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Business Law

Monday, March 28, 2016

When Is It OK to Fire an At-Will Employee?

The overwhelming majority of employees are considered to be at-will employees. If an employee works without a contract stating otherwise, that person’s employment is considered at- will for its duration. This means that the person serves at-will and either party may terminate the employment at any time. Even though an explanation is not always given as to why an employee is being fired, there are still some reasons for termination that are unacceptable in the eyes of the law. It is important to be aware of these instances to avoid the appearance of improper behavior and the potential for economic repercussions  as a result.

Termination is not the only action that may be actionable. Under specific circumstances, an employee is permitted to file a claim against an employer for any negative employment actions, including cutting back available hours, pay reductions, or demotions in title. Any negative employment action may give rise to a lawsuit if the employee can prove that the basis of the negative employment action is improper or discriminatory.

Federal law prohibits discrimination against employees on the basis of race, gender, national origin, disability, religion, genetic information, or age, if the employee is over the age of 40. Many states add additional protections including protection from discrimination against employees due to sexual orientation or gender identity.

Other restrictions against firing or other actions that negatively affect job status also exist. It is illegal to fire someone one, or otherwise negatively affect their employment, in retaliation for their filing of a legal claim, whether for discrimination, sexual harassment, or workers compensation. An employer also may not use a person’s ability to work as an incentive to force him or her to take a lie detector test. No individual can be legally fired for complaining about OSHA violations, for refusing to commit an illegal act, or for reporting an illegal act committed by a co-worker or employer (whistle blowing). If an employee exercises a legal right, like voting or taking family leave based on the Family Medical Leave Act, he or she cannot legally be fired for the lost time.

Terminating or otherwise negatively affecting an individual's employment because of any of the above-mentioned events is illegal. Employers should go out of their way not to fire employees contemporaneously with such events, even for other causes, since this may give the appearance of impropriety,and potentially provoke an expensive lawsuit.


Monday, February 22, 2016

What is a Surety Bond?

A "surety bond" is a legal tool used to guarantee that a promise will be kept.  It ensures that contractual requirements will be met and work will be done according to specifications.  If they are not, the bond will cover some or all of the damages that result.

The "surety bond" commits three parties to a binding contract. 

First, there is the "principal," the contractor, business or individual purchasing the "surety bond" as a way to assure others that work will be done as agreed.

Second, there is the "obligee," the party seeking assurance that the "principal" will fully complete the task.  Obligees are sometimes government agencies putting out bids, or any company or institution trying to be certain that it does not suffer financial loss at the hands of a contractor.

Third, there is the "surety," often an insurance company, which backs the bond and makes payment to the obligee in the event that the principal fails to meet its responsibilities.

How Does a Surety Bond Work?

A contractor  (the principal) usually pays an annual premium to an insurance company (the surety) in exchange for the insurer's commitment to uphold the contractor's promise to the organization or company that hired the contractor (the obligee).  If the contractor misses a deadline or breaches some other term of a contract, the organization it contracted with can ask the insurer to cover any losses that have ensued, up to the amount of the surety bond.  If the company has a valid claim, the insurance company will make payment.  After making good on the bond, whether the maximum amount or a lesser sum, the insurer usually tries to recover the funds from the contractor.

When Is a Surety Bond Required?

There are a number of circumstances in which an individual or business may need to buy a surety bond. 

  • To receive contracts from the government or from some general contractors, a construction firm or other bidder may need to have a surety bond.  Varieties of surety bond can include:  "bid bonds" guaranteeing that a contractor will accept a contract if its bid is successful; "performance bonds" guaranteeing that a contractor will complete a contract according to its terms; "payment bonds," guaranteeing that a contractor will pay subcontractors and suppliers, particularly on federal projects; and "maintenance bonds," guaranteeing that a contractor will provide upkeep and repairs for a certain amount time.
  • A surety bond such as a "license bond" or "permit bond" is sometimes a requirement for receiving certain business licenses or permits.
  • A business may need a "business service bond" or "fidelity bond" to protect itself or its clients against theft or other crimes by its employees
  • "Judicial bonds" may be needed by parties in civil or criminal litigation to guarantee court remedies or penalties.  These can include "bail bonds."
  • "Fiduciary bonds" are sometimes needed by individuals working with probate courts.  These ensure that these individuals will care for the assets of others professionally and honestly.

If you need advice relating to surety bonds, a business law attorney can help.


