Small Business (SBA) FAQ

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Docuticker blog published SBA - Frequently Asked Questions which I think fits well with this blog.

Source: U.S. Small Business Administration, Office of Advocacy
From e-mail:

The Office of Advocacy released its annual update to the Frequently Asked Questions. It estimates that there were 29.6 million small businesses in the United States in 2008. Once again, the document shows the importance of entrepreneurship to our nation’s economy, with small businesses accounting for half of nonfarm, private real GDP and half of all private sector employment. In addition, small businesses generate the majority of net new jobs. Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 2008. An estimated 627,200 new employer firms began operation in 2008, and 595,600 firms closed that year. Moreover, according to U.S. Census data, seven out of ten new employer firms last at least two years, and about half survive five years.

Indiana Case law: LLC Fiduciary Duty to Former Member

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The Indiana Court of Appeals decided that Indiana Liability companies have a continuing fiduciary duty to a former shareholder or member to accurately report the company's fiscal results to the IRS for a year in which the former member held stock or was still a member of the limited liability company. That is Mike A. Abdalla, et al. v. Raed I. and Hani I. Qadorh-Zadin. This is how the Court of Appeals got to that conclusion.

The Court of Appeals started with this legal basis:

Limited liability companies, such as the ones at issue here, were not available in Indiana until the enactment of Indiana‟s Business Flexibility Act in 1993. Ind. Code § 23-18-1-1 et seq. The popularity of LLCs has forced courts nationwide to address traditional business issues in terms of this statutory creation. In Indiana, there is little case law regarding LLCs and hardly any case law concerning fiduciary duties in the LLC context. In light of this limitation, we decided in Purcell v. Southern Hills Investments, LLC, 847 N.E.2d 991, 997 (Ind. Ct. App. 2006), that “common law fiduciary duties, similar to the ones imposed on partnerships and closely-held corporations, are applicable to Indiana LLCs.”

Shareholders in a closely-held corporation, such as Q Realty, owe each other fiduciary duties. G&N Aircraft, Inc. v. Boehm, 743 N.E.2d 227, 240 (Ind. 2001). In such a corporation, “[t]he fiduciary must deal fairly, honestly, and openly with his corporation and fellow stockholders. He must not be distracted from the performance of his official duties by personal interests.” Id.

Against which there was this law:

With regard to the assignment of membership in an LLC, Indiana Code section 23-18-6-4.1(e) provides that “[u]nless otherwise provided in a written operating agreement, a member who assigns the member‟s entire interest in the limited liability company ceases to be a member or to have the power to exercise any rights of a member when an assignee of the member‟s interest becomes a member with respect to the assigned interest.” Despite the option included in the statute to deviate from the provision on assignment of interest, the companies‟ operating agreements clearly state that a member who assigns all
of his interest in the LLCs “shall no longer have any rights or privileges of a Member . . ..” (Appellants‟ App. p. 82). As such, it would appear that the Zidans relinquished their fiduciary duties on August 4, 2006 and thus no longer have a course of action concerning the K-1 Schedules which were drawn up in the Fall of 2007.

The former members argued this:

On the other hand, the Zidans focus our attention on Thompson v. Central Ohio Cellular, Inc., f.k.a., Cellwave Inc., et al., 639 N.E.2d 462 (Ohio Ct. App. 1994). In Thompson, after the plaintiff sold his shares to Cellwave in late 1991, the corporation had tax returns prepared for the 1991 tax year. Id. at 464. On April 1, 1992, Cellwave provided Thompson with a K-1 Schedule that reflected an allocation to him of more than $6 million in long-term capital gains for 1991. Id. Although Thompson claimed that the K-1 Schedule improperly shifted a significant tax burden to him, Cellwave refused to provide a corrected K-1 Schedule. Id. Thompson filed a complaint, alleging breach of fiduciary duty and fraud. Id.

