Category Archives: Small business

Does your business partner have his hand in the company cookie jar?

Some people just cannot resist putting their hands in the proverbial company cookie jar.  Read on for tips for what to do if you have concerns that your  business parter is stealing money or goods from your business, or using them for his or her personal use.

First, you must act quickly and carefully to protect your interest and to keep yourself out of hot water. The first thing you should do is locate a copy of your operating agreement, partnership agreement, or bylaws.  If you never got around to reducing your agreement to writing, perhaps now you are realizing why that step is so important. Even if you do not have a formal agreement, gather any emails, letters, napkin writings, whatever, that will be helpful to prove  the agreement with your partner.  If you do not have any formal agreement, Florida’s “default” LLC rules will apply to you.

cookiejarNext, read the agreement (and consult an attorney) to see what it says about obtaining books and records of the organization. Many business agreements contain detailed information about when and how the partners or members are allowed to review the books and records. You still need to comply with “the rules” of your agreement during the time you are investigating your partner, but that doesn’t mean you can’t use all options available to you to obtain the information that you need.  For example, review (and print or save) the bank accounts of the company directly (if you have that access — as a partner or managing member, you should), talk to loan officers that work with your company, or even speak with vendors or employees of the company if you think it may be done appropriately.   Also consider whether company records on the cloud or at remote locations  might be easily corrupted or deleted without your knowledge.

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Do I need an operating agreement for my single-member LLC?

Every Friday, I ask my Twitter followers to submit a legal question to be answered anonymously the following week.  Here is last week’s question:

I just filed a single-member LLC for my flower business.  Do I really need an operating agreement if it is just me running the business?

The answer:  Yes, you should have one.  It sounds crazy, since you have no one to agree – or disagree- with but yourself.  However, an operating agreement is an important document that confirms the limited liability status of your business.  It clarifies the status of your business as separate from you personally — do not be fooled into thinking that simply filing an LLC and going about your day is enough.

Why should you care and why spend the money for this simple document?  Well, if you do not maintain your “corporate personhood” as separate from you personally, you might expose your personal assets to collection from your business creditors.  A sharp lawyer on the other side will try to convince a court that you are running the business personally and should be made to pay the debts of your business from your personal assets.  This is called “piercing the veil.”

A court will look at many factors to determine whether you were actually operating a legitimate business, and things like maintaining separate bank accounts, using your corporate name in all transactions, and having an operating agreement will be crucial for maintaining your limited liability status.  These things may seem like silly “legal” distinctions, but under state and federal law those minor factors can carry big weight.  You have an LLC — now use it for the purpose it was created — limiting your liability.

An operating agreement for a single member LLC must contain certain provisions that are more important for its purposes than a multi-member LLC.  Consult with an attorney to make sure you have all of your bases covered.

The Benefits of Outsourcing

—- by1a476db8125bfac3238663ab57450f49_t302 guest author Melody Cobbe @CobbeLaw

The business communities, including small businesses, are always looking for methods to become more efficient and as result, increase their profitability margins. “Outsourcing” is a creative option available to small business owners. Whether the goal is to remain self-sufficient or position your business for an eventual merger or acquisition, businesses must become smarter about where to cut costs. By “outsourcing” essential needs of your business, such as legal assistance, accounting, secretarial work, and marketing, a business owner is given the flexibility of having a job function fulfilled without the long-term cost of having an employee fill that position.

Five Essentials for Your Website’s Terms of Use Agreement

In a previous post, I talked about the importance of website Terms of Use or Terms of Service (TOU) Agreements and ways to help make yours more enforceable.  This article will cover five key sections that should be in every TOU.  The list is not exhaustive, and depending on your business you may require many, more specific provisions.  Also, interpretation of these issues varies by state.  Nonetheless, these will give you a good start.  You should consult an attorney to review the TOU that you have in place or to draft a new one for you including the precise language needed to give your business maximum protection.

