Reducing Risk: 3 Business Agreements That Will Decrease Your Liability Risk

Those new to the business world often lack the first-hand experience of initiating and building healthy business relationships. But protecting these vital relationships with carefully crafted business agreements—such as those for co-owners, suppliers, and clients—is essential to growing a new business without the risk of being taken advantage of or of burning valuable bridges. To decrease the risk of liability in your business relationships, here are three of the most common agreements that every business owner should have customized and ready to go.

Owner Agreements

No matter how your business is structured, you need comprehensive owner agreements if you have co-owners, founders, shareholders or partners. Mistakes get expensive if you don’t have solid agreements between the owners when something goes wrong. Agreements should outline the terms and conditions applicable if one owner wants to go his or her separate way. Putting everything in writing will allow you to focus your energy on growing your business instead of on arguing about who said what, when and who was going to do what on which time frame.

Worker Agreements

Team member agreements protect both parties – you and them. These include agreements for independent contractors (think web developers and graphic designers) to clarify the terms and conditions of the work, and who owns the work they are creating as well as employees. Hiring with complete agreements – in writing – will ensure you are both on the same page regarding employment status, performance expectations, and job requirements. Although you should have agreements for both employees and independent contractors, make sure you clearly distinguish who is in what role. You could face tax and other penalties if you improperly classify a worker.

Customer and Vendor/Supplier Agreements

Your customers make your business possible, especially when you’re just starting out. Every sale is essentially a contract between your business and your customer, so make sure you are putting the proper legal protections in place. Terms of service and privacy policies will do some of this work for you, but make sure you consult with a lawyer to determine the specific clauses you need in your client/customer agreements to provide the most protection for the relationship long-term.

Your vendors and suppliers make your customer base possible. They help you meet demand and are instrumental to your business’s viability. Your vendor and supplier agreements should provide both parties with legal protections and make sure your needs are met by the relationship. Vendor and supplier relationships can make or break a new business’s success, so make sure you fortify them with clear, detailed agreements.

If you want to protect your business interests and limit your liabilities, start by sitting down with a Business Lawyer. We are experienced in helping entrepreneurs achieve success through careful financial and legal planning. As your Business Lawyer, we can establish a sound legal, insurance, financial and tax system for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

GP Schoemakers, PLLC offers a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Why Startups Need Lawyers, Not Legal Templates

When growth and funding are top priorities, it is wise to not let legal soundness fall to the wayside. Not surprisingly, 1 in 10 startups fails due to overlooked legal issues. Without a lawyer looking out for your best interests, it’s easy to miss common legal mishaps that pose a threat to any startup.

Mistake #1: Many startups rely on legal templates easily downloadable online to “cover their bases” and save money. What seems like a wise choice from an economic perspective can lead to significant liability if you don’t know what you are doing. Tax forms and incorporation documents might be free to download, but most entrepreneurs don’t have the legal know-how to be sure the forms are being utilized properly. Minor errors or oversights in those free legal templates can spell disaster down the road in the form of lawsuits or worse.

Solution: Enlist the expertise of an expert, like a Business Lawyer, to act as your trusted legal counsel. Adding this expert to your startup team will do so much more than simply handling legal documents such as terms of agreements, employee contracts, owner and vendor contracts. For a brand new startup it might seem overwhelming to invest in the cost of ongoing legal counsel, but the cost is nothing compared to the cost of losing your business altogether due to simple legal mistakes.

Startups need legal protections from the many risks all businesses face. When your focus is on growth and development, be sure to put developing an ongoing relationship with a trusted legal advisor at the top of the priority list. Online templates are no substitute for personalized legal counsel from a trusted business lawyer who will anticipate issues before they become problems and provide tailored guidance as your startup grows.

