional guidance, see the following IRS publications: http://www.irs.gov/pub/irs-pdf/fss8.pdf http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
IV. What if a Company Misclassified an Employee as an Independent Contractor?
If the IRS determines that your company has misclassified en employee as an independent contractor you need to be prepared to pay substantial taxes and potentially interest and penalties, especially if it was not an honest mistake.
Where the IRS finds that the misclassification was an honest mistake on the part of the employer, and the employer filed proper returns, the employer will be liable for (a) the employer FICA obligation that should have been paid in the first instance, (b) 20% of the employees FICA that should have been withheld, (c) 1.5% of the total compensation paid to the person, (d) any amounts due for unemployment tax, and (e) possibly interest and penalties.
If the employer fails to file proper returns and cannot demonstrate reasonable cause, the liability can be doubled.
But, if the misclassification is found to have been intentional, then look out because the above limits do not apply, and the exposure can run to the individual officers/directors of the company.
Now, on top this, add your state tax liability, and the fact that there may have been obligations under other laws (including relating to health care benefits) that the company violated by misclassifying the employee as an independent consultant.
The classification of an employee as independent contractor is carefully scrutinized by Federal and State tax authorities and is a common red flag giving rise to an audit. Do not let the potential savings lead you into the independent contractor trap as your company will pay dearly for misclassifying its employees.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
A Word to Small Business Owners: Don't Be Afraid to Negotiate Contracts
Negotiation skills are one of the most important tools a business owner should have in its toolbox. Therefore, if you receive a contract from a party, read it carefully, and then proactively respond in writing with your comments. One negotiating trick that vendors often try is to provide a form contract, creating the impression that the terms are non-negotiable -- indeed, if I am representing the vendor, I will often suggest creating a form agreement. Any contract, even a form, can be revised by an amendment, so do not automatically assume the agreement must be accepted "as is". The following are among the material terms that business owners should not only fully understand, but seek to negotiate.
1. Term. If you want a longer or shorter contact term, then ask for it. One alternative is to get an option to renew, which should be exercised within a certain number of days prior to expiration of the contract. The mechanics of the option and financial terms should be clearly spelled out as well.
2. Fees. There are many different ways to skin this cat, and you should consider what best works for your business over the term of the agreement. The financial terms can be based on (a) a set periodic payment, (b) an up front payment and then installments, (c) fees that scale up or even down over the life of the contract, (c) revenues, (d) milestones, or (e) a combination of several different fee structures. If the payments are based on revenues, then it is essential that the parties clearly define not just the percentage by the term "Revenue." For example, is it based on Gross or Net, and what is to be included in the Gross and what can be deducted as a legitimate expense when determining Net Revenues? A Net Revenue contract may refer to overhead expenses, like a businesses' borrowing costs, which can be a killer for a party who is being paid based on Net. Make sure you understand the definition, and if you don't ask for professional advice rather than assume the definitions are fair or standard.
3. Financial Reports/Audit. If the consideration under the contract is based on revenues or certain milestones, require periodic financial reports. In addition, you should have the opportunity to review and audit (i.e., challenge) such reports rather than simply accepting the information provided by the other contracting party. In addition, provide a dispute mechanism in the event of a challenge, such as CFO's meet and try to resolve, appointing independent third party, or even arbitration -- and if the audit reveals you were in the right, include a requirement that the other party pays your costs.
4. Termination of the Contract/Suspension. Of course the contract will expire at the end of its term, but include other events that will result in termination: (a) non-payment, (b) material breach, (c) bankruptcy, (d) failure to achieve defined milestones, including financial ones, (e) assignment/sale of the business (see below), (f) departure of personnel if the business relies on certain key employees, or (g) force majeure. Termination clauses will often allow the breaching party an opportunity to cure a default, provided it is one that can be cured. In the case of a force majeure event, the contract can be suspended pending passage of the event or terminated if the contract becomes impossible to continue due to the event.