***
Analyzing the character of the „shareholder termination rule,‟ the Cellwave court emphasized that the rule is not absolute. Id. at 470. The court specified that “[t]ermination of the fiduciary relationship does not shield the fiduciary from its duties or obligations concerning transactions which have their inception before the termination of the relationship.” Id. Because the reporting to the IRS of Cellwave‟s financial results for the year 1991 was based on transactions which had their inception before the termination of the fiduciary relationship, the court concluded that Cellwave owed a fiduciary duty to Thompson. Id.

Notice that this differs in several ways from the Illinois case reported by Chicago Business Litigation Lawyer Blog in LLC Members Owe Company, Manager No Fiduciary Duty, Appeals Court Rules.

Could Taxes Sink Your business?

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Tough Times for Lenders blog posted Ticking Sound: Will the Current Tax Valuation Drag You Down?. Which brought back to mind this headline: State sets sights on back taxes. This comes from that Muncie Star-Pess article:

Sometimes the taxes owed are in dispute. Ed Faulkner Jr. of Faulkner Mortuary, which is included on the list, says he's "been battling with the state for the last 20 years to get our sales tax issues resolved." Faulkner said the amount he owes is less than $10,000 compared to a one-time bill of $160,000.

McFarland noted that some might assume the businesses owing back taxes are all small, "mom and pop" operations, but that isn't the case.

Tough Times has this in its post:

So, my suggestion simply is to add this topic to your workout check list, and include the following as tasks directed at this ticking sound:

* What taxes or assessments cover or encumber the collaterals? Governmental (per a current search of applicable governmental taxing offices)? Private (per a current title report)?
* What valuation has been given to the collateral? (Is it high?)
* How is valuation determined?
* What are the key dates (Due dates? Appeal dates? Etc.)
* Has the owner\borrower contested the valuation? Are written agreements covering valuation in place?
* Is it possible to file a “late” appeal? Are there special conditions for filing a late appeal?
* What input or role does the lender\servicer have in the valuation determination or appeal process? (Under applicable law or regulations? Under the loan documents?)

Todd Franks (with The Cantrell Company) tells me that they have recovered over $100,000 in overpaid property taxes for one loan servicer, after a borrower failed to timely protest their 2008 property tax valuation (in a situation involving Texas real property collateral). His experience is that if the current owner is unsophisticated and\or unfamiliar with the property valuation process, then when the owner is struggling to keep the property and to avoid a loan default or a foreclosure, many owners simply give up on contesting property valuations handed out by taxing authorities. (The result: it is a problem discovered by you AFTER you take title.)

Free Reviewed

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Yes, quite behind the times in posting this review from The New Yorker, Malcolm Gladwell reviews Free by Chris Anderson:

There are four strands of argument here: a technological claim (digital infrastructure is effectively Free), a psychological claim (consumers love Free), a procedural claim (Free means never having to make a judgment), and a commercial claim (the market created by the technological Free and the psychological Free can make you a lot of money). The only problem is that in the middle of laying out what he sees as the new business model of the digital age Anderson is forced to admit that one of his main case studies, YouTube, “has so far failed to make any money for Google.”

***

So how does YouTube bring in revenue? Well, it tries to sell advertisements alongside its videos. The problem is that the videos attracted by psychological Free—pirated material, cat videos, and other forms of user-generated content—are not the sort of thing that advertisers want to be associated with. In order to sell advertising, YouTube has had to buy the rights to professionally produced content, such as television shows and movies. Credit Suisse put the cost of those licenses in 2009 at roughly two hundred and sixty million dollars. For Anderson, YouTube illustrates the principle that Free removes the necessity of aesthetic judgment. (As he puts it, YouTube proves that “crap is in the eye of the beholder.”) But, in order to make money, YouTube has been obliged to pay for programs that aren’t crap. To recap: YouTube is a great example of Free, except that Free technology ends up not being Free because of the way consumers respond to Free, fatally compromising YouTube’s ability to make money around Free, and forcing it to retreat from the “abundance thinking” that lies at the heart of Free. Credit Suisse estimates that YouTube will lose close to half a billion dollars this year. If it were a bank, it would be eligible for TARP funds.

