Archive for the ‘Business Law’ Category
The ties that bind us: Oklahoma non-compete agreements
This is a slide show from a presentation I did last year explaining some of the basics of Oklahoma non-compete agreements and the legal issues to consider when dealing with non-compete agreements.
Written contracts are better than good intentions
To paraphrase a bit course but well-known saying “The road to business success is paved with good intentions“. Every person I have met in my practice intends to succeed, to get along with everyone else in the business and all of the customers and competitors. We all know that reality is often an obstacle to fulfilling the good intentions.
Even better than good intentions is having a written contract to document your business relationship. Let me give you a couple of reasons:
1. A written contract provides the forum for both parties to share their “intentions” prior to the start of the relationship; once the intentions are on the table, you can discuss, debate and hopefully ultimately agree on the key points.
2. A written contact protects from someone with bad but yet to be disclosed intentions.
3. A written contract lays out how to end the relationship, usually without a lot of acrimony and without time in court.
How would I sum this all up? Keep your good intentions and put them into practice, just augment them with a solid written agreement.
6 critical legal issues to consider when starting a new business
Amidst the adrenaline rush of creating a new business, there are several legal items I regularly discuss with people who are starting a business. Below are six (6) critical items you need to consider prior to getting your business up and running:
- Be an entity. You may have been called worse things, but this is actually not a slam. An entity, in this context, is structure that provides separation between you, your assets and your business. For example, a corporation and a limited liability company are both entities. In contrast, someone doing business under their name, with nothing more formal, is operating as a “sole proprietor”; there is no separation between personal and business.
- What type of entity should I be? Surprisingly, for legal purposes there is not a huge difference. Both a corporation and a limited liability company provide a wall of separation between their owners and the business. A corporation has shareholders, a limited liability company typically has members.
- Have your organizational documents in place. For a corporation, it is written minutes of the organizational meeting of the shareholders and board of directors, plus bylaws. For a limited liability company, it is an operating agreement.
- Know who your employees are or are not. One of the easiest ways for a business to create a mountain of liability is to treat individuals who are actually employees as independent contractors. That means failing to withhold and do payroll properly and to secure worker’s compensation insurance. If you have any doubt about whether an individual is an employee or independent contract, talk to an attorney. You do not want to get caught in the Independent Contractor Trap.
- Protect your Intellectual Property. If you have words, pictures, symbols, code, software or an invention, take the proper steps to legally and officially claim ownership to it. It might be registering a trademark, securing a trade name, seeking copyright or even patent protection.
- Maintain the regular records that are required. For a corporation, it is at least the written records of shareholders and directors meetings and other major actions. Treat the entity like it is a separate and distinct entity (separate records, separate bank accounts, etc. . .)
What other issues have you considered when starting a business?
A handy table for explaining different legal entities
If you have ever wondered “How is a corporation different from a limited liability company, or from a partnership?” The Entity Table I created below is for you. It is not the only source you need to consider when starting a business but it is solid source of information. This chart shows some of distinctions between each type of entity and provides some of the benefits of each.
If you have any questions or need any help with putting something together, let me know, that is what I do. You can email me at sjr@shawnjroberts.com.
Is it ethical to buy your competitor’s name in Google AdWords?
Last year I recorded some audio in a post about using a competitor’s name in Google’s Adwords. My post was inspired by a case on which I was working. My conclusion was that this practice was unethical and possibly illegal.
Recently, a writer from the Pittsburgh Post-Gazette who was working on a story on same topic contacted me. We discussed the issues and I am quoted in a Pittsburgh Post-Gazette story. My money quote is:
“I don’t believe it’s ethical,” said Shawn J. Roberts, a small business law attorney who researched this issue last year for a client. “If somebody is searching [Highmark] and they come across the first ad, not everybody is going to realize that they’ve been taken where they didn’t intend to go.”
Read more here.
What do you think, is buying your competitor’s name in AdWords, ethical or unethical?
Are you going to get sued under your employment agreement?
I regularly look at employment agreements that contain non compete and non-dislcosure limitations/ Often, the circumstances are that an employee has left and the former employer needs to know what their rights are. Sometimes, I advise employees on their rights in regard to their former employer. I distilled a lot issues down into a few key points that employers consider when deciding whether to try to enforce an employment agreement non-compete or non disclosure provision:
1. Money. The financial resources available to the company.
2. Length of Employment. The length of time the employee has been with the company. The longer the relationship between the employee and company, the more likely the company is to believe the employee has valuable information that may hurt the company. There also may be more of an emotional attachment in a longer relationship which a company sometimes feels is violated by the employee’s simple act of changing jobs. Also factored into this category is whether the employer believes that the information the employee has could be damaging to the employer if disclosed.