5. Assignment/Sale of the Business. Do you want the contract to be assignable to a third party, including in the event of the sale of the business. This is an important issue for many types of agreements, such as licensing agreements or service contracts. You can require consent for the assignment, but if you want the contract to be assignable, as an alternative you can propose that it is assignable to an assignee with financial ability to meet the contractual obligations.
6. Warranties/Limitations on Liability. Suppliers/service providers will often provide a lengthy provisions denying all warranties and limiting their liability -- and if you are the vendor, you generally want to push for these provisions. If you are purchasing the the services of a large company, there may be no room to push back on any of the limitations, but whether the other contracting party is a small or large company, there is no harm in trying -- even if they send you the form or the "Master Service Agreement." For either party, it is all about the bargaining power, and how much the other party wants your business versus how much you need the agreement. Even if you cannot get the other party to budge, ask at least for an exception for gross negligence, and regardless a court may negate the limitation based on intentional misconduct or even gross negligence.
7. Dispute Resolution. Avoid an issues as to how disputes are to be resolved by negotiating the applicable (a) governing law, (b) venue for the dispute (meaning both the tribunal that will handle the matter, such as a court or arbitration/mediation, and the geographic location), (c) if there is to be mediation or arbitration, the procedures, and (d) will the parties impose legal fees and costs on the losing party.
8. Remedies. Among the remedies you can include are (a) specific performance, which is important if money cannot cure a default, (b) liquidated damages, if you prefer to define the damages to avoid disputes as to proof the proper compensation for a breach, and (c) equitable remedies (other than specific performance), like an injunction.
9. Non-Compete/Non-Solicitation. Simple vendor/supplier agreements generally won't include these terms, but many other contracts will, including licensing agreements, consulting/employment, certain service agreements, or more major transactions (like sale of a business) to name a few. Enforcement, especially as to non-competes, is a key legal issue, and it is highly advisable to have the provisions reviewed by counsel that understands the law in the applicable jurisdiction as it can vary greatly from state-to-state.
10. Other Terms/Conclusion. If there are other terms included or, for that matter, missing from the agreement, then make these part of the punch list of issues to be addressed with the other party. The reality is that the worse response you can receive is "no", and then you can decide how important the provision is from your perspective. A bad contract is NOT better than no contract. In a competitive economy, even larger/established businesses are often willing to negotiate and "the last and final", "take it or leave it" or "as is" response may be just a bargaining tactic.
The Lesson: Read the Contract, Understand Each Provisions and Don't Be Afraid to Negotiate the Terms.
Disclaimer: The discussions in this blog do not constitute legal advise nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters.
Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
Private Placements: The Friends and Family Exemption and Other Misconceptions
Notwithstanding the desire of the small, private company to avoid the expense and time of complying with the securities laws, if you are considering raising even a small amount, the following principles apply:
1. Securities Laws Apply to Private Companies. The fact that a company is private, or is not seeking to do an initial public offering (IPO) to become public, does not mean the securities laws don't apply. The simple rule to follow is that if you are raising capital through an equity (i.e., stock, LLC interests, partnership interests) or debt (loan, convertible notes) offering, assume that the securities laws apply even for private, closely held companies.
2. An Offering Must Be Registered with the SEC Absent an Exemption. If you are a small or emerging private company, don't assume that an offering need not be registered with the Securities Exchange Commission (SEC). The law is actually the opposite: an offering of securities must be registered unless there is an exemption available under the securities rules.
3. The Securities Laws Apply to More than Stock Offerings. Don't fall into the trap that the securities laws only apply to stock offerings. The definition of a "security" is very broad under the securities rules, meaning that not only stock, but LLC, partnership interests, debt, notes and other forms of raising capital will generally fall under the definition. You should start with the assumption that registration is required and look for an exemption rather than believing the securities laws are inapplicable because your company is only selling a small amount of LLC interests in your private company.
4. The "Friends and Family" Round is Still an Offering. The fact that your investors are friends or relatives is not a valid exemption from application of the securities laws. While there are a number of exemptions from registration of an offering (as opposed to application of the securities laws), you won't find a "friends and family" exemption. If an exemption applies to the offering (such as sales to accredited investors, under Rule 506 of Regulation D), you can substantially reduce the expenses and time associated with the private placement, but you cannot avoid application of the securities laws.