Monday, January 25, 2016

Investment Strategies for Minority Investors

As a minority business investor, it is essential to have an investment strategy that will maximize your returns. Once an investment decision is made, it is critical that a target business will enhance value of a broader investment portfolio.  At the same time, many minority investors are also business owners who know what makes for a successful enterprise. This post is a discussion of what minority investors should look for in a privately held business.

What makes for a great minority investment?

Since a minority investor has a significant but non-controlling ownership interest in a business, the first rule of thumb is to invest in business enterprises that you understand and with which you are comfortable. At the same time, great investments can also be found outside your business comfort zone provided that you have good management skills and the acuity to understand your target's business model.

Investing in a small business starts at the top,  that is with the owners. Accordingly, getting to know the owner and understanding how they do business is critical in your decision-making process. One key attribute you should look for in an entrepreneur is passion. Without it, he or she will lack the vision to steer the company toward success. It is also wise that you exercise caution by conducting background checks particularly with an eye toward ascertaining any legal actions in which the owner and other key people have been involved.

Of course, it's not only a matter of the people, it's about the numbers. The onus is on you to do your own due diligence, perform your own research and undertake an analysis of the proposed business plan. An investment proposal can be filled with numbers that amount to nothing more than smoke and mirrors. It's your job to ensure the numbers add up.

Level of Investment

Once you've done your homework on the target business, you need to decide how much to invest and how closely you will be aligned with the entity. Determining how much to invest is really a matter of risk management. In order to safeguard your investment, it is critical to negotiate a deal that is mutually beneficial. In particular, you should consider having an exit strategy with an understanding that your investment will be repaid by a certain date at an agreed upon rate of return.

You must also decide whether you will have no active participation in the decision-making and operations of the business or if you will be involved in the management of the entity. Even as a minority investor, your stake in the business may be significant enough to warrant having a seat at the table in order to advise on policy and evaluate management's performance.

Business Categories

As a minority investor, there are many business categories to consider that depend on your investment strategy. For example, investing in a start-up tends to be high-risk since management may not have a track record of success or a proven business model. Nonetheless, start-ups can also offer great rewards if they are breaking ground in a new business method or technology. The caveat is that the majority of start-ups are short-lived and destined for failure within the first 5 years.

If you are looking for a growth opportunity, there are business enterprises that have successfully launched but need another infusion of capital to grow. These businesses have an initial track record that will allow you to determine if your investment will be rewarded, even if it is subordinated to original investors. On the other hand, opportunities can also be found in companies that have stopped growing because of insufficient capital but still have a solid business plan.

For investors with a greater appetite for risk, companies that are failing can be ripe for a turn- around, provided that your stake comes with a hand in the decision-making and that the business fundamentals remain sound. Even bankrupt entities with cash flow potential offer investment opportunities for investors who are willing to have a high level of involvement.

The Bottom Line

For the minority investor, the nature of investing is high-risk, and every opportunity is unique - some offer greater rewards as well as higher risks. Your ability to make a decision on the merits of a business plan depends on your capacity to be a good business manager as well as a shrewd dealmaker. Investing in a privately held business requires a lot of up-front sweat equity in researching your target company, analyzing financial reports, evaluating the businesses track record, and ascertaining management's skills.

In particular, investing in a closely held business is an investment in the owners as well as the business. These entrepreneurs need to be innovative and have the ingenuity and passion to grow the business. In the final analysis, investors and owners need to be honest partners and strike a deal that is a win-win. The goal for both parties is to ensure the enterprise is successful and offers a worthwhile return on investment.

If you do your homework, your investment in privately-held businesses can be quite lucrative. That being said, it's always in your best interest as a minority investor to have a lawyer on your side of the table to craft an investment agreement, advise you of your responsibilities and shield you from potential litigation.


Monday, January 11, 2016

Why Should I Incorporate my Small Business?

Not every small business needs to form an LLC in order to function. A child selling lemonade by the side of the road has no use for a Tax ID number. It doesn’t seem practical to set up a new business entity to host a garage sale or a Tupperware party. As a venture starts to grow from a hobby to a full-time job, however, there are questions every business owner should ask to determine whether it is best to incorporate the business into a legal entity.

Do I need to protect my personal assets?

The greater the risk of being sued, the more necessary it becomes to file the necessary paperwork to form a Limited Liability company. This will limit the owner’s financial liability to the assets invested in the business. This means that, if a business gets sued, the business owner’s personal assets, like his or her home, automobile, personal bank accounts, and belongings, may not be targeted by the lawsuit. Common lawsuits of concern are for the satisfaction of contracts and leases and personal injury claims for accidents on the premises. Similarly, a bank may not seek a business owner’s assets to repay a loan unless the business owner signs a personal guarantee. Banks often require such a guarantee for new businesses that have no credit history.