1.     Disclaimer/Limitation of Liability

You will want your agreement to limit your liability for the user’s use of your online product or service.  Of course, you cannot simply put a provision in your TOU that limits all liability, but there are certain categories of damages that you may be able to limit by contract.  Consult an attorney for more detailed information.

2.     Warranty

You make certain promises about your product or service to your customers.  That is good and sensible business practice.  There are also certain warranties provided for by law.  However, there are certain limitations you may want to place on those warranties through your TOU and you should do so to the extent permitted by law.  These must be clear and conspicuous to your customers, so consult an attorney to draft them for you.

3.     Privacy Policy

The importance of this provision cannot be underscored.   This section should disclose the way you gather, manage, use, and disclose a customer’s data.  There are state and Federal laws that mandate the way you use (or don’t use) this data, and disclosing details about that information in your TOU is essential.   It also gives your users a sense of security that is important to maintaining your client base.  Sometimes, the privacy policy is even separate from the TOU.

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Website “Terms of Use” Agreements — Are They Enforceable?

If you operate a web-based business, chances are you have a “Terms of Use” or “Terms of Service” (TOU) document posted somewhere on your website – if you do not, you should get one right away. Depending on the nature of your business, you might even require users to “sign” the document electronically. The enforceability of these of “contracts” is rapidly changing in the digital age, but there are a few important considerations that will help ensure your agreement is enforceable.

Generally, the main thing that courts consider when determining whether a TOU is valid and enforceable is evidence that the user actually “assented” to abide by the terms of the agreement.   That is, you must show that the user read and understood the terms and voluntarily agreed to abide by them.  Additionally, “conspicuous” or obvious notice of the agreement’s existence prior to the user accessing your product or service is very important.

Here are a few guidelines to ensure that your agreement is enforceable if ever called in to question in court.

  1. The more steps a user must go through to “assent,” the more likely the TOU will be considered enforceable. However, it is important to balance business concerns with the need to protect the interests of the business. So, asking for the user to “initial” agreement to terms is completely reasonable, whereas insisting on an initial at every page followed by requiring the user to provide a written statement accepting the terms might be excessive. Terms of Use that are available only through a tiny link at the bottom of a page are unlikely to be enforceable without other evidence of “reasonable manifestation of assent.”
  2. Match your agreement to your business. The value of each sale or service should be considered in light of how big of an effect a breach of the agreement would have on your business. For example, a simple “I agree” may be sufficient assent by a consumer, but if you are dealing with another business, it might be worthwhile to require more evidence of “assent,” such as an initial on each page or requiring the user to write out the full name of the business after reviewing the document. Continue reading →

Partnership or LLC? What is best for your business?

Each Friday, I ask my Twitter followers to send me their legal question via private message or email.  I choose one question to respond to anonymously each week.  Below is last week’s chosen question:

“I am starting a business with three friends to develop a video game.  We are confused about the difference between a limited liability company and a partnership.  Can you help us out?”

There are a number of important distinctions between a partnership and a limited liability company (“LLC”).  You should discuss the details of your business’s goals with an attorney, but the following will give you an idea of the main advantages and disadvantages of each type of business.

Liability

The defining characteristic that distinguishes a partnership from an LLC is the LLC members’ limited liability. A partnership is a business operating under its owners’ names (although a trade name might be used).  The partners are personally responsible for the debts of the business. That means they could lose their personal assets, such as a home, car or certain investments to satisfy the partnership’s debts.  Also, if the partnership owns assets, such as a building or vehicles, the individual partners also personally own those assets in proportion to each partner’s contribution to the business, or as arranged in a partnership agreement. If no agreement exist, the statutes dealing with partnerships will apply standard rules.

An LLC, however, is an independent legal entity and owns property, enters contracts, and loans or borrows money separately from the individual members. The members will generally not be liable for the LLC’s debts or obligations. It acts as a “corporate person” and all traditional duties of a business are carried out in the name of the LLC only.  Members must be careful not to “commingle” their personal assets with that of the LLC, or a court might determine that the LLC is merely a “shell” for the members’ personal use and find the members liable for obligations of the business.