I am still as doubtful as when I wrote this.

More On Limited Liability Companies' Fiduciary Duty

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Now that we have an Indiana Court of Appeals decision describing the fiduciary duty of an LLC to its members, I almost thought to scratch this post. However, Chicago Business Litigation Lawyer Blog's Respected Law Professor's Insights on Corporate Freeze-Out Litigation may still have some benefit to you.

"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

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Many start-up and expanding companies prefer to engage the services of a independent contractor rather than hire an employee because of the high costs relating to employment taxes, health insurance and other benefits.  Recognizing the cost savings of hiring a contractor, businesses will often seek to classify a new hire as a independent contractor believing all that is needed is a few revisions to their standard contract that identifies the person as an "independent contractor" and just like that the company has saved thousands of dollars.  In reality, the company may have created a huge red flag for a potential audit that could result in the obligation to pay susbtantial taxes plus penalties.  To avoid the Employee/Independent Contractor trap, consider the below guidelines for determining whether in fact you have hired an employee rather than engaged an independent contractor.

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

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All too often small business owners readily accept the terms of a contract or are concerned about pushing back on both economic and legal terms because either they fear losing the deal or simply don't fully understand the terms.  As a business owner, you need to recognize that in most circumstances there is an opportunity to negotiate terms of an agreement, and therefore you should not be afraid to seek the best deal possible even if the other party initially seems unwilling to consider your position on key aspects of the contract.  So, here is the advice, Don't Be Afraid to Negotiate. 

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.

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As discussed in prior installments of this series on buying a business, there are a number important legal issues you need to consider before signing the purchase agreement.  The first installment discussed the role of the Exclusivity Agreement, the second installment examined the differences between structuring the transaction as stock purchase as opposed to a purchase of assets, the third examined the importance of escrowing a portion of the purchase price to cover any issues that may arise post closing, and the fourth discussed important aspects of due diligence and how to address legal or financial issues in the purchase agreement.  This fifth installment examines several key provisions that should be incorporated in the purchase agreement but are otherwise often overlooked.

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




    

   

Business Entities: Structures, Characteristics and Choosing the Right One for Your Business (Part II)

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Below is a link to Part II of a four-part continuing legal education seminar I recently gave on business structures, characteristics and choosing the right one for your business.

Please see:  https://vimeo.com/44118815

Parts III and IV will be made avaialble in the next several blog posts.




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

Business Entities: Structures, Characteristics and Choosing the Right One for Your Business (Part III)

To contact us Click HERE
Below is a link to Part III of a four-part continuing legal education seminar I recently gave on business structures, characteristics and choosing the right one for your business.

Please see:  http://vimeo.com/44119419

Part IV will be made avaialble in the next blog post.








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

Business idea: Eureka! Create and destroy

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From the Dreamspeaker:

All successful business leaders realize that, although things are quiet at the center, much like hurricanes, it’s always at the edges where the destructive winds are blowing. Management has learned to always be wary of all decision making systems that have been designed to work in conditions of low risk, stable environments and continuity.

Like Newton’s eureka moment, which led to his famous theory of gravity, leaders know that stable circumstances never last and what they have created they must eventually destroy or a competitor will do it for them. Their eureka moments have led them to be the destructive forces at the edges of their own organizations.

SBA and AARP to Host National Encore Entrepreneur Mentor Day

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The U.S. Small Business Administration and AARP will team up Tuesday, October 2 to host the first National Encore Entrepreneur Mentor Day. The event is targeted at entrepreneurs over the age of 50 to match these “encore entrepreneurs” with successful business owners and community leaders for advice and assistance. To find a local event near you go to www.sba.gov/mentorday.