5. An Exemption from Registration Is Not the Same as Ignoring the Securities Laws. Even if an exemption from registration is applicable, the securities laws still must be followed when doing the offering otherwise the exemption will be lost and the offering will be in violation of the securities laws. One common exemption from registering the offering is the right to sell securities to an unlimited number of "accredited investors" and 35 non-accredited investors who must have sufficient financial knowledge and experience to understand the risks relating to the investment. However, the sale of securities to even one person who does not meet these investor criteria will result in a loss of the exemption, and render the offering in violation of the securities laws. The lesson is that while there are several types of exemptions, if a company is relying on one of them, they need to be sure to comply or risk substantial legal exposure.
6. A Private Placement Memorandum (PPM) is Advisable Even for Rule 506 Offerings. Under Rule 506 of Regulation D, securities can be offered in an exemption from registration to "accredited investors". These investors must meet certain annual income (in excess of $200,000, or $300,000 with a spouse) or net worth (in excess of $1,000,000) thresholds before they are deemed "accredited". The good news is that an offering to an accredited investor means no information has to be provided to the investor, but the reality is that while a full-blown PPM can be avoided, it is prudent to provide at least an investment letter or scaled-down PPM detailing the risks associated with the investment. This document will go a long way to defending any claims by a disgruntled investor if the company later has financial or operational difficulties.
7. The PPM is Not a Shield from All Liability. Even if you find an exemption from the registration requirements, and even if you provide a PPM, the anti-fraud rules still apply. The offering materials cannot mislead investors with false or insufficient information. The PPM can be a significant tool for defending against claims that may be asserted later by a dissatisfied investor, but it needs to be properly drafted, and include sufficient disclosures regarding the risks of the investment as well as warnings about the suitability of the investment.
8. Blue Sky (State) Laws Apply. Even if the offering qualifies for an exemption from registration, state Blue Sky laws still apply. For many states, the availability of a federal exemption from registration is sufficient, requiring only a notice filing (and, of course, payment of a fee) within a prescribed period after the offering. However, New York, for example, requires the filing of a Form 99 and the payment of a significant fee prior to the first sale. So, don't ignore the state laws simply because the offering is exempt under the federal securities laws.
9. The JOBS Act Eliminates Ban on Solicitation Only as to Accredited Investors. The Jumpstart Our Business Startups Act ("JOBS Act") will eliminate the previous ban on general advertising or solicitation for offerings under Rule 506 of Reg. D, but only if the purchasers are accredited investors. The issuer will need to take reasonable steps to verify the purchaser is an accredited investor, and what satisfies this "reasonableness" requirement is unclear. The main point is that companies should not misunderstand the JOBS Act as allowing general advertising and solicitation to anyone unless the issuer can reasonably verify the accredited investor status.
10. Violations of the Securities Laws Can Result in Substantial Liability. If you take the risk of avoiding compliance with securities laws on the theory that offering is small or the investors are friends (for example), be aware that a disgruntled investor could lead to liability in the form of rescission of the sale, civil and criminal liability.
The Take Away: If Your Company is Raising Money, You Will Need to Ensure Compliance with the Securities Laws Regardless of the Size of the Offering or Nature of the Investors.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
28 Kasım 2012 Çarşamba
SUNY's NYS SBDC Offers Assistance for Businesses Affected by Storm
The State University of New York’s Small Business Development Center (SBDC) today began offering disaster relief services to business owners affected by Hurricane Sandy.
"SUNY is proud to be able to offer assistance to communities throughout New York State as they recover from the damage left in Hurricane Sandy’s wake, whether it is by providing shelter on our campuses, volunteering in affected communities, or helping businesses get back up and running," said Chancellor Zimpher. "I commend the efforts of the SBDC and our campuses across New York for their efforts to help the state get back on its feet."
"The SBDC is committed to helping businesses throughout the impacted areas that were affected by this tragic event," says James King, SBDC State Director. "Our business advisors are trained to deal with this type of emergency, and our objective is to help these businesses get back to being fully operational as soon as possible."
