Out-House General Counsel

Why You Must Keep Good Records For Your LLC

2010-02-11T20:40:00.000-08:00

One of the reasons many people start a limited liability company (LLC) is to avoid the paperwork required of a corporation - annual meetings, amendments, board records, etc. But being an LLC is not a free ride, as far as records go. Many states require limited liability companies to keep specific records, and failure to do so can cause you to put your limited liability status at risk.

Piercing the (Corporate) LLC Veil.  There is a concept in corporate law called “piercing the corporate veil," which refers to the ability of a court to personally charge corporate executives with liability for their actions on behalf of the corporation, including liability for corporate debts. Within the last few years courts have also held LLC members liable for the debts of the LLC. Starting with a case in Utah in 1997, (Ditty v. CheckRite), courts have found that piercing the corporate veil is appropriate in the context of LLCs, citing factors such as " failure to respect corporate formalities."*

Tricia Davis of the Bernstein Law Firm (Pittsburgh, PA) warns, "...courts all over the country have begun to apply the traditional corporate veil piercing to LLCs to create personal liability on the members for debts of the LLC." And they are using poor record keeping to apply this rule. So keeping good records for your LLC isn't just good, it is absolutely necessary.

What LLC Records Must Be Kept?  I looked through record keeping requirements of many states, and created a list of the most common:

· Names and addresses of all members and of all managers.

· A copy of the Articles or Organization and all amendments (Certificate of Organization in some states)

· Federal, state, and local tax returns, for up to 6 years (this was the longest time)

· A copy of the LLC Operating Agreement and all amendments

· Copies of LLC financial statements for up to 6 years

· Copies of all LLC books and records for up to 4 years

· A record of all Member capital contributions, agreements to contribute capital, and dissolution events

· Records of all proceedings of Members for the past 3 years

· A copy of all agreements and contracts of the LLC

· Reports to Members for the last 3 years

These records should be kept in the office of the Registered Agent. Much of this list you are probably already doing, but if not, get busy and put them together. Many LLCs get their Articles of Organization filed and forget to have an Operating Agreement signed. Even a single-member LLC needs an operating agreement, which should include a clause stipulating who will manage the LLC if the Member is unable to do so.

Source: Tricia Davis, Esq.

If you have any questions about maintaining your LLC, please feel free to contact me at The Out-House General Counsel.

California Employment Discrimination Law: Two Systems, Separate And Unequal

2010-02-11T20:20:00.000-08:00

Los Angeles, California - Civil rights disputes resolved through the dual system of private representation and public enforcement in California have created a disparity that is neither fair nor nondiscriminatory, according to a report by the UCLA–RAND Center for Law and Public Policy.

This is one of many conclusions reached by researchers at the center as the result of the most comprehensive study yet conducted of the enforcement of a state antidiscrimination law, California's 50-year old Fair Employment and Housing Act.

According to the report, "California Employment Discrimination Law and Its Enforcement: The Fair Employment and Housing Act at 50," California has two separate but far from equal systems for enforcing its employment discrimination laws: a civil litigation system for employees able to obtain an attorney, (about half of all complainants) and an administrative enforcement system operated by the state's Department of Fair Employment and Housing (DFEH) and Fair Employment and Housing Commission (FEHC). The federal Equal Employment Opportunity Commission (EEOC) handles only about one-fourth of complaints in California.

Access to the two state systems is determined primarily by lawyers who accept employment discrimination cases on a contingency-fee basis. About half of the approximately 18,000 employment complaints filed with the DFEH each year are immediately removed to the civil litigation system. The study found that these lawyers were much less likely to accept certain kinds of cases, primarily based on expectations about the potential monetary value of the case.

The result of this system produces dramatic disparities in access to the two systems. For example, controlling for a wide range of other variables:

Compared with whites, African Americans have half the chance of obtaining a lawyer, and other people of color fare only slightly better.
Women are 20 percent less likely than men to obtain a lawyer.
Employees in lower-wage occupations and particular industries have a much lower chance of obtaining a lawyer. For example, workers in the construction and wholesale trade industries have one-sixth the chance of obtaining a lawyer of those in the government sector.

The remaining half of employment discrimination complaints are processed by an administrative system with dramatically fewer resources. The DFEH has 16 attorneys to process accusations with the FEHC. By comparison, well over 1,000 attorneys prosecute employment discrimination complaints in court. The DFEH operates with a budget equal to 81 cents per year per California employee. Past budget cuts have resulted in the elimination of training and management positions. Those investigating complaints in the administrative systems are often minimally educated — a high school diploma and four years of service in any state agency satisfy the education and experience requirement — yet they are expected to deal with a complex set of legal rules. In 2009, the FEHC had only one administrative law judge to hear cases.

The study indicates that important reforms adopted by the Schwarzenegger administration have increased the effectiveness and efficiency of the DFEH. Looking at the enforcement structure more broadly, however, the study documents dramatic differences in outcomes between the two systems:

In the civil litigation system, most cases settle. Of those that go to trial, plaintiffs win 50 percent of the time, receiving a median jury award of $205,000 (in 2007–08).
In the administrative enforcement system, cases begin with the filing of a complaint with the DFEH and can conclude with a settlement or a decision by the FEHC. Of those cases closed from 2004 to 2008:
- One in 14 obtained a monetary benefit, the median value of which was $4,000.
- One in 69 resulted in an accusation being filed with the FEHC, which has in recent years issued an average of only five published decisions per year.
- Of the cases settled after filing an accusation with the FEHC, the median settlement was $14,842.

"While our findings regarding the inability of individuals to gain access to the civil justice system are troubling, the inequality in the two systems is clearly the product of the legal systems that have evolved over the past half-century rather than the performance of individuals, many of whom work very hard with inadequate resources," said UCLA School of Law professor Gary Blasi, who co-authored the report.

"A truly effective administrative enforcement system would benefit both employees and employers, and the DFEH has already made progress toward allocating its resources more efficiently," said Joseph Doherty, director of UCLA Law's Empirical Research Group and co-author of the report. "Our recommendations are designed to minimize both the costs on employers and the use of DFEH resources, but we are mindful that some require additional financial support. For example, imposing a fair employment practices regulatory fee of 10 cents per month on both employers and employees would triple the current budget of the DFEH."

The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world.

The UCLA School of Law, founded in 1949, is the youngest major law school in the nation and has established a tradition of innovation in its approach to teaching, research and scholarship. With approximately 100 faculty and 970 students, the school pioneered clinical teaching, is a leader in interdisciplinary research and training, and is at the forefront of efforts to link research to its effects on society and the legal profession.

On a side note, The Out-House General Counsel is a proud graduate of UCLA School of Law. This is a great report, you can find it at the link below.

For a copy of the Report go to California Employment Discrimination Law and Its Enforcement

2010 Employment Law Updates, by Jerry Bloch

2010-02-10T15:16:00.000-08:00

Here is some great information from Jerry Bloch at The General Counsel's Blog.

Here are the most significant legislative changes applicable to California employers:

A. FMLA (included in the 2010 National Defense Authorization Act):

1. Military Caregiver Leave –Time off to care for injured or ill or active service members has been expanded to include injured or ill veterans (honorably discharged former members of the armed services) if they were discharged within the past 5 years.