National Encore Entrepreneur Mentor Day is part of a larger effort by SBA and AARP to promote entrepreneurship among individuals ages 50 and older. It will consist of events across the country that will match encore entrepreneurs with mentors who have small business experience. Events will include speed mentoring allowing mentors and entrepreneurs to share information for five minute sessions and mentor lunches for entrepreneurs to learn from successful business owners. The events also will help connect encore entrepreneurs with mentors from SBA’s network of Small Business Development Centers, Women’s Business Centers, and SCORE chapters who can help throughout the life of an entrepreneur’s business.

With one in four individuals ages 44 to 70 interested in becoming entrepreneurs, and 63 percent of Americans planning to work during retirement, small business ownership is a good option. Small business owners with long-term counselors see bigger sales, hire more workers and last longer. SBA and AARP will provide the training and mentoring services older entrepreneurs need to successfully start and grow businesses and create jobs.

Know Where You Are Listed

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From Manta.com

"When’s the last time you Google’d your own business? Set time aside today to search for your business name on Google. Review which websites are listing your business information, keep track of those online listings and update them when your company information changes. Consistency and accuracy are key to being found online by customers!"

But try checking on different computers. Google will often give you the results it thinks you want.

2012 ECONOMIC CENSUS WEBINAR

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THURSDAY, OCTOBER 11 AT 1:00 PM EST

In November and December, more than 4 million businesses will receive forms for the 2012 Economic Census, the U.S. Government’s official five-year measure of American business and the economy. Response is required by law, and statistics that result will inform important business decisions and guide the development of effective public policy.

Businesses in your area are going to have questions, and they may look to organizations like yours for answers. To prepare you, the Census Bureau is offering a special webinar on Thursday, October 11 at 1:00 PM EST. In just one hour, you’ll learn all about the Economic Census so you can help local businesses understand the value of Census data and prepare to respond.

Complete information is available at business.census.gov, including industry statistics, videos and resources to help you reach out to your area. This site features story ideas and communications you can use through February 2013 when Economic Census forms are due.

Learn more on October 11 when you join Census for a highly informative session. Get the details at business.census.gov/webinar. Mark your calendar now, and find out why response makes a difference.

SBDC Breakthrough Research Request

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The SBDC Think Tank has been working with Bob Fangmeyer, Deputy Director of the Baldrige organization, and Dr. Kevin McCormack to complete a research study focusing on small business success. To date over 250 small businesses have completed the questionnaire. Dr. McCormack has published a preliminary report on the Small Business Breakthrough Project website.

Small business owners: The Breakthrough Project is a SBDC sponsored national initiative that provides free resources to small business owners. In preparation for fuller analysis, the Think Tank is attempting one last push to encourage you to complete the survey questionnaire.

The survey is only 20 questions, it is anonymous, and it takes only a few minutes to complete.

Please help us by completing the survey now.

The results will be shared with as they become available.

Voluntary Tax Disclosure Program

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The New York State Department of Taxation and Finance has updated its free Voluntary Disclosure Program pamphlet (Publication 200). The program, highly successful since its launch in 2008, has a simple goal: To help individuals and businesses with state tax debts from prior year filings meet their tax obligations. The pamphlet tells you who is eligible and how to start the application process online.

Want to take your business to the next level? You should think about exporting.

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From Karen G. Mills, Administrator, U.S. Small Business Administration

Your business has already succeeded in the most competitive market on the planet – the USA – so just imagine what you can do abroad. In foreign markets, you will find fewer competitors and you start with a significant advantage: consumers around the world trust the words "Made In America."

There are free resources to help your business begin exporting, provided by the US government. To discover what is available, visit www.export.gov.

There, you can connect to counselors, market matchmakers, and banks. You can also learn how U.S. government export insurance, working capital loans, and foreign buyer financing can protect you and your bank from transaction risk. Export.gov helps you access the experience of successful exporters, who will show you:

How to manage the risk of doing business overseas
Which markets and trade partners to select
Where to secure capital on favorable terms
How to design your website for international business

Did you know that small businesses already account for more than a third of all America’s export sales? Today more than ever, overseas markets are business-friendly, ready to pay, and well-connected by technology.