Forming the business

Partnerships are formed as soon as two or more individuals begin doing business.  No formal filing is necessary to “start” the business.  However, it is always advisable that a partnership agreement is in place to outline the contributions, distributions, and responsibilities as they relate to each partner.  Further, a business license or fictitious name registration may be appropriate.

An LLC can be owned by one or more people, known as “members.” An LLC is generally created by registering with the state of formation, as well as any states where it is conducting business. Paying a fee is required, although this fee is generally quite low.  An LLC should always have an operating agreement, even if it has only one member, to lend legitimacy to its corporate status. Read more about this HERE

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What is an operating agreement and why does your LLC need one?

An operating agreement governs the financial and functional operations of your business. It is a contract that is binding on the members of the LLC and ensures uniform and consistent handling of business matters.

Here are four reasons why your LLC needs an operating agreement:

1. Liability: An operating agreement helps give the members of an LLC protection from personal liability and confirms the LLC’s status as a true business entity. Having a clear operating agreement ensures that the LLC is not confused with a sole proprietorship or partnership. Simply filing your LLC with the state does not prevent you from being held personally liable for the debts of your business. Courts will look to many factors to determine whether your LLC is merely a shell for your personal use, such as whether company and personal funds are kept separate, whether the business was adequately capitalized, and whether an operating agreement is in place.

2. Misunderstandings among members: Perhaps your and your best friend are starting a flower business together. Or maybe you and your brother are finally opening up that restaurant you always talked about. You can never imagine arguing with this person over the operation of the business. Wake up and smell the reality: misunderstandings, disputes, and even expensive lawsuits result when people do not take the simple step to develop an operating agreement. You need to memorialize things like how much money each person is contributing to the business, how you will get paid when the business begins to take off, who will manage the day-to-day operations, and so on. There are many things to consider, but speaking with a qualified attorney can narrow the issues that are important to your type of business and make the agreement as basic as you like, or as detailed as necessary.
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5 Things to Consider Before You Create a Limited Liability Company in Florida

The Limited Liability Company (“LLC”) has gained popularity in recent years. Often thought of as a merger between the corporation and traditional partnership, creating an LLC is an important step towards legitimizing and protecting your business. Here are five things to consider before you get started.

  1. Your Goals: An LLC is one of the most flexible business entities you can create due to drawing the best qualities from partnerships and corporations. For example, LLCs provide the limited liability protection of a corporation and tax benefits of a partnership. However, members can elect for the LLC to be treated as a corporation for tax purposes, and a single-member LLC will result in the owner being taxed as a sole-proprietor.  Members are free to decide how management will be structured, how contributions and distributions will be allocated, who has managerial control, and whether or when capital calls will be necessary.  An LLC is limited in some respects.  For example, if you ever plan to take your company public you will have to convert to a corporation, which may result in tax consequences. Also, LLCs may not be attractive to companies that need to raise significant funding from investors or venture funds, as tax consequences to those outside investors may be problematic.
  2. Choosing a State for Organization: LLCs are recognized in all 50 states. While states like Delaware, Nevada, and Wyoming are generally considered to be favorable states for registering an LLC, if you do business in any other state you will need to re-register as a foreign company in that state. In the interest of keeping costs low, you should generally register your LLC in the state that you intend to conduct most of your business.  Florida’s LLC fees are relatively low and registration is easy.   Continue reading →

13 Ways for Solos and Small Law Firms to Save Big in 2013

It is time to start thinking about your firm’s goals for 2013.  Consider these 13 tips to help you cut costs and make your business more profitable.