2. Qualifying Exigency Leave – provides time off to care for a parent, child or spouse, including registered domestic partners (“Close Relative”) of a member of the military reserve force or National Guard called to service or on active duty has been expanded to include time off to care for a Close Relative of a member of the armed services deployed to a foreign country.

Applies to employers with 50 or more employees.

Recommended Action: Change FLMA policy in handbook to comply.

Reference: 29 USC 2601, 29 CFR 825.100

B. Civil Air Patrol Leaves –the employer must provide up to 10 days a year of leave to employees who are members of the California Wing of the Civil Air Patrol if;
- they are called away in response to an emergency, and
- have completed at least 90 days of employment.
The employee may use accrued leave benefits but cannot be made to do so.

Applies to employers with 15 or more employees.

Recommended Action: Change leave policies and handbook to include.

Reference: AB 485, Labor Code Sections 1500 – 1507)

C. Alternative Work Week

Under existing California law, an employer is required to conduct a secret vote with at least 2/3rds of the affected employees voting in favor of adopting an alternative work week (other than 8 hrs/day – 40 hrs/wk). The vote was difficult to achieve because it would have eliminated every employees’ ability to continue working the standard shift. A recently adopted amendment to the law allows for the standard shift to be included in a menu of work schedule options that is voted on, increasing the likelihood that the 2/3rd vote will be achieved. Employees may, with the employer’s consent, shift between different work schedules from week to week, providing even greater flexibility to both employees and the employer.

Reference: CA Labor Code Section 511, AB 5.

If you have any questions or concerns about any of these issues, please contact me at Out-House General Counsel.

Preparing to Meet with Your Business Law Attorney

2010-02-07T12:17:00.000-08:00

Normal

As you prepare for your first meeting with your business law attorney, you should gather certain documents and information to bring with you. The information you provide will help your attorney to analyze your business needs and create a plan that will best meet your business goals. The following list can help you decide what information to bring. Not all items listed may apply to your situation, and your attorney may ask you for additional documents that are not on this list. If you do not have some of these documents, your attorney can assist you to obtain them.

Normal

Business Information

· Business plan including business model

· Business name registration documents

· Any existing business organization documents

· Licensing and permits

· Marketing plans and samples

Financial Information

· Business accounting books

· Individual income tax returns for the past three to five years (state and federal)

· Business income tax returns for the past three to five years (state and federal)

· List of business debts and assets

· Business bank statements

Property Information

· Leases for business space or equipment

· Deeds and titles to business real property and business assets

· Property insurance documents

Bills and Outstanding Debt

· Business credit card statements

· Loan documents

· Utility bills

· Monthly budget worksheet

Legal Agreements

· Supplier contracts

· Contracts with customers

Finally, you will also want to start thinking about other issues that may affect your business. You may wish to speak with your attorney about the following:

· Tax considerations for the business

· Tax considerations for you as an individual

· Your comfort level with business and legal risks

Normal

If you think you need to speak to a business law attorney, don't wait until its too late. Find one in your local area, explain your situation and meet with him or her. If you are in California, you can always contact me at Email Daniel J. Alexander II (The Out-House General Counsel).

The Pros and Cons of Attorneys Fees Provisions

2010-02-03T18:46:00.000-08:00

Despite your best intentions, you could find yourself in a situation where you are forced to sue another company - or worse yet, a situation in which another company or client is suing you. To add insult to injury, the practicality of the lawsuit could boil down to one, little clause in the contract: The attorney fee clause.

An attorney fee clause is a small clause in a contract that something to the effect of, "In the event of litigation relating to the subject matter of this Agreement, the non-prevailing party shall reimburse the prevailing party for all reasonable attorney fees and costs resulting therefrom."

In plain English, this means that should a lawsuit occur, the loser is responsible for paying all of the legal fees - for both parties.

Not all contracts have attorney fee clauses and in most cases, the omission of an attorneys' fee clause is intentional. In the end, the decision about whether or not to include this clause depends a lot on which party is most eager to achieve an advantage.

The Argument for Attorney Fee Clauses

Attorney fee clauses are ultimately an economic issue one party uses as leverage to dissuade the other party from following through with a lawsuit.

In certain situations, this clause can be used to your advantage. For example, suppose someone is harassing you with a frivolous lawsuit and you know they can't afford proper legal counsel. The risk you assume in defending the lawsuit is minimal compared to the risk that is being assumed by the other guy, especially if you stand a good chance of coming out on top.

In some cases, attorney fee clauses may actually prevent lawsuits from ever being filed in the first place.

This is particularly true in cases where the potential gain from a lawsuit is dwarfed in comparison to the potential liability created by the legal process. If your company sells widgets for $250, it's unlikely that a customer will sue you for the price of your product once he discovers that he may be responsible for thousands of dollars in attorney fees and other legal costs.

The Argument against Attorney Fee Clauses

Attorney fee clauses do not always work to your advantage. No matter how big your company is, there is always someone bigger out there.

Should your relationship with a larger company run afoul, the larger company will not be intimidated by the inclusion of an attorney fee clause in your contract. In fact, since an attorney fee clause works to their advantage, they will most likely welcome it and use it to run your business into the ground through legal fees.

Another situation in which an attorney fee clause can hurt you is if you lose the lawsuit - regardless of the financial state of the other party. Your cleverness in including this clause in your contracts could potentially backfire on you and leave you holding the bag for everyone's legal bill.

If you decide to include attorney fee clauses in your contracts, you should know that under some circumstances they may not be legally enforceable. If you are in California consult your Out-House General Counsel to determine the specific language you will need to maximize its enforceability. If you are operating in another jurisdiction, contact a local qualified business attorney.

Tips to choose law firm for small business

2010-01-22T09:49:00.000-08:00

Tips to choose law firm for small business

Author: Amalendu Hajraa

Most of the corporate and large corporations have in house legal counsel to support them in different legal requirements. But in case of small business this might not happen because of several reasons like size of business, amount of capital invested etc. Thus, small business turns to law firms when any kind of legal assistance is required. There are many law firms that offer required legal support and advice to small business as and when required.

Things to consider while choosing law firm for small business

At present there are series of law firms who offer their legal support and advise them from time to time. But the question is how to select law firm for small business? Below are few tips provided that can surely help you in selecting law firm that you are looking for your business.

Understand your business field: Before you hire law firm, it is extremely important to understand your business field. Unlike corporate or large corporations the legal requirement of small business is limited to certain specific field. Thus, the first step involves in understanding your business field.

Narrow your search: Based on your business field narrow your search and look for law firms that deal with your field of business like employment, labor law, commercial collections, copyright, trademark etc. Look for firms who offer their legal service and support from small to medium sized business. This is because they can understand your problem better and provide you with accurate legal advice and support.

Check the background: This is the third step that you must consider while choosing your law firm. Check the background of the site by visiting their site. It will also help you in understanding the kind of legal service they provide. Don’t forget to check out the client testimonial helping to give you a clear picture of their position in market. In this connection look for a law firm who hire law graduates from good law schools in the field of business law.

Ask for reference: Another way to find law firm is to ask friends, colleagues and relatives. Especially to those who have experience in seeking legal help from law firms. But make sure that reference they provide match with your field of business.