Seize the opportunity of a vastly larger market for your product with the resources found on www.export.gov.

Buying or selling a business, and sales tax

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"Unless all the requirements are met, a purchaser of business assets in a bulk sale transaction may be held personally liable for any unpaid sales taxes due from the seller."

Bulk sale transaction is defined as "a sale, transfer, or assignment in bulk of any ,part or the whole of business assets, other than in the ordinary course of business by a person required to collect tax. Transfer by way of a gift does not preclude such transfer from being a bulk sale...

"A sales tax will be imposed upon the transfer of any tangible personal property
from the seller to the purchaser which is included in the property sold in bulk,
except for property intended for resale or property exempt from tax.
The tax is not imposed on real property or on intangible personal property such as
cash, goodwill, or accounts receivable."

Read more here.

Useful links re patent, trademark and especially copyright

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In addition to the US Copyright Office and the US Patent and Trademark Office, check out:

Intellectual Property Infringement and Other Unfair Acts. Section 337 investigations conducted by the U.S. International Trade Commission most often involve claims regarding intellectual property rights, including allegations of patent infringement and trademark infringement by imported goods

A list of Who’s Who in the U.S. Gov’t involved in IP

Copyright:
Taking the Mystery Out of Copyright (for students and teachers)
The Copyright Society of the USA
The Stanford Copyright and Fair Use Center
Copyright Term and the Public Domain in the United States [Chart]
Crash Course in Copyright from the University of Texas
Copyright Navigator by Lionel S. Sobel

EconoCheck: new resource for reporting economic claims of candidates

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IRE and the Sunlight Foundation launched EconoCheck, a resource for journalists who want to fact-check the economic claims made by politicians.

This will make it easier for folks to understand key economic indicators and how they are created. Also, there are links to the source data so journalists can download the files themselves.

Bill Allison, Sunlight’s editorial director, blogged about how journalists can use the data to report on the things politicians say about the economy.

Business Entities: Structures, Characteristics and Choosing the Right One for Your Business (Part IV)

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Below is a link to Part IVof a four-part continuing legal education seminar I recently gave on business structures, characteristics and choosing the right one for your business.

Please see: http://vimeo.com/44119420









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

Issues Overlooked by Start-Ups: A Live Blog Chat

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I was recently the featured guest on Image Talk, a blog talk radio interview presented by YPI Consultants (http://www.ypiconsultants.com/), discussing some of the legal issues that small businesses and start-ups often overlook. 

You can listen to the interview at:

http://www.blogtalkradio.com/ypiconsultants/2012/07/24/image-talk





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


 

Board-Level Attention to Trademarks is Essential

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This Article is authored by Melise Blakeslee, of counsel.*

The protection of intellectual property may seem like a day-to-day operations task with which senior executives and Board members need not concern themselves in the absence of a crisis. But in today’s world of rapid expansion, particularly into the international realm, keeping a close eye on some aspects of trademark protection is sufficiently essential that it warrants high-level attention.

As the Board of Directors begins to explore expansion into international markets, it is important that they ensure that the appropriate product marketing people as well as the company’s trademark counsel be brought into the discussion early. It is too easy to lose valuable trademark protection during international expansion. Many nations have what are called “first to file” trademark laws that assign a trademark to the first person to file for it. If third parties, including your own distribution and manufacturing partners, get wind of your expansion plans before you have secured your trademark rights, difficult and expensive situations can arise.

It is also important that members of the Board monitor senior management to ensure that distribution agreements include appropriate trademark protection language. Too often, these agreements are silent on the subject and in this case silence is clearly not golden. In the absence of clear protection language, a distributor may pre-empt your trademark rights innocently or intentionally. Determining the right person or company to secure particularly international trademarks is a function of the company’s long-term goals. And these goals are most often best understood by members of the Board.