3. Positive Results. How strongly the company feels about its’ chances of getting a positive result. There are times when violation of an employment agreement is so clear, the employer’s chances of winning a lawsuit or getting a favorable settlement are virtual “locks.” However, I have seen many murkier situations where litigation could be lengthy and expensive and this dissuades the employer from going to court.
4. Attitude. The attitudes of the Employer’s decision makers. Are the individuals who will decide whether to sue, settle or let it go, naturally aggressive or more conciliatory in nature?
5. Experiences. The previous experience (if any) the employer has had with enforcement of employment agreements. Positive experiences provide the confidence to go to court again while a negative experience usually leads to substantial trepidation.
5 critical elements to consider before signing a business contract
I have drafted, reviewed and analyzed hundreds of business contracts through working as an attorney with small business clients. Below are some of critical points which emerge time and again in my work.
1. Is the compensation clearly defined? Not surprisingly, this is often the key element in a business contract. Whether it is an employment agreement, creative design agreement or for shared services, each party is critically concerned about how it will be compensated. A fuzzy definition or incomplete description of the compensation structure often leaps up to cause problem during the agreement.
2. How could this contract affect me or my business after it is over? Although the end may be far off, it will likely come at some point sooner or later. When it does, your business will need to continue to operate without the agreement in place and without the assistance of the party to the agreement. Clauses in a business contract that restrict the use of the not sure of this word?, who you can contact, or that require your business to come up with a large sum of money at the end of the contract are often onerous. I have found it very valuable to run contract provisions through the filter of “how would this affect my business if I had to live with it for five years?” Will any fee be required from either party in the contract? Will property have to be returned by one party to another under the contract? Will there need to be services provided following the contract termination to allow a smooth transition?
3. Is the method to end the contract clear and subject to execution? If circumstances, other opportunities or simply the passage of time required that the contract end, it is critical for both parties to be clear about how the termination will occur. The contract needs to contain clear standards for how it can be terminated and what the consequences of termination will be. I have seen far too many contractual relationships end up in court because there was not a clearly defined method of terminating the agreement when one side felt the need to do so.
4. Are you legally capable of doing what the contract requires? You would be amazed how often I have seen businesses or individuals run into contractual issues because they were required to do things they simply could not do. For instance, providing a certain product in a specific quantity, paying certain sums of money at certain times and completing design and development work in a fixed time frame. While the excitement of getting the “big contract” is understandable, take a few minutes before signing the agreement to make sure you can realistically perform the contractual obligations.
5. Does the contract contain performance milestones that can be quantified and measured? Clear and specific milestones for what each party has to do to perform under a contract are essential. When obligations are not clear, it allows for a party with bad intentions to create trouble and also simply creates issues even with parties that have good intentions. In those situations where payment is conditional upon performance, it is critical that both performance and measurement of performance are written into the contract. In construction contracts clear deadlines and performance milestones are generally included, however, it is my experience that these types of guidelines do not end up in many other contracts.
Do you have any good stories where one of these items played out in your business?
The Definitive Legal Guide to Business Selection
Considerations when starting your business (prior to world domination). These are the thoughts and accompanying concepts that one should consider when starting a business.
- Be an entity. You may have been called worse things, but this is actually not a slam. An entity, in this context, is structure that provides separation between you, your assets and your business. For example, a corporation and a limited liability company are both entities. In contrast, someone doing business under their name, with nothing more formal, is operating as a “sole proprietor”; there is no separation between personal and business.
- What type of entity should I be? Surprisingly, for legal purposes there is not a huge difference. Both a corporation and a limited liability company provide a wall of separation between their owners and the business. A corporation has shareholders, a limited liability company typically has members.
- Have your organizational documents in place. For a corporation, it is written minutes of the organizational meeting of the shareholders and board of directors, plus bylaws. For a limited liability company, it is an operating agreement.
- Protect your Intellectual Property. If you have words, pictures, symbols, code, software or an invention, take the proper steps to legally and officially claim ownership to it. It might be registering a trademark, securing a trade name, seeking copyright or even patent protection.