Highly trained, disaster-experienced SBDC advisors are available to assist with the following:
· Completing U.S. Small Business Administration (SBA) disaster loan applications
· Finding information about available financial assistance and claim filing
· Filling out requests for loans, claims, and assistance forms
· Helping re-create lost financial records, if necessary, to document losses
· Locating and setting up short-term and permanent replacement facilities
· Assessing environmental cleanup options
· Developing an emergency response plan for the business
· Strategic planning for rebuilding the business and marketing to new potential customers
· Identifying and addressing other issues of concern to affected businesses
· Developing a business continuity plan for response to potential future disasters
In addition, business owners located in declared disaster areas may be eligible for financial assistance from the SBA. For small businesses, the SBA offers Economic Injury Disaster Loans to help meet working capital needs caused by the disaster. Economic Injury Disaster Loan assistance is available regardless of whether the business suffered any physical property damage.
Businesses and private non-profit organizations of any size may borrow up to $2 million to repair or replace disaster damaged or destroyed real estate, machinery and equipment, inventory, and other business assets. The SBA may increase a loan up to 20 percent of the total amount of disaster damage to real estate and/or leasehold improvements, as verified by SBA, to make improvements that lessen the risk of property damage by future disasters of the same kind.
Interest rates are as low as 1.688 percent for homeowners and renters, 3 percent for non-profit organizations, and 4 percent for businesses with terms up to 30 years. Loan amounts and terms are set by the SBA and are based on each applicant’s financial condition. Applicants may apply online using the electronic loan application via SBA’s secure website at https://disasterloan.sba.gov/ela.
SBA's Advocacy Publishes New Lending Research
The Office of Advocacy has released two items of lending research.
The Small Business Quarterly Lending Bulletin for second quarter 2012 shows that U.S. economic activity increased in the first half of 2012 at a slower pace than at the end of 2011, and total lending to small firms inched downward. The decline was generated primarily by commercial real estate loans; in general, the climate was supportive of economic growth.
A new report, How Did the Financial Crisis Affect Small Business Lending in the United States?, by Rebel Cole, uses data from numerous sources for the period 1994-2011 to analyze lending to U.S. firms. It finds that bank lending to businesses declined significantly after the crisis, and small firms were affected more than large ones. The study was written under contract to Advocacy. The author of the study, Rebel Cole, is a professor of finance in the Kellstadt College of Commerce at DePaul University in Chicago, Illinois. Please note that the report examines total small business lending and does not distinguish SBA lending from total lending.
Should you need further information, please feel free to contact Advocacy Economist Victoria Williams at (202) 205-6533 or advocacy@sba.gov.
Crowdfunding: Disrupting the Old Boys' Network
By David Drake of the SoHo Loft
Crowdfunding for projects and companies is nothing new. In the online arena, however, it is quite young – in 1997 fans of the UK rock group Marillion ran the first recognized internet crowdfunding campaign, raising $60,000 to underwrite the band’s tour of the US. In the years since, other artists have also reached out to their fan bases and successfully invited supporters to finance their recordings and/or tours. Now, the wider business momentum toward crowdfunding is accelerating intensely and is attracting significant attention because the model disrupts the [finance] supply chain and distribution mechanism our Fortune 1000 companies have built and so vehemently protected for a century.
Imagine 200,000 Red Cross blood donors being able to pay $100 each towards the development of the newest leukemia medication? That’s $20 million of funding sourced by the crowd.
Can you hear the vested interests – "No, that’s not possible. Won’t happen. Humbug!"
Really? Get your head out of the sand.
Ethnicity Mapping
The New York Times is promoting this colorful tool based on data from the Census Bureau that gives you a visual representation of neighborhoods and their ethnic makeup.I found it very interesting to look up neighborhoods I've lived in to see how they compare numerically to how I perceived them - it's pretty accurate. But our advisors often look for this type of information on behalf of business owners looking to choose a location for their business or areas to direct marketing. That it is so specific, down to census tract areas which are quite small.Mapping America: Every City, Every BlockThere are also canned maps other than the racial/ethnic distribution map - foreign-born or the individual broad category of race. The topic areas are race and ethnicity, income, housing and families and education.