Cost and affordability: Enquire the cost of the firm and see whether it is fitting to your budget or not. But, most of the time this aspect hardly becomes an issue. Small business lawyers are very much aware of the stiff competitive market and hence they offer efficient service within the stipulated time fitting into your budget.
Thus, choosing a law firm can be daunting task. The secret to select the right law firm for small business is to act sensibly. With these tips also you can expect to get in touch with right law firm. In fact it is always a welcome decision to conduct some research on local law firms. The process will consume time no doubt, but you will surely land to right law firm for small business.

Article Source: http://www.articlesbase.com/law-articles/tips-to-choose-law-firm-for-small-business-1760447.html

About the Author:

Amalendu Hajraa is the CEO of AssistUI one of the leading web designing and development company in India. Based on his years of experience, he contributes thought provoking but informative articles on web designing, e-commerce and iPhone application development.

Legal Remodeling Can Be Expensive

2010-01-17T12:34:00.000-08:00

This is great post by another blogger. This post clearly reinforces the universal rule that it is almost always more efficient and less expensive to involve a lawyer earlier in the process than later.

The Attorneys of Chorey, Taylor, & Feil, A Professional Corporation: Legal Remodeling Can Be Expensive

California Businesses Face New Laws in 2010

2010-01-01T12:40:00.000-08:00

Here are a few new laws that will affect California businesses in 2010.

1. The FEDERAL ESTATE TAX is eliminated for 2010 only. The tax has been gradually lowering for several years but the Democrat-controlled Congress is likely to let it return to its former 55% in 2011.

2. I-9 FORMS: Businesses that have federal contracts or subcontracts must use the E-Verify system when hiring employees. Other employers may use the verification system if they wish to do so. E-Verify compares Form I-9 document information against federal government databases to verify employment eligibility.

3. I-9 FORMS PART II: A new Form I-9 for noncitizin workers went into effect Aug. 7. The biggest difference is the updated list of verification documents a prospective employee can present when hired. The new law also specifies that documents used to establish identity or right to work cannot be expired.

4. TAXES: State tax withholding increased as of Nov. 1: 10% more for mandatory withholding, 0.6% increase in supplemental wage withholding and a 1.2% increase on stock options and bonus payments.

5. An ALTERNATIVE WORKWEEK schedule may be in place for less than a full year — for example, during the summer months only, according to an opinion from the Division of Labor Standards Enforcement.

6. FAMILY LEAVE: A new federal law changes the definition of which service members are covered for family leave:

Regular Armed Forces members are covered during deployment to a foreign country.
Reservists are covered when notified of an impending call to active duty in a foreign country or during that deployment.

7. WORK LEAVE: Employers with more than 15 employees must provide leave for employees who are volunteer members of the Civil Air Patrol.

8. SAME-SEX MARRIAGE: California recognizes out-of-state marriages that are legal in the state where the marriage occurred. So SB 54 requires employers to give all the same rights and benefits to spouses of such marriages.

9. WORKERS COMP: Employers cannot deny workers’ comp coverage for an employee killed by a third party in the course of the employee’s work if the death was related to the employee’s race, religion, color, national origin, age, gender, disability, sex or sexual orientation.

If you have an questions or concerns about any of the above, please do not hesitate to contact me at Email Out-House General Counsel or via the Google Voice Button on the right hand column of this blog.

25 Free Legal Resources for Start Ups

2009-12-07T20:03:00.000-08:00

This is a re-post from Ryan Roberts at The StartUp Lawyer blog @ 25-free-legal-resources-for-startups. This is a great legal resource for start-ups and small businesses. Thank you Ryan for posting this great piece.

Although my blog is not listed in this resource, it along with my services are an invaluable resource for a start-up business. While there are great resources online, nothing takes the place of consulting with a qualified business Attorney in your jursidiction. If you are from the great state of Texas, call on Ryan.

California Labor Law Tips for Small Business Owners

2009-10-14T21:37:00.000-07:00

California's current economy, like the rest of the world's, is on shaky ground. There is an eruption of employment-related claims in our state, coming from employees who are laid off, terminated for cause, or who are still working, but afraid of losing their jobs. A significant source of complaints concern wage and hour issues - nonpayment, late payment, unpaid overtime, and other wage and working condition issues that affect employers regardless of size.

There are several key areas of wage and hour compliance issues from which most complaints arise. If small employers (or any size company, for that matter) can avoid these common pitfalls, companies will be far ahead of the game when it comes to complaints, hearings, lawsuits, settlements and awards.

It is important to note that wage-related claims in California have up to a four-year statute of limitations, requiring back pay, interest and penalties. In other words, it is best to get the rules right in the first place and follow them. It can be much more costly in the end if you try to cut corners.

Meal and Rest Periods

Unlike Federal law, California law requires rest and meal periods for non-exempt employees. Generally, a non-exempt employee cannot work more than 5 hours without a 30-minute unpaid meal period (California Labor Code, Section 512). Three exceptions exist. Rest periods must be 10 minutes per every 4 hours worked or major fraction thereof. They must be paid time and, if possible, be taken in the middle of the 4 hours (California Wage Orders). If these periods are not given, the employer must self impose a wage/penalty payable to the employee of one-hour of pay at the "regular rate" (California Labor Code, Section 226.7).

The recent California Supreme Court ruling that these payments are a wage has led to a large increase in claims. Plaintiffs' lawyers are seeking, in addition to the wage/penalty, penalties for failure to pay all wages due on paydays, as well as penalties for not reporting all wages on the required pay stub.

The bottom line is to make sure you know the Labor Laws and comply with them. If you are not already working with a business lawyer, employment lawyer, or human resources consultant, you should seriously consider it. It is well worth the investment in the long run.

If you have any question or concerns regarding anything in this post, please feel free to contact me at email the outhouse general counsel or (714) 795-0930.

So You Want To Expand Your Small Business Internationally

2009-10-03T12:08:00.000-07:00

I recently came across a great blog called The Global Small Business Blog. It is a great source of information for small businesses looking to expand internationally. I have had several clients contact me to draft international contracts and assist them with their international business aspirations. I wish I had known about this blog while I was performing that work.

If you intend to do business in other countries, or you are a lawyer advising such a business, then you most certainly will need some help with international trade law. Again, I encourage all small business owners to consult with qualified business lawyers. Depending on your international business aspirations, you may need to consult with an International Business Lawyer.

The Global Small Business Blog (GSBB) was founded on July 20, 2004 by Laurel Delaney for the purpose of helping entrepreneurs and small businesses expand their businesses internationally. She recently posted about a Compendium of Trade Law Summaries. Produced by the member law firms of Lexwork International (network of independent law firms), this Compendium provides trade law summaries for over 30 jurisdictions prepared by law firms located there, including the most significant United States trading partners. This is a great resource for any small business looking to expand internationally.

This does not mean you don't need a good business lawyer with international experience or an International Business Law Specialist. Every global small business at some point needs a good business lawyer during rapid growth stage (or before if you're really smart about anticipating what's ahead). Your business lawyer will become one of your trusted advisors and an integral part of your global "dream team." I would like to thank The Global Small Business Blog for this great post.

If you have any questions or concerns about anything in this post, please feel free to contact me at dalexander@outhousegeneralcounsel.com or (714) 795-0930.

Selecting Your Agent For Service of Process...