Recent experience leads me to guess that nowadays many marketing departments are “clearing” new trademarks by simply doing a Google search on the Internet. This is a mistake. Conducting only an informal search opens the door to a charge of willful infringement and doesn’t give you any insight whatsoever as to the ability to move into other related product lines using the new brand. It is vital that proper searches be conducted in accordance with best trademark practices to ensure legally binding protection and avoidance of litigation.

Staying on top of possible infringements of your trademarks is another place Board members can play a key role. Insisting on constant monitoring and vigilance of the Internet for mentions of your brands can save significant amounts of money and time by nipping even innocent infringement in the bud. Management should ask for regular reports about what particular trends are impacting the company’s brands on the Internet. Using these reports, management should be giving guidance as to what should be pursued and how. This task is endless, unfortunately. The good news is that consistent enforcement with careful prioritization and smart strategies will help in the long run.


Melise provides advice to clients of The Berkman Law Firm on a vareity of matters including the intricacies of protecting, licensing and enforcing intellectual property rights, and brand protection, Internet-related problems, and data security. She is the author of Internet Crimes, Torts and Scams: Investigation & Remedies, published by Oxford University Press, 2012.



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

Issues Overlooked by Start-Ups: A Live Blog Chat (Part II)

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This is Part II of a recent interview I gave August 7 on Image Talk, a blog talk radio interview presented by YPI Consultants (http://www.ypiconsultants.com/).  In this interview I discuss several legal issues that small businesses and start-ups often overlook, including those relating to ownership of intellectual property rights, invention assignment agreements, website development and website policies. 

You can listen to the interview at:

http://www.blogtalkradio.com/ypiconsultants/2012/08/07/image-talk






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

Financial and Legal Issues You Need to Consider Before Buying a Franchise or Small Business.

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If you are considering buying a franchise or a business, there are many business and legal issues you need to address.  I recently gave an interview on Image Talk, a blog talk radio interview presented by YPI Consultants (http://www.ypiconsultants.com/), discussing issues faced by enterpreneurs when buying a business.  The importance of proper financial and legl due diligence, understanding the franchise agreement/purchase contract, business and legal risks, and business continuity/transition are among the key topics discussed.
You can listen to the interview at:http://www.blogtalkradio.com/ypiconsultants/2012/09/11/image-talk

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

Shhhhh! Keep your current job, start a business!

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Let’sbe honest.  Walking away from a job withbenefits and regular pay doesn’t seem like the greatest idea right now with theeconomy the way it is.  But think aboutthis ideal situation: keep your current job while you start a business on theside.  This is commonly called “absentee”or “semi-absentee” business. Many people look would love this scenario, butdon’t realize understand exactly what it means. Before you get started, hereare four helpful tips as you search for that perfect absentee opportunity:
1.    INEMPLOYEES I TRUST: You will have to learn how to really “let go” and trustothers.  Absentee businesses requireemployees. While you’re working at your regular job, you’ll need someone whocan run the shop. There has to be at least a few trusted workers on site tooperate the business, and it can be a challenge to find them. As a new businessowner, you’ll learn quickly the importance of acquiring the face of yourbusiness – your employees.
2.    LOCATION,LOCATION, LOCATION: Learn it, love it, live by it.  It will become your mantra.  In general, you can’t run an absenteebusiness from your home office. You need to have a place where customers andclients go so they can purchase your product or service. As an absenteebusiness owner, finding the right location to do business will be one of themost important aspects of your business.
3.    ANOCTOPUS OWNER: It may only feel like you need eight arms to run things, but you’llquickly understand the true meaning of multi-tasking. The term “absenteebusiness owner” sounds like you’d never have to be there, right? Well, maybenot after the business is up and running. But at first, it may feel like you’reworking two jobs for a little while. It may feel like a lot to bite off atfirst, but the plan is to get through that phase as soon as you can so that youcan transition to a smoothly operating business that doesn’t require as muchtime and attention.
4.    LETTHE FUND BEGIN:  Funding is always aconcern when starting any business. By nature, absentee businesses cost more toset up and run as employees and location contribute to higher overhead.However, in the case of absentee owner businesses, a working owner has a betteropportunity to get funding when they need it than someone who isn’t working. Alender has more confidence in awarding funds when you’re cash flowing on yourpersonal side, even if your new business isn’t cash flowing itself yet. You’lllearn that a good relationship with a lender can really help when you’rebuilding your business, and is one of the most important relationships tonurture and maintain during your time as a business owner.
Everyopportunity is different for each person. But before you quickly dismiss the idea of becoming a business owner dueto your current job, perhaps investigate opportunities in absentee orsemi-absentee ownership may offer you. 
Franchise opportunities can be replicated and offer higher growth potential as well. FranNet consultants work individually with clients who would like to buy a franchise. Consultants use a specific profiling and consultative process to determine a business model unique to each person. This model suggests specific franchises that fit best with each person’s goals, skill sets and interests, both personally and professionally. Research is the key to any sound decision. So, the research suggestions and techniques – as well as referrals to other industry professionals – round out the services that FranNet consistently provides to each client. We are with you every step of the way to business ownership!