Do I need flexibility in my obligation to pay income taxes?

A C corporation, which is a type of Limited Liability Company, has the flexibility to shift the business’s tax burden from one year to another. Normal business expenses and salaries can be deducted from a business’s taxes that may ultimately reduce a business owner’s tax burden depending on the income he or she derives from the business and from other sources.

Do I need to protect my company name?

In most states, companies register their names with the state to ensure that only one business can operate under that name. This is important for branding and marketing purposes. Adding LLC to the end of a company’s name can also add legitimacy to a new business, thus enhancing the brand.

Do I want to sell all or part of the business?

Ownership of an LLC or corporation can be shifted easily compared to those of a sole proprietorship. Adding partners and selling the business can be difficult if there are no lines between where the business ends and the owner begins. Once a business is incorporated, it lasts until it is dissolved, meaning it continues to be an asset for a business owner’s estate after the individual passes on.


Monday, December 28, 2015

When Can I Refuse Service to a Customer?

Many businesses have a sign hanging on the wall, often near the cash register, that says something like “We reserve the right to refuse service to anyone.” The reality is not as straightforward as the sign's message.

First, members of legally protected classes cannot ever be denied service based on their membership in their respective class.

  • The Federal Civil Rights Act guarantees all people the right to “full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation, without discrimination or segregation on the ground of race, color, religion, or national origin.”
  • The right of public accommodation is also guaranteed to disabled citizens under the Americans with Disabilities Act, which precludes discrimination by businesses on the basis of disability.
  • In addition to these federal protections, many states also protect people from discrimination based on gender, sexual orientation or other personal attributes.

Second, putting up a sign does not create the right to refuse service; the right exists, but you must be careful about when you exercise it. When a customer is not a member of a federally protected class, you can generally deny service so long as you have a legitimate business reason. Some reasons that have been found to be legitimate include:

  • When a customer is not properly dressed. Hence the other common sign, “No shirt, no shoes, no service.”
  • When a customer has poor hygiene, such as extreme body odor or being excessively dirty.
  • When a customer is being disruptive. This includes customers that are intoxicated.
  • When a customer harasses your employees or other customers.
  • When there are safety concerns, such as when there are too many people to serve.
  • If you are certain a customer cannot or will not pay.
  • When a customer comes in just before closing time or when the kitchen is closed.
  • Patrons accompanied by large groups of non-customers who wish to stay on premises.

Even the most compelling business reason cannot overcome obvious discrimination. Legitimate reasons for denying service cannot be used as a shield when the actual reason for the refusal of service is discrimination.

When creating policies and considering guidelines for your business, it is important to consult an experienced business law attorney for advice on how to comply with federal and state law.


Monday, December 7, 2015

Are employees owed overtime for checking and answering email after hours?

Technology is a double-edged sword. It allows us to work remotely and to have greater flexibility as to where and when we work, but the freedom it affords can also be a burden. When you can work from anywhere, and at any time, it often feels like you should be doing so!

Studies suggest people are caving under the pressure - whether explicit or implicit - to work while technically off the clock. According to the Pew Research Center, approximately 44% of Internet users regularly perform some job tasks outside the workplace.

All the work that is being done outside of work hours is creating a compliance problem for many businesses. The federal Fair Labor Standards Act (FLSA) requires employers to compensate employees that are not exempt from the law for all time worked. These non-exempt employees must all be paid time and a half for all hours worked over 40 per week. This means that employees need to be paid (at overtime rates if applicable) for time spent checking and responding to emails, calls, texts, etc. during non-work hours.

In order to remain FLSA compliant in this technology-driven age, we advise our clients to take the following steps.

Develop a Timekeeping Policy that is Compliant with the FLSA

Explicitly tell your non-exempt employees, preferably in writing, whether or not they are allowed or required to work during non-work hours.  Make it clear that “working” includes checking emails and taking phone calls.

Implement the Timekeeping Policy

A policy is not worth the paper it is printed on if it is not actually implemented. Make it easy for employees to report their off-the-clock work, and discipline employees who do not report their off-the-clock time.

Enforce the Timekeeping Policy

When off-the-clock time is reported, pay your employees for it. Be clear about how much, if any, off-the-clock time employees are expected to work, and do not be afraid to discipline employees who do not comply with expectations.

If you have any questions about paying employees for work done off-the-clock or any other business related issue, contact an experienced business law attorney today.