If you want to protect your business interests, limit your liabilities, and ensure your business is poised for growth, start by sitting down with us, as your Creative Business Lawyer®. We are experienced in helping new and established entrepreneurs achieve success through careful financial and legal planning. As your Creative Business Lawyer®, we can establish a sound legal, insurance, financial, and tax system for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

GP Schoemakers, PLLC offers a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

10 Legal Tips for Starting Your Own Business

Whether the result of the recent recession or the desire by baby boomers to embark on a new professional path, new business startups are growing fast.  Here are 10 legal tips for entrepreneurs who are striking out on their own for the first time:

Choose the right entity.  Decide if you will be operating your business as a sole proprietorship, partnership, LLC, C Corp or S Corp.  Each has its own advantages and disadvantages when it comes to business structure and asset protection; consult with a Creative Business Lawyer™ to determine the best fit for you.

If you give advice, get insurance.  Many professional who leave the corporate world to start their own consulting business may want to look into liability insurance to protect themselves from lawsuits based on claims of faulty advice.

Create good contracts.  Getting paid is often a problem for new startups; be sure to get agreements in writing and enforcements for failure to pay.

If you have a partner, get a buy-sell agreement.  A buy-sell agreement will spell out what happens in case a partner wants to exit or dies unexpectedly.

Know employment laws.  Many startups hire contractors to get up and running quickly; however, you need to be aware of legal definition of a contractor versus an employee so you don’t run afoul of the IRS.

Get the right documentation.  Legal documentation for startups is important to have in place as the company grows, and includes customer contracts, confidentiality agreements, offer letters and more.

Be aware of trademark issues.  You don’t want to be in business for a few years and find out the name of your company or your best product is already trademarked by someone else.  If a name is important to your company or product, protect it.

Put legal disclaimers on your website.  Make sure your business website has Privacy Policy and Terms of Use pages that detail the rights and responsibilities of each party.

Employment agreements.  Not every employee you hire will necessarily be with you for the long run.  Protect your business with employment or independent contractor agreements that include non-competes and other stipulations that govern the relationship.

Hire a good Creative Business Lawyer™.  At some point in your new business life, you will need good legal advice.  Because we stay proactive in your business (not just reacting to problems when they come up, but helping you to structure your business smart right from the beginning),   a Creative Business Lawyer™ can be the most important advisor you have on your team.

Whether you’re starting or already running a business, the best time to hire a lawyer is before you need one. Having a business attorney that understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

The 4 Deadly Legal Mistakes Small Business Owners Need to Avoid

Small businesses dominate the American business landscape, but those that survive several generations are relatively rare.  If you are a small business owner, you need to be sure you are not committing any of these four deadly legal mistakes:

  1. Mixing personal and business finances. If your small business started as a hobby or a sideline but has grown to a point where it is your main source of income, you need to consider forming a legal entity for it, like a corporation or limited liability company (LLC).  Most small business owners choose an LLC for the personal liability protection it provides without the formalities of a corporation.  An LLC also makes it easier for you to transition the business to other partners or future generations and since it is taxed as a pass-through entity, profits are not taxed separately but instead flow through to the owner.
  1. No employment agreements. Employment agreements should be used to spell out expectations, especially in family-owned businesses that may have been funded by one or more family members who expect reimbursement or those who expect a job at the family firm based on nothing more than a familial relationship.
  1. Failure to obtain proper licenses. Most businesses are required to have local, state or federal licenses to operate, with fines assessed for those that fail to get these licenses.  They are generally inexpensive but are often overlooked.  Check with your city or county offices to see if your business requires a license to operate.
  1. No succession plan. If your business has no formal legal entity, it will pass when you do.  Many small businesses fail to last through the first generation due to the lack of a succession plan.  Consult with a Creative Business Lawyer® about creating a succession plan for your small business, so the value you have built over the years is protected after you are gone.

We can help you discover if you have what it takes to start your own business and guide you through the steps to successful entrepreneurship. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

The Family Business: Avoid These 4 Lethal Legal Mistakes

If you operate a family-owned business or are considering starting one up, there are four potentially lethal legal mistakes you should take care to avoid, including:

No employment agreements.  Family members who work together are usually hesitant to confront one another if someone is not pulling their weight.  Having an employment agreement for everyone ensures that expectations for job performance are spelled out and what the grounds are for termination.