2009-09-21T10:10:00.000-07:00

One of my favorite small business bloggers is Joseph Dang at San Diego Small Business Law Blog. He recently posted about selecting your agent for service of process. Joseph had come across a great online book entitled Ten Fatal Mistakes Business Owners Make and How to Avoid Them, published by Gibson Ferrin & Riggs, PLC, a great Business Law Firm in Phoenix. Both Joseph and I encourage all small business owners to read this great work.

Mistake #4 was failure to use a qualified statutory agent. In California we call these agents "Registered Agent for Service of Process." If you form a legal entity, such as a corporation or limited liability company, you need to designate an agent whose address is registered with that your states Secretary of State. This person is your official authorized agent to accept service of lawsuits or other legal communications for your company.

Failure to use a trustworthy agent can lead to problems, such as failing to respond in a timely manner, or outright concealment by the agent. I, like many business attorneys, offer this service for all my clients. The benefit is that I will be the first to receive notice of claims or lawsuits and can ensure that a timely response is made. CPA's, accountants and other service providers can also act as agent for their clients. I would advise that you use an attorney or a company that is dedicated to providing this service.

While the Out-House General Counsel does not endorse these companies specifically, here are few companies that are major players in this market:

These are the big three. As with any service provider you choose, perform your due diligence before retaining anyone. I would like to thank Joseph Dang and Gibson Ferrin & Riggs, PLC. for this information. As always, if you have any questions or concerns regarding this post, please contact me at dalexander@outhousegeneralcounsel.com or (714) 795-0930.

How to Build Your Team of Trusted Advisors

2009-08-31T21:12:00.000-07:00

As a legal blogger, I am a fan of other lawyers who write about my practice area. Twitter is a wonderful tool to connect with other like minded lawyers. One of my favorite Business Law bloggers is Scott F. Gibson out of Phoenix, Arizona (which happens to also be one of my favorite towns.) Scott believes in educating the business owner and those general practitioner lawyers who advise them. Scott recently posted a blog entitled "Avoid the Hidden Hazard and Lurking Liabilities" wherein he discusses the importance of putting together a team of trusted advisors. The subject matter is something that I discuss with all my clients and with Scott's permission, I am re-posting his piece on the Outhouse General Counsel Blog.

Your business is under attack from every side.

Your "To Do" list is long and detailed. It includes hiring, training, and motivating employees. You must pay your vendors, collect your accounts receivable, and price your goods or services competitively and profitably. If you do not obsess about marketing and client service, your business cannot survive. And don't get me started on the legal issues that business owners face every day.

If you dwell on all the ways you are under attack, you will start to feel overwhelmed. Eventually, you may feel like curling up in the fetal position and crying yourself to sleep. That strategy might provide you some temporary relief, but it will not lead to long-term success.

You need a comprehensive plan if you are going to avoid the hidden hazards and lurking liabilities that can destroy your success. As part of that plan, you must rely on trusted advisers who can help you successfully navigate your business. Your team should include the following advisers:

Banker: Look for a banker who will get to know you and your business. If you call your bank and ask to speak with the bank president, does he know who you are? Will he take your call? If not, you should consider moving to a different bank. I regularly recommend that my clients work with one of the excellent community banks in our area.

Accountant: Most business owners have a relationship with a bookkeeper or accountant who handles the company's books and records. When you start your business, it may be sufficient to let your neighbor keep your books in her off hours, but as your business grows, you will need a more sophisticated source of financial advice. Make sure that your business has not outgrown your financial adviser. You need competent, thoughtful financial advice.

Insurance Broker: If your business is not properly insured, you are asking for trouble. Depending on the nature of your business, you will need workers compensation insurance, health insurance, life insurance, general liability insurance, property insurance, auto insurance, and malpractice insurance. Your insurance broker can help you minimize your risks, protect your business, and save you money.

Payroll Service: One of the quickest ways to kill a business is to mishandle payroll or payroll taxes. For very few dollars a month, you can avoid the wrath of the IRS by using a payroll service. You cannot afford to handle payroll in house.

Legal Counsel: Your lawyer is a critical member of your team of advisers. Interview candidates and hire a lawyer before a legal crisis arises. Make sure he understands your business model, your target market, and your long-term goals. Develop a comprehensive plan that will promote your business objectives and take your business from where you currently are to where you want to be in five or ten years. Meet regularly with your lawyer to review the legal health of your business, compliance with employment standards, and efforts to protect your intangible assets. Set up and properly fund a buy-sell agreement with your business partner. Consult with your lawyer to avoid legal disputes before they arise.

Avoid the hidden hazards and lurking liabilities that cause many businesses to stumble. Choose the right team of advisers, and your business will boom.

The demands of owning a business can be overwhelming. You need an effective plan to grow and succeed. Learn how BizBuilder™ can help you systematically and continuously attack the most demanding legal challenges your Arizona business faces.

Who is Scott F. Gibson? For 23 years, he has practiced business law in Arizona, the past ten as the managing partner of Gibson Ferrin & Riggs, PLC. They help businesses and their owners preserve, protect, and promote their their business and personal objectives. His practice focuses on the intersection between intellectual property law and employment law. He helps businesses prosper by properly managing their intangible assets.

While Scott's blog is focused on Arizona law, this piece is applicable wherever you decide to start a business. If you are in Arizona, I encourage you to contact Scott. I would like to thank him for allowing me to re-post his piece on the Outhouse General Counsel Blog.

As always, you can contact me at dalexander@outhousegeneralcounsel.com.

Virtual in Vermont

2009-08-21T21:26:00.000-07:00

Although I am licensed in California and most of my clients are in California, I still keep my eye on business law trends across the country and the world. In it's September 2009 issue, Entrepreneur magazine reports on a recent change in Vermont state law that eliminates some of the time and expense associated with running a business and allows a Limited Liability Company (LLC) to operate virtually -- what is informally known as a Vermont Virtual Company, or VVC.

Of course, there are taxation issues: VVC owners may still be liable for a minimum partnership tax and personal income tax on money earned from Vermont sources. You should always consult a tax professional before you chose an entity for your business. Tax issues aside, VVCs can save business owners money. According to Entrepreneur, here is how:

Businesses created under the new law don't need a physical headquarters. Because many entrepreneurs work from wherever they can get wireless access to the internet, this change can save plenty of money.
The need for in-person board meetings is eliminated. Specifically, "an annual meeting may be conducted by means of any electronic or telecommunications mechanism." Allowing board members to meet via phone conference (or even text messaging) can save thousands of dollars in transportation and lodging costs annually.
And, expensive paper based filings are a thing of the past. All necessary paperwork can be filed and recorded electronically. Not only a cost saver, but it's GREEN.

Information about starting a virtual LLC in Vermont can be found at www.sec.state.vt.us/corps/dobiz/llc/llc_start.htm.

To form an LLC in Vermont, you'll need to file LLC articles of organization. The LLC articles of organization form can be downloaded from www.sec.state.vt.us/corps/forms/llcarts.htm

I would be interested to hear from people who operate under a virtual Vermont LLC. This sounds like it could be the wave of the future for new business entities. It will be interesting to see if other states follow suit. I shall keep you informed as I learn more about this most interesting subject. Again, if you have any additional information about this topic, please contact me at dalexander@outhousegeneralcounsel.com.