- Know who your employees are or are not. One of the easiest ways for a business to create a mountain of liability is to treat individuals who are actually employees as independent contractors. That means failing to withhold and do payroll properly and to secure worker’s compensation insurance. If you have any doubt about whether an individual is an employee or independent contract, talk to an attorney. You do not want to get caught in the Independent Contractor Trap.
- Maintain the regular records that are required. For a corporation, it is at least the written records of shareholders and directors meetings and other major actions. Treat the entity like it is a separate and distinct entity (separate records, separate bank accounts, etc. . .)
What other issues have you considered when starting a business?
4 critical points to consider in a non disclosure agreement [before you sign it]
4 critical items to consider in a non disclosure agreement [before you sign it].
1. Is the definition of “confidential information” specific enough to be workable? For the non disclosure agreement to have any value, both sides must understand what is being protected. I routinely see non disclosure agreements that have wonderfully frightening all inclusive definitions of “Confidential Information.” For example, consider this definition:
The parties acknowledge and agree that all practices, procedures, business models, documents, photographs, marketing and sales plans, financial information, costs, pricing information, customer information, customer lists, and all methods, concepts, know-how or ideas in or reasonably related to the business of [redacted]
Wow, that covers just about everything ever created by the business or which the business even thought about creating. This type of definition has the potential to allow the disclosing party to use the non disclosure agreement as battering ram for years into the future. The definition should be limited to the information and area in which the parties are collaborating. Protect what is actually private, which leads into the next point.
2. Is the material being protected actually worthy of protection? Although technically parties to a non disclosure agreement can designate anything they choose as “confidential”, it makes practical sense to only protect the items that are actually private and proprietary. It is material that a business protects through reasonable means and that actually adds value to the business. Protecting material that is quasi-public or ancillary to your primary business interest leads to precisely the type of murky non disclosure agreements discussed above.
3. Which state’s law is the agreement going to be controlled by? While there may be some common legal principles shared by most states, if you think your agreement is covered by Oklahoma law and it is actually covered by New York, you are probably in for some surprises. A given state’s law on contracts is the product of value judgments made by the legislative and executive branches of state government. The values Oklahoma holds dear may be quite distinct from those cherished in New York.
4. Who is allowed to see the confidential information? It is standard for executives and employees who are directly involved in the project to be included. However, if you have consultants who need access to the material, make they are included. Also, don’t forget about your attorney: he or she may be involved in drafting future agreements between the parties to the non disclosure agreement and will need to be included.
Get a handle on these points before you sign the non disclosure agreement because mistakes in these areas have painfully long lives.
The Series LLC Part 2 – practical uses
III. Tax Implications
As you know, federal tax law rather than state law determines the existence of an entity for tax purposes. In many cases, the members of each series of an LLC will be identical. In such cases, it is fairly certain that the series LLC as a whole will be treated as a single tax entity for federal tax purposes. On the other hand, if the series of an LLC has the same members, or identical or similar membership rights, or similar business purposes, each series may be treated as a separate LLC for income tax purposes.
In both cases, however, there should be only one filing with a state’s secretary of state for the LLC (rather than for the individual series). Furthermore, in most cases, there should be only one state franchise (or similar) tax filing.
IV. Practical Uses of the Series LLC
The most obvious use for the series LLC is to hold multiple parcels of real property in liability-segregated cells. Owners of small commercial or residential properties may find the series LLC particularly appealing. This is especially true in states with high minimum franchise taxes. Forming and maintaining a number of separate LLCs may cost several thousand dollars in the year of formation and several thousand dollars each subsequent year. The use of a series LLC with each property held by a separate series may save several thousand dollars in startup costs and another several thousand dollars a year in ongoing administrative and state tax costs.
Another use for the series LLC is to facilitate an equity compensation program in a business with multiple divisions. With each division segregated into a separate series, the LLC can give the key employees of each series some sort of equity interest tied to that series only rather than equity interests in the entity as a whole. This rewards employees at productive divisions and protects them from the potential downside of other divisions.
Finally, a series LLC could be used to facilitate the combination of business operations of distinct businesses. For example, rather than undertaking a traditional merger, two companies wishing to join forces might form a series LLC, with each company contributing its assets to a separate series, or with the owners of each company contributing their ownership interests to a separate series. The LLC agreement and series agreements could be drafted to determine exactly which rights and responsibilities are shared and which are maintained separately. The series LLC provides a unique and very flexible framework for this sort of business combination.
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