Monday, November 30, 2015

Employee Rights in the Workplace

Relationships between employers and employees are regulated under various federal laws. It is essential to be aware of these regulations. Those who violate their provisions risk lawsuits and penalties for failure to comply.

Family Medical Leave Act 

Under the Family Medical Leave Act, or FMLA, an employee is afforded up to 12 weeks of unpaid leave to recover from pregnancy, serious illness, or to aid a sick family member.  No adverse employment actions are permitted upon return.  That means after 12 weeks of such leave, an employee must be permitted to return to their previous position with no reduction of hours or pay.

Federal Minimum Wage

The federal minimum wage is presently $7.25 an hour. Some local governments have increased the minimum wage above the federal level. For non-salaried, non-commissioned employees, an employer is required to pay one and a half times the normal hourly wage for any hours worked in excess of 40 hours a week.

Harassment and Discrimination

An employee has the right to work in a place free from harassment and discrimination.  Sexual harassment can take the form of unwelcome sexual advances or a hostile work environment. Adverse employment actions taken for the reason of race, religion, gender, and in some states, sexual orientation, may result in a lawsuit. It is also against the law for an employee who files a lawsuit for workplace discrimination, sexual harassment or another wrong doing to face retaliation for whistleblowing.

Federal Occupational Safety and Health Administration

Under Federal Occupational Safety and Health Administration (OSHA) regulations, an employee has the right to work in an environment free of dangerous conditions, safety hazards and toxic substances. Employees dealing with potentially dangerous equipment must be trained to use it safely, and all employees should undergo training on workplace safety. The OSHA handbook has 19 subsections, each dealing with a specific topic such as fire prevention, heavy machinery, hazardous materials and walking/working surfaces.

National Labor Rights Act

The National Labor Rights Act, or NLRA, allows employees to organize a union to negotiate working conditions and compensation through collective bargaining and the use of strikes.  The NLRA does not apply to public employees, domestic employees, agricultural employees, railroad employees, airline employees, supervisors, management, independent contractors or close relatives of the owners of the company that employs them.  


Monday, November 16, 2015

An Overview of the Family Medical Leave Act (FMLA)

The Family Medical Leave Act is a federal law that allows employees to take significant time off from work to take care of a loved one with an illness, medical problem or condition. The law does not require an employer to pay the employee for the time missed, but allows the employer to substitute accrued paid vacation/sick time for unpaid leave taken during the FMLA, meaning that the employee’s leave cannot be extended beyond the statutory period by using his or her vacation time. The FMLA prohibits employers from enforcing any negative consequences against the employee for exercising his or her rights under the FMLA. These would include termination, cutting back on hours, reducing pay, or diminishing the employee’s title or responsibilities.

The FMLA applies to businesses with more than 50 employees. To qualify, an employee must have worked for the employer for at least one year and must have worked at least 1250 hours in that year. The law allows the employee to take up to 12 non-consecutive weeks of unpaid leave a year to care for a spouse, parent or child who has a serious medical condition. There is special consideration given to family members caring for ill military service members. The parents, spouses, and children of these individuals are permitted to take up to 26 weeks off each year to care for their loved one. 

The most common use of the law is to allow an employee to take time off work after a child is born, even though most would not call pregnancy a “serious medical condition.” This is commonly referred to as maternity leave. Although it is not customarily exercised, fathers have an equal right to take time off to bond with their children after birth. The FMLA also allows new parents to take time off work immediately after an adoption. Some people use the Family Medical Leave Act to care for family members dealing with mental health issues, including dementia, addiction, or schizophrenia. The law covers any medical condition which require an overnight stay in the hospital, chronic conditions that require treatment at least twice a year, and conditions that incapacitate the affected person for more than three consecutive days. 


Monday, November 2, 2015

How to Avoid Three Common Pitfalls when Purchasing a Small Business

1.     Buy the assets instead of the business

Purchasing a small business includes assuming any debt accrued by the business. The buyer is also purchasing any potential liability from accidents or misconduct of the seller that occurred prior to the sale. This can be avoided if the new owner purchases the assets instead of buying the entire business. Taking this action also resets the tax basis of those assets to the current purchase price instead of the price the seller paid for them.

It is important to make sure that the assets are being sold unencumbered, meaning that they were not financed since any debts accrued may follow the assets. The assets, such as machinery or furniture, should be inspected and tested to make sure they are in good condition and fully functional. Also, the buyer should consider paying in installments so that if assets turn out to be damaged and require repair or liabilities are discovered down the line, deductions can be made from future payments. Purchasing assets is usually the better option for a small business owner. It is always wise to consult with an attorney to determine your best options.