Don't Pay to Train Young Lawyers

2009-08-15T21:06:00.000-07:00

As a General Counsel, I am often asked to retain a law firm to perform legal work that is outside my scope of expertise. General Counsel, both in-house and out-house, have long complained that big law firms charge hundreds of dollars an hour for work performed by their most junior lawyers. I spent twelve (12) years in big firm practice and am familiar with this practice. According to Jeffrey Carr, general counsel at FMC Technologies, a Houston oil and gas equipment company, "it is one of the biggest problems today in the legal delivery system." I agree with Mr. Carr who states that clients are "saddled with the cost of training these novices."

In its August 24 & 31, 2009 issue, Businessweek recently wrote about this issue in an article entitled Junior Fees For Junior Lawyers. They report that this fall first year lawyers at Howrey, a Washington-based national firm that focuses on litigation and intellectual property, will enter a two-year training regimen that puts a cap on what they can charge clients. The young attorneys will be allowed to bill just 700 of the 2,000 hours they log per year. When they do bill, it will be at about half of Howrey's current rates, or roughly $150 an hour. (They can bill 1,000 hours in the second year.) The rest of the time, these new lawyers will be shadowing senior Howrey lawyers which will mean working on, but not billing clients, performing pro bono assignments, and/or serving externships with judges or in corporate client's law units.

Howrey began planning this program before the recession. Other firms appear to be starting similar programs as one way to cope with tighter times. Drinker Biddle & Reath, another national firm, announced in May that instead of deferring start dates, it will put new grads in a six-month apprenticeship-at reduced pay and billing rates. Law firm consultants agree that the way firms train, compensate, and charge for associates will be the most significant permanent change coming out of this downturn.

I applaud Howrey, Drinker and other big firms who are creating these programs to keep their clients from paying to train their young associates. I think it will also create better lawyers. The traditional big firm model is outdated and those firms who fail to adapt will not survive in the long run. If you are a business owner or a lawyer advising a business owner who needs to retain a law firm, make sure you are not paying to train that firm's young associates.

If you have any questions or concerns about any of the above, feel free to contact me at dalexander@outhousegeneralcounsel.com.

Representing Your Business in Small Claims Court

2009-08-13T23:08:00.000-07:00

If I am doing my job correctly, none of my clients should get sued in small claims or any court, but sometimes it happens. Sometimes businesses have to sue a customer or another business in small claims court. Recently I have received a lot of phone calls seeking counsel on how to proceed in small claims. While in most states you are not permitted to be represented by an attorney in small claims, you are allowed to consult an attorney outside of the small claims court and in preparing your case.

The key to success in small claims starts with the law and facts being on your side, but more importantly it is more about being organized and how you present your case. It is easy to snatch defeat out of the jaws of victory by being unorganized and ill prepared. The following are a few tips to help you successfully represent your business in small claims court.

WHO GOES TO COURT WHEN A BUSINESS IS SUED OR IS SUING – If you are the only owner of the business, you usually must go to court unless the claim can be provide by evidence of a business account in which case a regular employee with knowledge of the account may represent you. If you have a partner, one of you must go. If the business is a corporation, an employee, officer, or director must go to court. That person can’t be hired just to represent the corporation.
BE ORGANIZED – Just like an attorney, you need to present your case in an organized manner. Every judge knows that the parties in court are not lawyers and are usually nervous, if not terrified. However, having exhibits and documents organized makes the chances of success much higher because it makes the case go smoother, especially if you are trying to collect money on an account.
WITNESSES – Witnesses can appear in small claims court and can testify in front of the judge. Because witnesses are perceived as having the ability to be impartial, their testimony can be valuable for the judge as he or she conducts the hearing to gather evidence for the decision. Some states (but not all) allow witness statements to be presented to the judge; these statements have to be in writing and signed under “penalty of perjury.” Most judges prefer to have a witness physically present in the courtroom; it is easier to cross-examine a witness than it is to cross-examine a written statement.
LOOK AND ACT PROFESSIONAL – Despite the relative informality of small claims court, it is still a professional place. Being well dressed and professional makes a good impression on the Court. The courtroom employees, from the judge down to the court clerk, are all dressed in a professional manner. If you are appearing before the Court, you should also be dressed professionally. As a business owner you should dress in business attire. If you can’t afford a nice business suit, at least put on your “Sunday Best” outfit. Do not go to court in jeans, t-shirts, a hat and/or tennis shoes.
BE COURTEOUS – The Courtroom is not a place to pick fights with your opponent. It is also not the place to “talk over” anyone else. Most importantly, it is not a place to argue with the court. This is very difficult for people in emotional cases but a very important thing to remember. The Judge is there to resolve a dispute and it is difficult to do so then the parties are arguing in the middle of the case. All the court is interested in is the facts. Be prepared to go into court with the idea of presenting your cases and countering the other side in a respectful and dignified manner.
DO NOT OVERSTATE YOUR CASE – Make sure that your facts and damages fit what you are suing for. Never lie or “over exaggerate” anything. I have heard of instances where counterclaims were filed in breach of contract cases for “pain and suffering” just because they were sued. People have also padded their damages claims just to get back at the other side. Small claims cases are usually straightforward claims for compensation. Filing for extreme damages will weaken your case and your credibility. Also, adding irrelevant claims diminishes the effectiveness of the relevant claims. It is a very good idea to run your case by an attorney first to determine which claims you should file.
TRY TO SETTLE – Once a matter is heard in small claims court, you lose control of the outcome. Settlement is always an option up until the day of trial. In fact some courts encourage the parties to “mediate” the case on the day of trial. Sometimes this is a good option. Even if you get all of your damages from a Judge, you have to collect the judgment. If you work out a settlement before trial and the party pays you that day, you have the money in hand. The Judge may even do a settlement on the record for you.

Many states and counties have Small Claims Help Centers or websites that have specific information about their courts and procedures. I highly recommend that you avail yourself of these resources. If you can’t find any resources were you live feel free to contact me at dalexander@outhousegeneralcounsel.com and I can help you out (for a nominal fee of course).

Business Owners - Got Trust?

2009-08-06T19:42:00.000-07:00

Business owners often don't spend all of time considering succession planning or the importance of having an estate plan. I have been working a lot with a premier estate planning attorney in Southern California. Her name is Shadi A'lai Shaffer. After talking to her about my own Estate Plan, I realized that I was doing my clients a disservice if I did not discuss estate planning with them. The following is a post Shadi recently posted on her blog. If you are a business owner you need an estate plan. If you are a lawyer who advises business owners, you need to have this discussion with your clients. GOT TRUST?

Business owners, partners, sole proprietors (and yes, you folks who "partner up" with others to buy properties)
WHY OH WHY DO YOU NOT HAVE AN ESTATE PLAN???????

Ok, so I get it. I am an Estate Planing Attorney. Of course I am going to tell you how important it is to have a COMPLETE AND UP TO DATE PLAN but really folks we are in CALIFORNIA, do you have any clue what torture you are putting yourself, your family, your partners and business in (when you don't Got Trust?).

It's not a matter of IF but WHEN.
You will experience excruciating pain and frustration if death happens but you will feel this even more so if you don't die but just become disabled or incapacitated (if unable to make decisions).
If you do not have an estate plan you are basically doing two things:
1) allowing Conservatorship to occur; and
2) allowing a Probate to occur
Both of which are time consuming and costly. As if that wasn't bad enough, you have now opened your business up to the court system and are at their mercy! Good luck with that man! you have now lost control and the ability to continue your business freely. You may now have to report every item to the courts AND you may not be able to buy, sell, transfer, or do some very basic or normal tasks related to your business.

