business law

I usually discuss prenuptial agreements on my Indiana Divorce and Family Law Blog. I use Google news alerts to keep track of news on prenuptial agreements and that is why I am writing about them on this blog. The latest alert came laden with references to stories from the business page. This might be a trend as an earlier post here mentioned. Certainly, it is good for the business writers to acknowledge the importance (and impact) of family law on businesses.

The New Hampshire Business Resource has a fairly good article Protecting your business assets with a ‘prenup’. I do take issue with part of the following paragraph, though:

Stock in a family business owned by one spouse is marital property, and absent a valid prenuptial agreement would technically be subject to division under New Hampshire’s statutes. As a practical matter, however, it is unlikely that a court would order one spouse to transfer shares in a closely held business to the other spouse upon divorce, since judges and marital masters are mindful that post-divorce joint ownership of a business venture is unlikely to succeed. Accordingly, the court is likely to award all shares of stock in a closely owned family business to the spouse related to that family.

After nineteen years, I think that anyone can say what any judge will do about any matter in any particular case. Judges in divorce cases think that if both parties are equally angry then they have done a good job. What makes a prenuptial so useful is removing the surprise inherent in any judge's decision of what makes an equitable division of property.

The law require three things for starting a corporation:

1. Corporate by-laws.
2. Articles of Incorporation.
3. An Employer Identification Number.

I suggest a fourth is necessary from the business side of things: a business plan.

How to get these things done? First, option has you doing all the work. You cna find corporate by-laws online by just googling the term. Indiana Secretary of State has a online method ff starting new companies here. You can go to irs.gov and get a EIN number. You will also be trying to get your business up and running at the same time. And what is an incorporator? Why do you need a resident agent?

You can go with a company who may or may not employ a lawyer, offering low cost incorporations in Delaware or somewhere exotic for some very low fee. I am not sure I understand the allure of these companies. Your corporation will be governed by the laws of the state in which you incorporated and you will be in Indiana. What happens if a question comes up about the corporations law in this other state? Either you find an Indiana lawyer licensed in that other state and knowledgeable about the other state's corporations law, or you hire an attorney in that other state.

I have said for many years that the reason for lawyers is so that people like you do not spend your time in a courthouse. The same idea applies here. What makes life easier for us in a business start up situation. You will find it a more efficient use of your time to turn over to a lawyer the tasks of getting the Articles of Incorporation done and getting the EIN number. Just as if you have downloaded those corporate by-laws and read them can lead to more efficiently using the attorney's time. (By the way, let me say that my view is that online bylaws are only good as a starting point. Think of the difference between wholesale and retail. Online bylaws epitomize wholesale when what you need is not only retail but tailored work. Bad bylaws pose a grave danger to any corporation.)

Having an attorney on hand at the start can get you through the meeting of incorporators and first meeting of the corporation so that the corporation begins its life in full legal propriety.

And why is all this so important? Erroneously setting up the corporation can rob the shareholders of what they wanted: protection from personal liability.

The following are from The Legal Thing and hit the nail so hard on the head that I am just going to quote them:

No. 1 - You only litigate when you have an important interest to protect. Litigation is costly. Incredibly costly. But it is not the expense that is the real issue, it's the diversion of resources. Time employees spend reviewing e-mails and documents, educating lawyers and preparing for depositions is time away from the business. That's the real cost of litigation.

No. 2 - A non-judicial resolution is almost always preferable. When you file a complaint, you are turning over resolution of an issue to a third party - be it a judge, arbitrator or jury. To a great degree you lose control of the outcome.

No. 3 - You litigate when you have a high degree of confidence that you will prevail. Bluffing is for weekend games of Texas Hold'em . When you file suit, you need to have fully evaluated all aspects of the case to ensure that the outcome will be favorable.

No. 4 - You litigate to win. This means that your employees, board and management team fully understand and support the commitment (both financial and time) required to prevail. It also means having seasoned litigation counsel who understand your business and objectives.

I suggest reading all of the post - regardless if you are potential client or another lawyer. Something in there for anyone to learn from.

For the view from the client's side of counsel table is this post Juries, Courtrooms and Linear Thinking.

Does your business rely on any of these things:

1. Your ability to write good, enforceable contracts?
2. Your ability to understand contracts from those you do business with?
3. Knowing and meeting state and federal regulations affecting your business?

If you answered "YES" to any of these questions, then ask yourself how much money you are losing doing all this by yourself? If your time can better be spent doing something else for the business, then why does your business not have a lawyer?

Okay, that explains half of the question, but a business needs a lawyer for objective advice as much as it does for the preparing of documents. That makes the whole answer as to why a business needs a lawyer.

But how is the business to afford a lawyer and the lawyer to afford providing services? My solution involves getting away from hourly billing and move to varying my costs according to the job and client. Hourly billing remains for the unique document preparation and for some defense litigation. It also means that the client understand that a little cost for prevention saves a lot when faced with litigation. I provide consultations on a monthly fee that slides from $400.00 per month for nothing more than the client being able to call me up with any questions to $1,500.00 per month where there is advice and document drafting. In between lies the variances - some will need less consistent document drafting, others will have simple documents but not very often, and others will complicated documents drafted every so often - and the fees should also vary from slightly higher monthly fee to just adding the contracts on a la carte or a reduction in the hourly fee for complicated document drafting.

With the costs known upfront, businesses get fewer surprises and can budget accordingly. Even litigation can be handled on something besides an hourly rate. Where failing to prevent legal problems - and there are a myriad of those pitfalls for any business - can mean the end of the business, the business owner needs an attorney. Lawyers need to educate their business clients how lawyers can help their businesses. Both lawyers and clients need to talk about what services they need and how to provide them.