How businesses can profit from raising compensation at the bottom
From the Ivey Business Journal:
It has long been assumed that companies stand to increase profits by cutting wages and benefits for employees at the bottom of the corporate ladder. While companies use diverse incentives such as high wages, performance rewards, and stock options to recruit, retain and motivate highly skilled professionals, they assume that employees at the bottom of the corporate ladder can be replaced easily — and don’t need incentives.
We conducted a six-year study of companies around the world that had tried investing in their employees at the bottom of the ladder. We sought to answer: 1) How successful were these companies in improving conditions at the bottom of the ladder and 2) What impact did the improvements have on the firms’ productivity, financial costs, and economic returns.
27 Kasım 2012 Salı
Crowdfunding: Disrupting the Old Boys' Network
By David Drake of the SoHo Loft
Crowdfunding for projects and companies is nothing new. In the online arena, however, it is quite young – in 1997 fans of the UK rock group Marillion ran the first recognized internet crowdfunding campaign, raising $60,000 to underwrite the band’s tour of the US. In the years since, other artists have also reached out to their fan bases and successfully invited supporters to finance their recordings and/or tours. Now, the wider business momentum toward crowdfunding is accelerating intensely and is attracting significant attention because the model disrupts the [finance] supply chain and distribution mechanism our Fortune 1000 companies have built and so vehemently protected for a century.
Imagine 200,000 Red Cross blood donors being able to pay $100 each towards the development of the newest leukemia medication? That’s $20 million of funding sourced by the crowd.
Can you hear the vested interests – "No, that’s not possible. Won’t happen. Humbug!"
Really? Get your head out of the sand.
Form I-9
In 1986, in an effort to control illegal immigration, Congress passed the Immigration Reform and Control Act (IRCA).
IRCA forbids employers from knowingly hiring individuals who do not have work authorization in the United States.
The employment eligibility verification provisions of IRCA are found in Section 274A of the Immigration and Nationality Act (INA).
Individuals who may legally work in the United States are:
Citizens of the United States
Noncitizen nationals of the United States
Lawful Permanent Residents
Aliens authorized to work
To comply with the employment eligibility verification provisions of the INA an employer must:
Verify the identity and employment authorization documents of employees hired after November 6, 1986
Complete and retain a Form I-9 for each employee hired after November 6, 1986
Refrain from discriminating against individuals on the basis of actual or perceived national origin, citizenship or immigration status
The anti-discrimination provisions of the INA prohibit four types of unlawful conduct:
Citizenship or immigration status discrimination*
National origin discrimination*
Document abuse during Form I-9 process
Retaliation
* Actual or perceived
All U.S. employers must have a Form I-9 on file for all current employees.
Exception: Employers are not required to have Forms I-9 for employees hired on or before November 6, 1986.
You may delegate the authority to complete Form I-9 to a responsible agent, however, you will retain liability for any errors.
You must make the Lists of Acceptable Documents available to your EMPLOYEE when he or she is completing the Form I-9.
Section 2: Lists of Acceptable Documents
List A Establishes Identity and Employment Authorization
List B Establishes Identity
List C Establishes Employment Authorization
The EMPLOYEE MUST provide either:
One document from List A OR
One document from List B AND one document from List C
If you discover a mistake on Form I-9:
Correct the existing form OR prepare a new Form I-9.
If you choose to correct the existing Form I-9, line out the incorrect portions, enter the correct information, and initial and date the correction.
If you do a new Form I-9, retain the old form. You should also attach a short memo to both the new and old Forms I-9 stating the reason for your action.
If you discover you are missing the Form I-9 for an employee:
•Immediately provide the employee with a Form I-9.
•Allow employee 3 business days to provide acceptable documents.
•DO NOT backdate the Form I-9.
Form I-9 MUST be on file for all current employees.
Store Forms I-9 securely in a way that meets your business needs – on site, off-site, storage facility or electronically.