What Is Your Business Doing To Prepare For The New Health Care Mandate?

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As you might expect, most small to mid-sized businesses that we’ve spoken with have reacted negatively to the new health care mandate. Many have contemplated a whole host of tactics to avoid the 50 or more employee rule requiring health care be provided to employees.

The 50 full-time employee or more rule
Small businesses with less than 50 employees will not be fined if they don’t provide health care coverage. They will be spared a fine ranging from $750 to $3,000 per employee which is levied against employers with over 50 employees that choose not to provide coverage.

Can I split my company into two entities to avoid the rule?
Some businesses have contemplated setting up separate entities. Sounds like a great idea, right? However, the health care bill addresses only the controlling group of the business as opposed to the entity itself. For instance, if you own a retail store as well as the building itself and also rent space out to other tenants, you may decide to separate the rental business from the retail business to divide headcount. Nice try! The government doesn’t care that there are two separate entities, they will treat both businesses as one since you are the controlling owner.

What if I own two totally separate businesses or my spouse is also a business owner?
These are the situations where it can get very taxing on entrepreneurs. If you are the owner of many different businesses, the government will treat them all as one. If twenty employees work for you at one business operation and forty at another, you’ll be liable to pay health care since you are employing a total of sixty employees across businesses. The same logic may also apply if your spouse also owns a business and you file joint tax returns.

What can small businesses do to avoid the 50 employee rule?
Not much besides shifting full-time employees to part-time. The other option is paying the penalties as opposed to providing health care for all, since the penalties can easily be less than the actual health care costs.

If you own a business, we’d like to hear from you. What are you planning on doing in response to the new health care mandate?

About BIDaWIZ
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 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.

Internet Marketing for Beginners: Part 1 - The Goal

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Are you a business owner? Listen up! Today, it is ESSENTIAL you have a concrete online marketing plan...and I’m here to show you how. Don’t worry, I’m not going to bury you in techy lingo, like “hits, bandwidth, and servers.” This article is your non-technical, business-owner friendly introduction to Internet marketing.

The goal of any good marketing plan is to generate business. A good Internet marketing plan should do the same. The website, while not the only piece of your online strategy, is the hub in the wheel of your Internet strategy.

A good website must generate at least one of the following: sales, leads, or customer support. Unfortunately, most people view a website as an online billboard or virtual pamphlet. A good website DOES something. Let me reiterate: A good website MUST generate sales, leads, or support for an existing group. Otherwise, in my opinion, you are wasting your money.