Business owners work so hard and many do create a decent legal foundation for their business however if you do not have estate documents such as a trust, a will, power of attorney for finances, etc... you are truly harming your business in ways you can only understand once it is too late!!!!

I urge business owners to take the time to meet with an estate planning attorney for a consult to learn how an estate plan will protect you and help in the continued success of your business. What is the point of all your hard work if you do not dot all your "i's" and "t's"? Don't want to be "married" to the California court system or to your partner's spouse? Get your butt in gear and GET TRUST. Now is the time to take control of your business and your life. Tomorrow just may be too late.

As you can see, Shadi is very passionate about her work. If you have any questions about any of the above, please contact Shadi A'lai Shaffer at http://www.pslawyers.com/ or 714-966-2646
GOT TRUST?

Cost Effective Out-House General Counsel Legal Solutions

2009-07-18T22:51:00.000-07:00

I have had many discussions with business owners expressing frustration about Corporate/Business lawyers that companies and in-house counsel have been trying to address for many years – the high cost and opportunity lost of traditional law firm services. The business model of traditional law firms does not work for start-ups and many established companies are not receiving cost effective representation when retaining traditional law firms to perform their corporate legal work. Retaining an “Out House General Counsel” offers a solution to these frustrations by providing cost-effective, value-based, general counsel services to start-up, fast-growth and mid-size companies. With over fifteen years of corporate legal experience (both transactional and litigation), I provide industry proven, senior level general counsel attorney experience to companies for a monthly retainer well below the cost of a traditional hourly rate law firm and with none of the overhead of adding a new legal department which makes it possible for companies to enjoy all of the advantages of having an experienced “out-house” general counsel contributing to the success of the management team.

The entire business model of corporate law firms is going to have to adapt to the current market. With all the “online” legal services available, lawyers can’t assume that companies will turn to them when transactional legal issues arise. Today, many small and mid-size companies are being priced out of the law firm market and are looking for alternative ways to get legal services. Nothing takes the place of a business lawyer. My "Out-House General Counsel” practice provides business clients with critical corporate legal services replicating, as much as possible, the methods, approach, and style of an "in-house" law department. It is a cost-effective solution to the high price of traditional law firm lawyers.

To get more information about this program, feel free to contact me at dalexander@outhousegeneralcounsel.com

The Do's and Dont's of Online Employer-Employee Recommendations

2009-07-05T21:57:00.000-07:00

For those of you who know or follow me, you know that I am a big fan of LinkedIn. In fact, I invite you to join my LinkedIn network at http://www.linkedin.com/in/dalex2 and post a recommendation that I can share on my profile. However, if you are an employer or manager and an employee asks you to post a LinkedIn recommendation for them....beware.

I have been discussing this issue with some of the leading employment lawyers in Los Angeles and they all agree that employers and managers need to be careful when posting recommendations or testimonies about their employees. The recommendation feature of LinkedIn that allows users to write flattering online recommendations about others' work has become a popular way to shower praise on LinkedIn contacts-and to draw accolades for oneself. But employment lawyers warn that managers and employers who do this for their employees must be careful. If official performance reviews are different in tone than the LinkedIn recommendation, the LinkedIn recommendation could be used by plaintiffs' lawyers in discrimination or wrongful termination cases that put an employee's performance at issue. Over the next few years we are going to see lawyers mining these social networking sites such as LinkedIn for evidence to support their claims.

While it is not necessary to cease providing your employees with these online accolades, please make sure any LinkedIn recommendations or other online comments match up with what is included in their HR-sanctioned reviews.

EXECUTIVE ORDER S-09-09

2009-06-10T15:25:00.000-07:00

If you have any business with the State of California, please read the following Executive Order that was executed on June 8, 2009.

EXECUTIVE ORDER S-09-09
by the
Governor of the State of California

WHEREAS due to developments in the worldwide and national financial markets, and continuing weak performance in the California economy, the General Fund deficit for the 2009-2010 fiscal year is estimated to grow to $24.3 billion; and

WHEREAS the State Controller projects that as of July 29, 2009, California will not have the cash needed to meet all of its payment obligations; and

WHEREAS the projected budget deficit will require critical cuts to State programs and services, and additional borrowing from local governments; and

WHEREAS immediate action is needed to address the budget and cash crisis facing the State of California; and

WHEREAS immediate action to reduce current spending must be taken to ensure, to the maximum extent possible, that the essential services of the State are not jeopardized and the public health and safety is preserved; and

WHEREAS State agencies and departments under my direct executive authority must take all available steps to reduce their expenses to achieve budget and cash savings.

NOW, THEREFORE, I, ARNOLD SCHWARZENEGGER, Governor of the State of California, in accordance with the authority vested in me by the Constitution and the statutes of the State of California, do hereby issue the following orders to become effective immediately:

IT IS ORDERED that except for projects funded by the American Recovery and Reinvestment Act, or projects funded by bonds, grants or projects specifically mandated by court orders, or public-private partnerships that require no direct state expenditures, any funds encumbered on or after March 1, 2009, for contracts entered into for which goods or services have not been provided or for contracts proposed to be entered into during the 2008-2009 fiscal year by State agencies and departments, regardless of funding source, are hereby disencumbered and the funds will revert to their original funding source if no legal liability will be incurred by the State. If a legal liability will be incurred by the State, approval to continue encumbering the funds must be obtained from the Agency Secretary and the Director of the Department of Finance.

IT IS FURTHER ORDERED that by 30 days after the passage of a revised budget for fiscal year 2009-2010, all State departments, regardless of funding source, shall submit a plan to their Agency Secretary that provides for a reduction of the amount of the department's appropriation to be encumbered by new contracts, extended contracts or purchases from statewide master contracts in the 2009-2010 fiscal year by at least 15 percent, whether the reduction results from cancellation, suspension, renegotiation or otherwise.

IT IS FURTHER ORDERED that effective immediately and until a State department's plan is approved by the Agency Secretary, a State department is prohibited from entering into any new contracts, amending existing contracts, issuing purchase orders for goods or services, or making purchases from statewide master agreements or leveraged procurement agreements for goods or services.

IT IS FURTHER ORDERED that the Director of the Department of Finance shall establish an exemption process regarding all contract cost reduction measures contained in this Order that Agency Secretaries and Cabinet-level Directors shall utilize to determine if an exemption is justified based on an emergent situation to preserve and protect human life and safety; avoiding significant revenue loss; achieving significant net cost savings; maintaining multi-year IT system and service contracts approved by the Office of the Chief Information Officer; or providing critical services and functions.

IT IS FURTHER ORDERED that the services and functions of state government directly related to the preservation and protection of human life and safety, including but not limited to emergency and disaster response activities and the provision of 24-hour medical care, shall be deemed critical and exempt from this Order.

IT IS FURTHER ORDERED that all Agency Secretaries and Department Directors shall take immediate action to implement this Order to reduce state expenditures.