Store Forms I-9 and document copies together.
Ensure that only authorized personnel have access to stored Forms I-9.
Make Forms I-9 available within 3 days of an official request for inspection.
To identify the retention date, add 3 years to the hire date and 1 year to the date employment was terminated. The date that is later is the retention date. Example: John Smith was hired on November 1, 1993, and on July 5, 1994, employment was terminated. November 1, 1993 + 3 years = November 1, 1996 July 5, 1994 + 1 year = July 5, 1995 The retention date is November 1, 1996.
Petraeus affair: 5 lessons for companies
From CBS News MoneyWatch:
The unfolding scandal involving Gen. David Petraeus is not confined to the upper echelons of the U.S. military -- it also has been a recurrent drama in the corporate world, felling top dogs at dozens of companies from Hewlett Packard (HPQ) to Lockheed (LMT). Yet while the sexual proclivities of top executives pose a risk to corporate value, rather than to national security, such scandals have common themes -- and similar lessons, experts say.
Aside from ordering chastity belts for corporate chief executives and generals, what can be done to reduce the chance that an indiscretion will damage an organization?
Is Revenue-Based Financing Right For Your Business?
The lending environment continues to be tight with banks holdingpotential borrowers to strict standard. As a result, businesses have begun toexplore new ways of obtaining financing. One such method is calledrevenue-based financing (RBF). Is this type of financing right for yourbusiness?
How does it work?
The lender issues a loan and the interest payment is based on thecompany’s revenue over a specified length of time. For instance, the smallbusiness would pay the lender 2-5% of revenues each month. If revenues dropfrom $30,000 to $20,000, the borrower owes $400 as opposed to $600 in the priormonth, which is based on a 2% interest rate. Therefore, it is conceivable forthe company to pay no interest at all if the revenues went to zero for onemonth.
What about the terms?
Rates and the size of the loan vary by lender and the businessapplying for the financing, but most loans range from $50,000 to $250,000 andsometimes larger. Interest rates are typically around 20% annually, which ishigher than those offered by traditional banks. However, the requirements areless stringent than traditional banks and it only takes a couple of weeks toreceive the actual financing.
What are the requirements to receive arevenue-based loan?
Most lenders want to see at least $100,000 in annual revenues andmargins should be at or near 50% to pay for the interest. In addition, most ofthe companies that receive financing are growing quickly, lack high fixedcosts, and cannot fund their growth organically. Specifically, software andtechnology companies are the most likely candidates to receive this type offinancing. Businesses in the restaurant, manufacturing and other traditionalbrick and mortar businesses, wouldn’t be viable candidates for this type oflending as the margins are typically small in those industries. Traditionalbanks would be the best option for those types of companies.
About BIDaWIZ
Will The R&D Tax Credit BeReinstated Again?
The research and development credit expired for the 15th time atthe end of 2011 and wasn’t reinstated as some expected when lawmakers agreed onextending the payroll tax cut in February 2012. While the R&D credit istechnically no longer in effect, it is likely that the credit will still bereinstated for 2012 as hearings conducted by lawmakers have been encouraging.Small businesses need to be aware of this credit since most are eligible andnever claim it.
Is my business eligible for the taxcredit?
If your business focuses on the development of new products orservices through innovation in technology or new processes, the R&D creditshould be considered. This is often overlooked by entrepreneurs, who assumethey must have on-site laboratories or breakthrough research to claim thecredits. Or they may fear they’ll face complex tax calculations or trigger an
How is the R&D credit calculated?
When will the credit be reinstated?
BIDaWIZ is an online marketplace where small businesses can obtain professional tax, accounting and financial advice and services from a network of over 750 online CPAs, EAs, CFPs & Tax JDs. BIDaWIZ suite of services include the ability to ask professionals finance and tax questions for free, find and work with a trusted professional online for a full service engagement, and to subscribe to the premium tax and financial newsletter and knowledge base.More On Limited Liability Companies' Fiduciary Duty
"In Fairness and Good Faith as a Precept in the Law of Corporations and Other Business Organizations, 36 Loy.U.Chi. L.J. 551 (2005), Murdock addresses the fiduciary duty of good faith and fairness that controlling interests of a business owe to minority interests. Noting that this internal duty is a fairly recent legal phenomenon, he surveys caselaw on the subject from around the country that applies to closely held corporations, public corporations and LLCs. Noting that the Uniform Limited Liability Company Act (ULLCA), a model law adopted by several states, doesn't include language that gives members of an LLC fiduciary duties to one another, he praises Illinois for modifying that language to protect members in the updated Limited Liability Company Act."