To that end, when establishing a good Internet promotional strategy, you must be able to MEASURE your results. Someone once said, “You cannot manage what you cannot measure.” That is so true! if you cannot point to a documented increase in sales, leads, or a decrease in costs, you need to re-evaluate your online plans.

In this series of articles, I will go into detail how you should build your online strategy, giving you time-proven tips to increase business and sales. Until then, evaluate your current online plans. Are they effective? Are you seeing results? Be objective!

I welcome your comments below!

Eric Spellmann continues to be one of the highest rated speakers at our national ASBDC conferences. His unique view that small business websites should “do” something pushes against the standard “online pamphlet” view of most web design companies. He believes your customer’s websites should be driving qualified leads and sales on a weekly basis. Eric speaks at a number of other national and state conferences nationwide, but enjoys running one of the most successful web design companies in the country. He truly believes in the SBDC mission as it helped him start his own company many years ago. To contact him, visit his website at EricSpellmann.com.

The First 5 Things to Do When Getting Started on Twitter

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For most thingsyou want to accomplish in life, getting started is often the hardest part. Thesame is true for social media. If you are anxious about getting started it iseasy to put off signing up for Facebook, Twitter, or Pinterest until tomorrow…or next week… or next month.To help you stopprocrastinating and start achieving your social media goals, here’s a list ofthe first 5 things you should do to get started on Twitter.
·       Develop youridentity.After choosing a username, or as it’s calledon Twitter your “handle,” you’ll want to create a bio that captures the spirit of your business. Keepin mind, more people will find you on Twitter that have no previous knowledgeof who you are or what you do than on any other network. If you had just a fewseconds (or in this case 160 characters) to explain your business to a completestranger, what would you say? That will be your bio.

·       Find the rightpeople to follow
Who you follow on Twitter dictates thetype of content you have access to and the quality of the relationships you canestablish. For this reason, you’ll want to set up some criteria, based on your experience,your industry, and you’re goals. People you want to follow could include:friends, professionals in your industry, other local businesses, colleagues,and even current or potential customers.

·       Send your firsttweet
 It doesn’t have to be anything earthshattering, and you won’t have any followers (yet) to see it, but it will letpeople know you are a real person or business and not a robot or spammer. Makethe tweet something simple; your introduction to the Twitter world.

·       Get the tools youneed
If you want to be successful onTwitter you want to make sure you have the right tools. There are a number oftools out there including three you’ll want to have access to from day one.·       Monitor yourprofile on the go with the Twitter mobile app·       Schedule tweetsand track your reach with Hootsuite·       Stay on top ofyour activity with Nutshell Mail

·       Connect yourtouch points
Sounds simple, but connecting yourwebsite to your Twitter profile will help drive traffic and organically buildyour social following.
Don’t forget to have a plan!
Let’s rewind quickly to the point when you first decided to sign up and logon to Twitter.What were youtrying to accomplish? Were you looking to drive more business? Increase brandawareness? Establish yourself as an expert in your industry?Just being onTwitter won’t be enough to accomplish those goals—even if you follow these stepsto getting started. What will allow you to achieve those goals is having asocial strategy about the way you plan to engage on Twitter, the type ofcontent you want to share, and the milestones you hope to achieve. Your strategyprobably will change once you get started, but by having one before youlaunch your first tweet, you’ll make it much further than these first 5 steps.


Gina Watkins is a leading expert on e-marketing for small business – and has a real passion for helping businesses to succeed. Her ongoing series of dynamic lectures are filled with real-world examples, humor and results-driven wisdom garnered from more than two decades of sales, business development and marketing experience. In addition to owning her own business, she is an award-winning direct marketer, has been featured on WUSA Channel 9's Mind Over Money show, Dr. Gayle Carson’s Women In Business radio show, Morgan State’s Briefcase Radio program, and in numerous other media. In her role as Constant Contact Regional Development Director, she’s presented to more than ten thousand seminar attendees about the keys to success with easy, affordable, highly effective technology tools that grow trusted business relationships.