IT IS REQUESTED that other entities of State government not under my direct executive authority, including the California Public Utilities Commission, the University of California, the California State University, California Community Colleges, the legislative branch (including the Legislative Counsel Bureau), and judicial branch, implement similar or other mitigation measures to achieve budget and cash savings and additional transparency in state government.

This Order is not intended to create, and does not create, any rights or benefits, whether substantive or procedural, or enforceable at law or in equity, against the State of California or its agencies, departments, entities, officers, employees, or any other person.

I FURTHER ORDER that, as soon as hereafter possible, this Order shall be filed in the Office of the Secretary of State and that widespread publicity and notice be given to this Order.

IN WITNESS WHEREOF I have hereunto set my hand and caused the Great Seal of the State of California to be affixed this 8th day of June 2009.

ARNOLD SCHWARZENEGGER
Governor of California

ATTEST
DEBRA BOWEN
Secretary of State

If you have any questions about how this executive order may affect your business with the State of California, please contact me at dja2@dja2law.com.

Business Succession Plan Buy-Sell Agreements - Addressing the Critical “What Ifs?”

2009-06-02T19:57:00.000-07:00

Consider what planning should be done now for the eventual sale or transfer of your interest in your business (i.e. should you have a buy-sell agreement in place?). The time to prevent disputes is before they occur. My experience is that owners anxieties created in dealing with one another, are inversely proportional to the effort they spend addressing business problems in the event that they should happen. Dealing with these contingencies before they manifest themselves is the secret to a harmonious business relationship with other owners. Legal fees as well as sleepless nights will be minimized if you agree to the "What Ifs" now.

Use the checklist below to determine areas where you may need assistance. Answer Yes or No to each question. Establishing a business succession plan is as important as a business plan when you start a business. This is probably the most neglected aspect of running a business. If you are a business owner and do not have a succession plan in place, you need to address this issue. Take this checklist and your answers to a qualified business attorney to get your succession plan in place.

Applicability

Should the agreement apply only to the current owners or should it be binding on all owners throughout the life of the business entity?

Should the agreement provide language that it supersedes all other agreements to redeem a business interest?

Is the agreement being reviewed annually? Changes of price or terms should require a unanimous vote of the owners.

Type of Agreement

Should the agreement be structured as a redemption agreement (corporate buy-back) or as a cross-purchase agreement (shareholder purchase)?

Should the agreement be structured:

-To require the seller to sell and the buyer to buy?

-To give the buyer an option to require the seller to sell?

-To give the seller an option to require the buyer to buy?

-To give a right of first refusal to the buyer?

-As a combination of any of the above?

Should the death of an owner cause an automatic buyout of the owner’s interest or should his/her family be allowed to remain as an owner?

Buyout Price and Time for Payout

Should the buyout price from the estate or heirs of a deceased owner be addressed? If yes, when should it be paid? What interest rate should the obligation bear?

Should the buyout price to a disabled owner be addressed?

Should the buyout price to an owner who resigns or is dismissed be addressed?

Should there be a difference in price if there is an amiable parting of ways?

Should the buyout price to an owner who goes bankrupt be addressed?

Should the price reflect the fact that you are selling to a long time business associate rather than an outsider?

Funding

Should the agreement provide that the buyout be funded by life insurance or some other investment vehicle?

If funded with life insurance: Should the type of life insurance used be addressed (i.e. term life, ordinary life, last to die, paid-up life, universal life or an endowment policy?)

Should a life insurance trust be used?

Should all of the policy proceeds be required for redeeming the interest?

Can part of the proceeds be used to help the entity recover from the loss of the owner?

Should whole life insurance policies with cash values be transferred to the owner at termination or retirement?

Security

Should the agreement be guaranteed or secured?

If so, should the security be in the form of:

-A pledge of business assets?

-A personal guarantee by the other owners?

-An agreement obligating the entity to refrain from increasing salaries, paying dividends or making loans until all outstanding liabilities to the beneficiaries are paid?

Loans

Should the disposition of owners' loans, whether receivables or payables, in the event of termination because of death or disability be addressed?

Should the disposition of owners' loans in the event of termination other than because of death or disability be addressed?

Other

Should there be a covenant not to compete? If so, should there be geographic and time limitations?

Should there be a period of disability before the other owners of the business have the right to buy out a disabled owner?

Should an owner have the right to transfer or assign to a trust, for estate-tax planning purposes, their rights and interests in the business?

Should the spouses of the owners sign the buy/sell agreement?

Do other family members presently own any stock?

Business Legal Issues: Handling The Legal Aspects of Business

2009-05-26T22:11:00.000-07:00

Certain legal issues may be specific to the type of business you have. However, many issues are common for all types of small businesses. Some of these are being discussed here.

Health and Safety

Every business owner has to ensure the health and safety of their employees at the workplace. This is one of the major concerns of business owners of all businesses, whether big or small. Such responsibilities are both ethical and legal.

If your business has a physical location, then you will need to register your business with OSHA (Occupational Safety Health Administration. This goes double if your employees face on the job hazards, such as building things or handling hazardous materials.

Not following the law when it comes to health and safety is a sure-fire way to get into legal trouble.

Employment and Age

It is necessary for every business owner to ensure compliance of age and employment-related laws along with the health and safety laws applicable to their particular business. In a case where a business is sold to another owner, the new owner needs to follow and maintain the correct policies and procedures together with appropriate practices that accompany the purchase of the business.

It would be advisable to seek information from the EEOC (Equal Employment Opportunity Commission) to ensure legal compliance and help you stay within the age limitations imposed by the law.

Buildings and Property

As a small business owner, you need to know the building codes in the district where your business will be operating. This will ensure that there are no building code violations and that there are no structural issues or other problems that may invite fines.

Fair Trading Practices

Fair trading practices help to avoid deceptive conduct and prevent economic injury to consumers and other businesses. Fair Trade includes unfair competition, false advertising, copyright infringement, etc. As a small business owner, you should make sure to acquaint yourself with Better Business Bureau guidelines and register your business with them. Registering with the BBB shows that your business has an open-door policy and will be fair and equitable when dealing with complaints or other issues.

In general, when selling products, either wholesale or retail, all sales should be on equal terms and prices must be non-discriminatory.

For example, a box of cards should not be sold to one or more stores for $10 and to others for $13 unless there is an economic justification. This justification may be that some pay in cash so they get the product cheaper, or they buy in bulk so they get a discount. Other stores may want to retain the right to return unsold goods, so they may pay a higher price.

Licensing and Insurance

It is important that all relevant and necessary licenses pertinent to the business be obtained. The proper way to proceed in applying for any licenses you need is through your state’s Business License division. Your business should also be insured (in fact, this is often required), preferably with a reputable insurance company. To get more information on government regulations related to licenses, permits, registrations etc. for a specific line of business, check with related trade associations, business colleagues and experienced consultants.

It is best to hire an attorney to go through all documentation, plans and papers related to the legal aspects of your business. This will help you to comply with any legal requirements and ensure that your business is protected from lawsuits and other legal complications. The Legal Audit Checklist is a checklist of twelve key areas of inquiry that a qualified business lawyer will audit. Analogous to a medical physical exam, the purpose of the legal audit is to understand your current condition, identify any problems, and enable you to take appropriate actions to correct or arrest the worsening of current problems and to avoid/prevent future problems. It is more cost effective to catch these issues earlier than later to avoid costly litigation. For more information about a legal audit check out the following link: https://www.box.net/shared/bxg70z9bxg

Keep Lawsuits off your Back

2009-05-24T10:46:00.000-07:00

This article is courtesy of Cliff Ennico (cennico@legalcareer.com). Cliff is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book.