Mixing family and business finances.  Many family businesses start with loans from various members, and as the business grows, those initial investments need to be protected.  This is the stage when you want to consider setting up your family enterprise as a limited liability company (LLC) or a corporation.  Most small businesses use an LLC structure, which provides liability protection for personal assets and allows for company profits to flow through to owners.

No licenses.  Even if you operate out of your home, you will likely need to obtain a local, state or federal license to operate your family business.  While licenses are generally inexpensive, the fines for not having them can be costly.  You can find out what the requirements are in your area by contacting your city hall or county office.

No succession plan.  Family business feuds can easily occur when there is no succession plan in place.  Also, legally speaking, if a business has not been incorporated or formed as an LLC, the business dies when its owner does.  If you started a family business to keep it in the family, you need to follow through with a formal succession plan.

Having a business attorney who understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

Is Your Payment and Agreement Process Losing You Money?

If you get paid for a service, collecting payment is the lifeblood of your company.

And, yet, if you are like most people, you’ve made it an afterthought.

For example, I recently got a request from a client I’ve worked with a few times before to review her client agreement.

Upon doing so, what I saw was not only an agreement that felt like a big turn-off, but a payment collection process that made it less likely that her ideal clients would say yes to working with her.

Here’s how it worked:

Step 1: Review agreement that basically says if you are accepted for mentorship, we are going to charge you the full amount (unspecified in agreement) and you are responsible to pay it, no matter what.

Step 2: Apply for mentorship and put down a $500 refundable deposit.

Now, if I am her potential mentee client, that agreement is going to turn me off to the point where I am unlikely to put down the $500 refundable deposit.

The agreement comes at the wrong part of the process. And, the wording in the agreement itself is overly harsh and does not feel protective enough of client for me as client to feel good about signing it.

Remember this: agreements are in place in your business not just for your protection, but for the protection of the relationship as a whole.

How your agreements are presented, when they are presented, and what they say are of critical importance to your relationship with your clients and customers.

In this case, I recommended to my client that we upgrade the language of the agreement to make it more mutually protective – win/win for all involved. And, that the agreement not be

presented until after the application was reviewed and the mentee was approved and validated his or her desire to fully participate by signing the agreement.

So now, the process is:

Step 1: $500 refundable deposit to get an interview. If approved during the interview, review the agreement together during the interview and solidify the relationship, being sure to point out the places that the agreement protects client, not just mentor. If not, refund $500.

Step 2: Sign agreement that is a true win/win agreement. Begin long-lasting relationship.

This process will enhance sales, ensure the right people enroll in the program, meaning those who will be most successful with the mentorship, and also create raving fans.

The language of your agreements and the way you present your agreements are a critical piece of you getting paid (and being able to collect on overdue payments) AND building a business that lasts.

If you would love to have your agreements reviewed, not just for legal compliance, but to ensure they support your marketing and client engagement processes and create better, more profitable client relationships for the long-term, contact us for a comprehensive audit of all of your Legal, Insurance, Financial and Tax systems and we’ll include a full contract review in the process.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Do We Really Have to Write It Down? Which Contracts Must Be in Writing?

Have you ever wondered which types of contracts must be in writing to make sure you get the benefit of your bargain? All of the U.S. states have some form of what is known as the “Statute of Frauds.” Under this law, or laws, some contracts must be in writing to be enforceable.

The Statute of Frauds originated in England in the 1600s. As its name suggests, the law was designed to prevent people from defrauding each other by claiming the benefit of nonexistent contracts. From this standpoint, the Statute of Frauds serves a very important public purpose.

The vast majority of contracts can be made orally, with no written component. There are certain types of contracts, however, which must be in writing to be enforceable. Common examples of contracts that must be written are land contracts, contracts for goods valued at $500 or more, and contracts to be responsible for the debt of another person.

Land Contracts

One of the most common examples of a contract that must be in writing is a contract relating to the sale of an interest in land. This includes contracts to sell or buy land or mineral rights in land, as well as mortgage contracts and options to purchase real estate. Most states, however,  have an exception for leases that are shorter than one year.