26 Kasım 2012 Pazartesi
Legal Issues When Buying a Business: Don't Overlook These Provisions in the Purchase Agreement.
The Purchase Agreement is a very flexible instrument giving the parties substantial flexibility not only as to the structure the transaction but with respect to the representations, warranties, disclosures and covenants that the parties can negotiate to include (or for that matter exclude) from the Agreement. There are a number of standard provisions relating to such matters as legal ownership of/title to the assets, representations as to the corporate status and authority, disclosures as to litigation, financial and tax related representations, environmental issues and post closing obligations. First, while these provisions may be part of a standard purchase agreement they by no means should be viewed as boilerplate. Even a slight variation in language can alter the meaning and scope of these sections, and thus all representations, warranties and covenants, no matter how standard, need to be reviewed carefully. Second, below are a number of provisions which are often overlooked but you should consider incorporating in the Purchase Agreement.
1. Intellectual Property.
Of course it is standard to include representations regarding the seller's title and ownership of the intellectual property, but make sure the Agreement:
(a) Covers licensed rights as well as often the seller does not own but licenses key IP. In the same vein, confirm the licenses are assignable and if consent of the licensor is required that the Seller obtain the consent as a condition of closing.
(b) Addresses rights to the domain names and company websites and requires transfer of these rights to the buyer as a condition of closing. It is not unusual for the buyer to forgot about the transfer of the domain and then have to coax the seller into compliance after the sale.
(c) IP rights should include not only registered marks or issued patents, but pending applications, unregistered rights, royalties, licenses and, significantly, awards, damages or pending claims and litigation.
(d) Incorporates provisions relating to software, requires the turn over of source code, manuals, passwords, license keys and all other documentation.
2. Litigation
Representations relating to pending or threatened litigation are typical in a Purchase Agreement, but be sure:
(a) There are sufficient disclosures about pending and threatened litigation, including the status of such matters.
(b) Decide how litigation is to be handled post-closing. Will your lawyer take over the matter or will the Seller's lawyer continue to handle it; who will be responsible for the legal fees and costs; include a right to periodic updates as to the status of any legal matters; and set forth any rights as to damages, awards, insurance proceeds and to settle the matter and any indemnification in the event of an unfavorable outcome.
3. Financial/Tax Matters
In addition to the typical representations and warranties concerning financial and tax issues, include:
(a) Financial
(i) Require that the seller update the financial statements on or prior to Closing;
(ii) Include a formula for adjusting the purchase price if there are material changes to the financial statement;
(iii) Although often used, try to avoid using an earn-out (post-closing payment contingent on certain financial milestones) as they are difficult to negotiate, document and manage once the buyer assumes the reins of the business, and as a result they are a major source of post-closing disputes. If an earn-out cannot be avoided, make sure you have counsel who has experience negotiating and drafting earn-outs.
(b) Taxes
(i) The representations and warranties should not only cover federal and state taxes, but sales and any other applicable taxes for all relevant jurisdictions.
(ii) The seller should provide all filings and disclose any past, pending or threatened audits/assessments.
(iii) Require the seller provide post-closing assistance for any filings relating to periods of time the seller controlled the business.
(iv) Include appropriate indemnifications for tax liabilities.