A lawsuit can crush your business, and there’s no fool proof way tot prevent someone from suing you if he thinks you’ve made a mistake, breached a contract or caused him to have an accident while on your premises. The good news is lawsuits are costly and time consuming, so most sane people won’t waste the time and money to sue you if the claim is not substantial and you do everything you can to make yourself an unattractive target. Here are five ways to reduce your liability risk:

1. Use your company as a shield. If you’re doing business as a corporation or LLC, people have to know that they’re dealing with your company, not you. Make sure your corporation or LLC name appears on your business cards, stationery, website homepage, company vehicles, office doors and all other places that are visible to your customers, suppliers and others. Make sure customers write checks to your corporation or LLC, not to you individually. Make sure you sign all business documents, checks and correspondence as a representative or your corporation or LLC (e.g., XYZ Enterprises, Inc. signed by “Your Name, President”).

2. Update your insurance. You should have commercial liability (“slip and fall”) and malpractice (“errors and omissions”) coverage with limits of at least $1 million per occurrence and $3 million total liability.

3. Disclaim legal liability in your contracts. Look at your form contracts with customers and suppliers. These should specifically disclaim any liability for: ”consequential, incidental and punitive damages,” express and implied warranties, “including but not limited to merchantability and fitness for a particular purpose;” and, any liability whatsoever in an amount greater than the amount paid by the customer or $100, “whichever is greater.” These disclaimers need to be in bold type or all caps so that they’re clearly visible. If you website has a “Terms and Conditions” section or a “User’s Agreement,” make sure these disclaimers appear there as well, and that people have to click on a box saying “I Agree” to your terms before they can buy goods or services from you online.

4. Transfer assets. Consider transferring personal assets into the hands of family members who are not involved in your business. To be effective, this must be done before something happens that results in a lawsuit.

5. Get rid of “high risk” customers. If you sense that a customer or client is a lawsuit waiting to happen, especially if he generates little sales for your business, now is the time to stop doing business with him. Let him down gently and refer him to another local business—preferably your biggest competitor or worst enemy.

One thing Cliff didn’t mention in his article which I think is very important when trying to avoid lawsuits is including an Alternative Dispute Resolution (ADR”) Provision in your contracts. Every year, millions of business contracts are written which provide for arbitration as a means of resolving disputes. Most provide for administration by the American Arbitration Association (“AAA”), a public-service, not-for-profit organization offering a broad range of dispute resolution procedures. ADR includes arbitration and mediation, you can also include in the ADR provision, that the parties try to work out the problem before the matter is submitted to ADR. Either way, every contract should have an ADR provision to allow the business to get its disputes resolved as quickly and cost effectively as possible.

Legal Issues Associated With Starting or Buying a Small Business

2009-05-17T19:14:00.000-07:00

There are numerous legal issues to think about when it comes to starting or buying a small business. There are important legal requirements associated with registrations, permits and licenses, and you will need to meet all the laws for operating your particular business in your community. Regulations vary by industry, state and locality. It is important to make sure you have satisfied all the legal requirements associated with your business before you start operating.

Regulatory Considerations

Certain businesses are subject to restrictions on the legal form the enterprise must take. Some businesses, particularly those that require a “professional” license, may not be practiced in the form of a regular corporation, but are restricted to the modified ''professional corporation'' format. By contrast, some businesses may be operated only as corporations.

In addition to general and specific regulations of a business's activity, there may be legal obstacles to certain individuals engaging in a particular business. An example is state permit or license requirements that restrict who may engage in a particular activity based on certain educational or other background requirements.

Some licensing requirements are aimed at preventing those with criminal or otherwise ''undesirable'' histories from participating in some activities. Often, even if a licensing statute does not specifically call for good character in an applicant, a licensing official may have implied discretion to investigate an applicant's character and to deny the license on that basis.

Federal Requirements

With the exception of sole proprietors, most business types must apply for an Employer Identification Number (EIN) regardless of whether they have employees. Additionally, if you provide health insurance for your employees, you may need a National Standard Employer Identifier (NSEI) for your electronic health transactions.

Most businesses do not require a federal license or permit. However, if you are engaged in one of the following activities, you should contact the responsible federal agency to determine the requirements for doing business:

Investment advising
Drug manufacturing
Preparation of meat products
Broadcasting
Ground transportation
Selling Alcohol, tobacco or firearms

Federal registration of intellectual property, including patents, trademarks, trade names and copyright, provide business owners with exclusive use of intellectual property in the United States as well as in a large number of foreign countries.

State Requirements

Many types of businesses need to obtain some type of business or professional license or permit from a state government. While business licensing requirements vary from state to state, some of the more common types are listed below:

Business licenses. A state business license is the main document required for tax purposes and conducting other basic business functions. Many states have established small business assistance agencies to help small businesses comply with state requirements.
Occupations and professions. State licenses are frequently required for occupations as varied as building contractors, physicians, appraisers, accountants, real estate agents, private investigators, funeral directors, hairdressers and auto mechanics. Prior to opening a business, be sure that you know what the licensing requirements are for your particular occupation and that you have complied with all of them. Contact the state board governing your particular occupation for information as to licensing requirements. Certain occupations also require that you provide regular proof of "continuing education," to ensure that you keep up with changes in your occupational field.
Licenses based on products sold. Some state licensing requirements are based on the product sold. For example, most states require special licenses to sell liquor, lottery tickets, gasoline or firearms.
Tax registration. If the state in which you operate has a state income tax, you'll have to register and obtain an employer identification number from your state Department of Revenue or Treasury Department. If you're engaging in retail sales, you will need to obtain a sales tax license.
Trade name registration. If your business will only be operated in your local community, registering your company name with the state may be sufficient.
Employer registrations. If you have any employees, you'll probably be required to make unemployment insurance contributions.

Local Requirements

Nearly all businesses need a county or city license. This is a general license that grants you, as the business owner, the privilege of legally operating a business within a certain city or county jurisdiction. Fees are typically low and these kinds of licenses are easy to obtain, though application procedures may vary. Contact your city hall or county government offices to determine the kind of license you need and obtain necessary application paperwork.

Local permit requirements vary as well. Failure to have the proper permits may prevent your business from opening, force it to shut down and you may have to pay fines.

For specific requirements for your business you should contact a local business attorney to make sure you comply with all the necessary requirements. If you plan on starting a business in California, I can handle these issues for you and make sure you stay compliant throughout the life of your business.

JD Scoop Lawyers to Follow on Twitter

2009-05-08T08:51:00.000-07:00

JD Supra is a site dedicated to showcasing the work of lawyers across the country. In September 2008, it published a list of lawyers to follow on Twitter. It continues to monitor legal "tweets" and adds lawyers to the list periodically. I recently made the list and am at no. 645. You can see the list at http://scoop.jdsupra.com/2008/09/articles/law-firm-marketing/145-lawyers-and-legal-professionals-to-follow-on-twitter/

To follow me on Twitter you can hit the button on the right column of this blog or go directly to http://twitter.com/dja2law

Thanks
Daniel