2.     Examine the lease

Leasing space is one of the most expensive aspects of running a business. Before purchasing, the small business owner should review all potential expenses, paying particularly careful attention to the lease. The purchaser should confer with the landlord to confirm that:

No problems will arise in the lease if a transfer occurs;

No back rent is owed; and

The premises are in good condition.

If the buyer intends to renegotiate the lease, it should be done prior to the purchase. 

3.     Evaluate the landlord

If there are other tenants in the area, the potential buyer should question them in order to assess the landlord's trustworthiness. If other tenants have had problems with the landlord, it is likely that the new owner will have issues as well. If the prospective landlord does not have the reputation of being honest or reliable, it probably does not make sense to go through with the purchase. 

4.     Ensure a smooth transition

Many sellers do their best to hide the fact that the business is being sold from their employees. This can present serious difficulties for the new owner since, in order to continue operations after a purchase, it is crucial that key employees remain on staff to help ease the transition. A potential buyer should always speak with existing employees to confirm their competence and willingness to stay on. These key employees have ongoing experience in running the day-to-day operations of the business and are likely to be aware of problems with running the business that have not been revealed by the seller and are not immediately apparent to newcomers.

At times, the seller stays on to consult with the buyer for months after the sale to ensure a smooth transition. In any event, the buyer should always make sure that the seller signs a non-compete provision to prevent future conflicts.


Monday, October 26, 2015

Common Tax Deductions for Small Businesses

Automobile deductions: Whether an individual uses a personal vehicle for his or her own business or company owns a vehicle, the depreciation of value and costs associated with that vehicle may be deducted from the company’s income at year's end. A taxpayer must keep track of all of these expenses and document them by maintaining receipts and records of expenditures in order to claim the deduction. Alternatively, a business may declare standard deductions for the vehicle based on the mileage of the vehicle. In 2015, this standard deduction is 57.5 cents for every business mile driven. If a vehicle is driven for both business and personal use, the IRS will require a taxpayer to identify the percentage of use dedicated to business.

Capital expenses: Also called startup costs, the IRS allows a business to deduct up to $5,000from its income in its first year of expenses for expenditures made before the doors of the business opened. Any capital expenses remaining after the first $5,000may be deducted in equal increments over the next 15 years.

Legal and professional fees: Fees paid to professionals like lawyers, accountants, and consultants, may be deducted from a company’s income each year. If the benefit of a professional’s advice is spread out over a number of years, the tax deduction must also be spread equally over the same period. The cost of books or tuition for classes to help avoid legal or professional costs may also be deducted.

Bad debt: A business may deduct the losses suffered as a result of a customer who fails to make payment for goods sold. However, a business that deals in providing a service may not deduct the time devoted to a client or customer who does not pay. A service business may deduct expenses made in an attempt to help that customer or client.

Business entertaining:The cost of meals or entertainment purchased for business purposes must be documented by receipts in order to maintain the right to deduct the cost from income for tax purposes. Only 50percent of the total cost of entertainment expenses may be deducted.

Interest: If a business operates on a business loan or a line of credit, the interest on that loan may be deducted from income for tax purposes.

Normal business expenses: The cost of advertising, new equipment, depreciation of existing equipment, moving expenses, business cards, office supplies, travel expenses, coffee and beverages, software, casualty and theft losses, postage, business association dues, and all other business expenses can be deducted.


Monday, October 5, 2015

Own a business with a spouse? What happens after a divorce?

Given that this situation encompasses various areas of law, you should consult both a matrimonial and a business law attorney. Depending upon the type of business the division between you and your soon-to-be ex-wife may be straightforward. However, more than likely, it may take significant work to be able to divide the business. If you and your wife intend to continue to own and/or operate the business together, you could simply divide the ownership between the two of you.

Otherwise, the two of you have to continue to work together until the business is actually sold or dissolved. If the business is such that it has two distinct areas you could spin off one of those into a separate entity that can be owned by one of you.  If the business owns real estate, perhaps some of the real estate could be transferred into a new entity to be owned by one of you with the other of you retaining the ownership of the original entity. If the business is such that it is almost impossible to divide, then perhaps one of you becomes the sole owner of the business and has to pay the other over some period of time for the value of one half of that business. Instead of paying the other of you perhaps an outside loan from a bank or other lending institution could be obtained to provide the funding for the purchase price.

A final option may be that the business has to be sold to an outside third party and the proceeds would be divided between you and your wife in accordance with any agreement between the two of you that have been approved by the divorce court or pursuant to an order.


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