  1. Outsource your legal research and writing projects to a freelance attorney.  There are many freelancers that excel in research and writing, and they provide an efficient solution to your dread of pouring over cases or revising that motion for the 15th time.  Allow someone who enjoys research and writing to bear the burden for you.  Learn more about freelance legal work here.
  2. Take advantage of free software.  There are a number of options, including OpenOffice for word processing, spreadsheets, and database management.   You can get Outlook-like email and calendaring through Mozilla with Lightning.  There are free accounting providers too…check out Gnucash and Outright.
  3. Take your marketing efforts on-line.  There is no excuse for not being familiar with at least one free social networking platform like Linked-In, Facebook, Twitter, Google+, Reddit, or blogging.  Your branding efforts are complemented by an online presence, and it is very simple to become familiar with these tools.
  4. Buy IT service in bundles.  Rather than paying a monthly fee that may be wasted if you have do not have any technology issues for a few weeks, ask your IT guy to give you a bundle of hours at a time.  Even if the hourly rate initially seems high, you know you are using only what you need and not paying for services you do not use.  Plus, the “IT guy” market is competitive, and he or she will probably be willing to negotiate to keep your business.
  5. Go online for telephone and fax service.  Verizon, Skype, Vonage, AT&T, and GalaxyVoice are just some of the providers that give you variations of unlimited calling for between $20.00 and $35.00 a month.  A great review of the quality of the various providers can be found here.  Fax service can be had for between $5.00 and $20.00 a month with services like Nextiva, Myfax, and Metrofax.
  6. Buy supplies online.  Most large office supply retailers now provide free delivery and features that “remember” your favorite items, so save yourself and your employees time by ordering online.
  7. Go green.  It goes without saying that costs for paper, toner, printer maintenance, and the like can easily add up to thousands of dollars per year.  Further, storage fees for mountains of paper will quickly leave you buried.  Print only what you absolutely must, print double-sided when possible, and teach  yourself to review documents on-screen.
  8. Use free online storage providers.  Rather than paying hundreds of dollars for back-up storage devices, consider using free services like JustCloud and Box.  However, be cognizant of privacy, privilege and security issues and make sure your provider encrypts the files during transmission using an HTTPS connection.  Learn more here and here.
  9. Outsource time intensive work to a freelance attorney.  Review of voluminous contracts or responding to a document-heavy request for production may be better served by hiring temporary outside help.  Sending the work to a freelance attorney frees up your time to focus on your case and client, while ensuring the work receives the attention it deserves.
  10. Familiarize yourself with all possible small business deductions.  The IRS offers online workshops to help small businesses learn about their tax rights and responsibilities.  Here are twelve deductions that many small businesses might overlook.
  11. Use “group buying power.”  GroupEsq uses the buying power of groups of attorneys to get savings on things like CLEs, process servers, and legal research.
  12. Cut back on memberships in professional organizations.  If you are like me, you signed up for nearly every possible networking group at some point in your career.  As your practice narrows and you become more focused on certain areas of the law, cut back on memberships in groups that are not relevant to you anymore.  This should cut back on the amount of junk email you receive, too!
  13. Print your own postage and sign up for business accounts with the major shipping companies.  Fed Ex, USPS, and UPS all offer ways for you to print postage and shipping labels directly from your computer.  If you are an account holder with these companies, you may be eligible for special discounts and bulk pricing.

Your small business was served with a writ of garnishment. Now what?

A writ of garnishment is an order issued by a court requiring the person or entity served with the writ (“garnishee”) to withhold property of the judgment debtor in the garnishee’s possession for the benefit of the judgment creditor (“garnishor”). Small businesses most frequently encounter a continuing writ of garnishment against the salary or wages of an employee. This means that some entity or person has obtained a judgment against your employee and is now trying to collect money on that judgment by reaching money that you, as the employer, owe the employee.

Garnishment

If your company is served with a writ of garnishment, realize that it is a powerful legal document that affects not only the rights of your employee, but could result in a judgment being entered against your company if you fail to respond to it.  In Florida, you have 20 days from the date you were served to file an answer to the writ, and it is important to adhere strictly to this deadline. A savvy lawyer on the other side will act quickly to obtain a judgment against your business immediately after the 20 days expires.

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