Goods in Excess of $500

The Uniform Commercial Code has been adopted by most states in some form, which provides that contracts or sales of goods in the amount of $500 or more must be in writing. There are only a few exceptions to this rule, which usually involve goods that have already been accepted by the buyer, goods for which a partial payment has been made, and contracts to manufacture specialty goods.

Contracts to Be Responsible for Someone Else’s Debt

When a person promises a creditor that he or she will be responsible for someone else’s debt, this is known as a suretyship. Suretyships are a third example of contracts that must be in writing to be enforceable. However, if the person makes the promise to the debtor rather than the creditor, the Statute of Frauds does not apply. Also, if the person takes primary responsibility to repay the debt, the Statute of Frauds does not apply.

What type of writing is required? The statute of frauds usually does not require the contract to be highly technical or formal. Instead, any writing will do if it includes the names of the parties, the contract’s subject matter, and the basic conditions of the agreement. Also, keep in mind, a person cannot be held responsible for a written contract if he or she did not sign it.

From vendor agreements to purchase agreements, from leases to independent contractor agreements, contracts are a part of everyday business life. It is important to make sure your contracts are valid, enforceable, and protecting you like they should.

Because the Statute of Frauds varies from state to state, you should obtain advice about your contracts from an experienced lawyer licensed in the state in which you do business. One of the services we provide is a comprehensive contract review, and this review can help you get paid more often, more easily and bring in more money for your business.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you structure your operations for success, even after death. We also offer a LIFT Start-Up Session,™ which includes employment structuring, financial, and tax systems you need for your business.  Call us today to schedule a time to have a conversation!

 

How Can I Stop a Competitor from Poaching My Good Employees?

Due to the use of online marketing, business competition is fiercer than ever. This hyper-competitive environment causes many business owners to wonder how they can stop the poaching of their good employees. First and foremost, this is best accomplished by treating your employees great, paying wages on the higher end of the scale and creating a great workplace with flexibility.

Second, you want to have agreements with current employees that minimize the risk. Employers sometimes require their employees to agree to a non-solicitation clause as a condition of employment. These clauses require that the employee agrees not to solicit other employees to leave if that employee is ever terminated or quits.

Whether these clauses will be upheld depends on state law. Some states look very unfavorably on any agreement that might prohibit healthy competition while other states attempt to balance employee rights to change jobs with employer rights to develop employees without fear they will become future competitors.

As you might imagine, there is a distinction between a former employee who actively recruits your employees, and one who was approached by your employees. In most states, a former employee will not be charged with violating a non-solicitation clause when he or she did not initiate contact the current employee directly. For example, if one of your employees responds to an advertisement for an open position, that would be viewed differently than a direct solicitation of that employee.

If a non-solicitation clause is found unenforceable, states differ in their approach to adjudicating a dispute between the parties. Some states take a “blue pencil” approach, striking only that part of the agreement. In other states, if the clause is invalidated, the entire agreement may be void and unenforceable.

Dealing with non-solicitation clauses can be tricky. If you’re interested in preventing employee poaching, your best bet is to contact us and we’ll support you in ensuring that your agreements provide maximum protection with minimum risk of loss or liability.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you structure your operations for success. One of our primary services is a LIFT Start-Up Session,™ in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate.  Call us today to schedule a time to have a conversation!

 

Employee Handbook Guidance from the National Labor Relations Board

As union membership continues to fall nationwide, the NLRB seems to be more closely monitoring company employment practices and policies. The Board is on the lookout for policies that could deter non-union employees from engaging in activities protected by Section 7 of the National Labor Relations Act.

What is Section 7?

Section 7 protects employee rights to engage in activities intended to improve their pay and working conditions. Employer rules which can be reasonably construed by employees as preventing them from pursuing better pay and working conditions are considered to violate the National Labor Relations Act (NRLA).