4. Transition
Is there a switch in your house that you have no idea what it does, and since the seller is long gone you have no way of finding out? Well, think how that issue is magnified exponentially if you purchase a business and don't have the seller to assist with the transition. The assistance is important not only as to obvious issues, like computer systems, financial records, and where the keys to the third floor supply closet are located, but making a smooth transition as far as clients/customers, introduction to vendors/suppliers, establishing a good relationship with employees/consultants, ensuring an understanding of business processes and procedures that are essential for operation of the business. Therefore, the Purchase Agreement can require the meaningful assistance of the seller or even include compensation to the seller for post-closing assistance and continued employment with the company for a reasonable period of time.
5. Material Adverse Change
Undoubtedly the Purchase Agreement will include a Material Adverse Change clause essentially providing the buyer with certain rights and remedies (including possibly termination of the transaction) in the event of a material adverse change with respect to the business. The clause is one of those tricky provisions which, if not properly drafted, can result in substantial disputes. The key is to avoid ambiguity by incorporating specific criteria as to when the Material Adverse Change clause is implicated, such as decline in sales, the loss of certain amount of or even specifically named customers, a decrease in EBITDA or termination of a manufacturing or supplier relationship.
6. Employment/Labor Matters
Provisions relating to Employment and Labor matters are standard, but also make sure the representations and warranties include:
(a) Existence of confidentiality, invention assignment and non-competes, and get copies for each employee and consultant.
(b) Confirmation that consultants are truly consultants and not employees (which can give rise to substantial tax liabilities).
(c) Details and disclosures regarding any employee plans (stock, pension, etc.) and vesting status f each employee.
(d) Disclosures with respect to any collective bargaining any other labor matters.
7. Operations in Foreign Countries
Establishing the right of the company to operate in any foreign jurisdictions where it does business should be obvious, but compliance with the Foreign Corrupt Practices Act is far less familiar to most people. The FCPA prohibits various behavior relating to operating in foreign jurisdictions, including paying bribes to obtain contracts, business, etc. Violation of the FCPA carries substantial civil and criminal liability. As a buyer, you might not think much about the FCPA, but if you manufacture in China, for example, you better pay attention and therefore incorporate a representation that no unlawful payments have been made by seller or its agents.
8. Covenants
The Purchase Agreement should contain covenants relating to:
(a) Non-solicitation of employees, customers and clients and non-interference with existing vendor/supplier relationships.
(b) In certain circumstances, a Non-Compete that complies with the narrow limitations imposed by applicable state law.
(c) As discussed in prior posts, clear indemnification and escrow terms to address post-closing liabilities.
(d) Confidentiality.
(e) Obligation of the Seller to notify the buyer upon the occurrence of material events arising at any time prior to closing.
(f) Resignations of officers, directors, responsibility of the seller as to termination of some or all employees/consultants.
9. Termination
There will be grounds for either party to terminate the Agreement prior to closing. The termination provisions should not only provide specifics as to when the right can be invoked by a party, but also the liabilities, if any, resulting from termination and the effect of termination.
10. Survival
Give careful consideration to how long any of the representations, warranties and covenants will survive avter closing. The seller will push for no or a very short period while the buyer will want them to survive until the chance of any liability no longer exists. A compromise will almost always be necessary, and remember not all of the provisions need to survive for the same period of time
The above are by no means an exhaustive list of key provisions in a purchase agreement, and they will certainly vary depending on the nature of the business involved -- for example, if you are buying a gas station the environmental disclosures, reps and warranties will be substantial. What is obvious that you cannot accept a boilerplate purchase agreement and instead the provisions need to be tailored to the particular transaction.
Disclaimer: The discussions in this blog do not constitute legal advice nor create any attorney-client relationship. You are urged to seek the advice of an experienced lawyer who can provide counsel with respect to your corporate/business law matters
When it's good to go to work contagious
From MoneyWatch:
I love being in an office surrounded by contagious people. Not the sniffling, sneezing, coughing kind who don't stay home when they should, but the kind whose enthusiasm and attitude towards their products, customers and company is absolutely infectious.
Many use the term "evangelist" to describe this, but I think there's a distinction: Evangelism (which I also love) is mostly unidirectional -- true believers, preaching and hoping to spread the good word to the masses, whereas contagiousness is more personal and subtle. When you're truly, "professionally" contagious, the people you deal with catch the fever just by interacting with you.