The Board’s Latest Action

Earlier this year, the NLRB’s General Counsel issued a guidance memorandum regarding employee handbook policy provisions it believes are unlawful. Topics included the following:

  • Confidentiality;
  • Professionalism;
  • Anti-harassment;
  • Trademarks;
  • Photography/recording; and
  • Media contact.

Example A–Confidentiality

Under the guidance, a policy prohibiting employees from discussing work matters with no business reason would be considered unlawful under Section 7. Similarly, a policy stating that non-public information cannot be shared would also be unlawful. The problem with these provisions, according to the guidance, is that they are too broad and may be construed in different ways. There may be work matters or non-public information that can legitimately be discussed by employees under Section 7 of the Act, so a general prohibition is inconsistent with those Section 7 rights.

Example B–Employee Conduct Rules

The guidance states a rule telling employees not to pick fights online would be considered unlawful because its broad language might be construed as prohibiting an employee from having what could become a heated conversation with a fellow employee. Pay and working conditions are topics, afterall, subject to high emotion and even outright anger.

Example C–Photography, Recordings, or Personal Electronic Devices

Another example in the guidance involves a blanket ban on the use of cameras, tape recorders, cell phones, and other similar devices in the workplace. The guidance explains that a broad-based ban would be illegal because it could dissuade employees from recording unfair labor practices.

The Rule of Thumb

The general rule of thumb in avoiding Section 7 issues is to make sure your company policies are not so overly broad as to invite a wide array of interpretations. The rules should be narrowly and specifically constructed so that employees know exactly what is being required or prohibited. That said, make sure you are not narrowly and specifically describing behavior that an employee may undertake in furtherance of improvements in pay and/or working conditions.

Creative Business Lawyers® are well-versed in the federal and state laws that apply to businesses, including the National Labor Relations Act. Make an appointment today to discuss any questions you have about labor contracts, company policies, or to schedule a LIFT Start-Up Session,™ which includes the employment structuring, financial, and tax systems you need for your business.

Confidentiality in Employment Investigations

No employer wants to conduct a workplace investigation. But investigating an employee may become necessary to limit the company’s liability exposure, comply with legal requirements, maintain discipline, or protect other employees. And if you have to conduct a workplace investigation, you may think it should be kept confidential. After all, how many times have you read in the paper that a criminal investigator could not comment on an ongoing investigation? In employment matters, however, the National Labor Relations Board takes a different view.

The NLRB’s Recent Ruling

In June 2015, the NLRB ruled that employers’ policies imposing a broad confidentiality requirement on workplace investigations violate the National Labor Relations Act. Section 7 of the Act protects employees’ rights to discuss terms and conditions of employment – including workplace investigations – among themselves. As such, an employer may not maintain rules or policies that interfere with the rights of employees to discuss workplace investigations (even if those rule or policies have not been enforced or resulted in actual interference with such discussions).

Confidentiality Not Completely Lost

The Board’s ruling only applies to blanket policies of confidentiality. It went on to outline the circumstances in which confidentiality may be required. According to the ruling, those circumstances are present in the following cases:·

  • witnesses need protection,
  • evidence is in danger of being destroyed,
  • testimony is in danger of being fabricated, or
  • there is a need to prevent a cover-up.

While it is certainly easier for you as an employer to follow a policy that applies to all
investigations, the Board’s action means that you will have to eliminate your broad policies in this area and evaluate the need for confidentiality on a case-by-case basis.

Not Just for Union Shops

Many employers are under the mistaken impression that the NLRA only applies to unionized employees. Although the Act was enacted in the early days of the industrial revolution to protect the rights of employees to form or join labor unions, most employees, whether unionized or not, are covered under the act. The law does not cover government workers, agricultural laborers, independent contractors, and supervisors (with limited exceptions).

Creative Business Lawyers are well-versed in the federal and state laws that apply to businesses, including the general requirements of the National Labor Relations Act. Make an appointment today to discuss any questions you have about internal investigations, or schedule a LIFT Start-Up Session,™ which includes employment structuring, financial, and tax systems you need for your business to succeed.