I got to admit that I have an aversion against partnerships. I think most attorneys do not like them. Why? Liability. Law school beats us over the head to avoid liability for our clients as much as possible.

Partnerships ooze with liability issues. From your partner's creditors seizing business assets for his debts to your assets being on the line for business creditors, partnerships just scare lawyers. Maybe a partnership between corporations or limited liability companies or between a corporation and a limited liability company.

With all these problems with partnerships why have one with a spouse? Because partnerships can be implied by actions as well as by a formal agreement. Two spouses start a business and even without a formal agreement, a partnership can be created by their acts. Of course, the husband and wife have probably not even thought of talking to a lawyer about the kind of problems they might be getting themselves into. Why spend good money that could go into the business?

If anything goes wrong with the business, then business creditors can go after all the joint assets. Since most businesses fail, what do you think now of not talking to a lawyer?

What would chatting with an attorney accomplish? I repeat that most attorneys would get the business set up as a corporation or a limited liability company. If the clients were adamantly committed to a partnership, then there would need to be a partnership agreement.

If the clients want to keep the business running as long as possible, they need to consider all of the problems including divorce. I think the equivalent of a prenuptial agreement (or a post-nuptial agreement, if already married) needs to be considered regardless of the business type used by the husband and wife. With a partnership and limited liability company having a written document (and a LLC requiring a written operating agreement) setting out how the business shall be run, incorporating some of the prenuptial/post-nuptial's terms does not seem out of place. Based upon that reasoning, they need a separate prenuptial/post-nuptial agreement if the business is to be set up as a corporation.

Then they need to consider their retirement and estate planning objectives. If the business entity is a partnership or a limited liability company, these objectives need expression in the partnership agreement or the LLC operating agreement and for corporations in a separate document.

Does a restaurant need trademarks? Do most businesses need trademarks?

The New York Times' coverage of the Pearl Oyster Bar litigation got me thinking about how its points would apply here. I made some comments within the original post and others have occurred to me since then.

First, I want to be clear that I am not addressing all restaurants. Franchise restaurants have franchisors eager to protect their trademarks and trade secrets. Nor am I addressing those restaurateurs who do want to expend the money to protect their intellectual property. I specifically exclude them on the assumption that they have made the decision that any infringement has not or will not cost them any money. A civil suit requires damages and that will be measured in dollars. No damages means no lawsuit.

I remain convinced that trademarks are the most cost effective intellectual property for any small business. The name must be unique and used in connection with the business. This could include the business' name or items on the menu or both. Trademarking the business' name provides protection against the competitor with the same or a similar name moving into the same area. While bringing menu items under a trademark provides protection from a competitor using your business' success with a menu item for their own purposes. You can see the government's fees for trademarking here.

You have the ultimate decision as to trademark or not. Remember enforcement costs do exist. I suggest thinking of trademarks as a form of insurance. Like all insurance, you need to think about what will be your costs if you do not have the insurance.

4/26/08 update: Follow Up on "Restaurants and intellectual property" about settlement of this case.

From the Jackson Lewis legal updates newsletter came this link to their article Federal OSHA Review Commission Overturns Enforcement Policy for Multi-Employer Construction Job Sites.

By a 2 to 1 vote, the federal Occupational Health and Safety Review Commission has dramatically altered the ability of the Occupation Safety and Health Administration (“OSHA”) to cite general construction contractors for safety violations committed by its subcontractors. The Review Commission has uprooted OSHA enforcement policy that goes back 30 years. Secretary of Labor v. Summit Contractors, Inc., OSHRC Docket No. 03-1622 (decided April 26, 2007).

***

Summit signals a major change of direction for OSHA’s inspections of jobsite construction that can affect employer responsibilities on jobsites. General contractors who feel less constrained to assure the safety of their subcontractors, may cause the latter to become more self-reliant. They may not be able to depend on the general contractor for close safety monitoring unless this is made an express part of the subcontract. As a result, subcontractors may need to redouble their efforts to supervise workers carefully.

Read the entire article. I do not know how many readers might find themselves dealing with the federal OSHA, but I suppose this would be a good time to put in a good word for Indiana's OSHA (IOSHA). IOSHA has programs for helping businesses that would be worth checking into.

Just how far must an employer go in accommodating a person's religion?

I missed this case when it came down from the federal Seventh Circuit Court of Appeals (Indiana lies in the Seventh Circuit) but picked it up from Ross' Employment Law Blog. Here is the case outline from that blog:

What to do when a pharmacist, for religious reasons, refuses to handle birth control prescriptions?

Neil Noesen went to work for Wal-Mart as a pharmacist. He had religious objections to contraceptive articles, so the boss set things up so Noesen did not have to fill birth control prescriptions, take customer orders for birth control, or handle birth control items.

That wasn't enough for Noesen. If a customer phoned in with a birth control prescription, Noesen put them on hold and walked away without alerting someone else. When a customer came to the counter with a birth control prescription, he would walk away without telling anyone that a customer needed assistance.

Wal-Mart fired Noesen, so of course he brought a federal suit claiming a violation of Title VII.

Wal-Mart won. Accommodating an employee's religion cannot impose undue burden on the employer. The opinion is here (PDF format) and it shows as a non-precedential opinion (which means that it cannot be cited). However, I do think the opinion can be educational if not cited as law.

Title VII always protected an employee's religious beliefs from interference by an employee. Yet, I think a trend of more litigation on religious claims exists and the pharmacists refusing to provide birth control is the cutting edge of this litigation trend. Ross'e Employment Law Blog found the case on the Religion Clause blog. I think reading the post there and its comments gives an idea as to the ideological basis for this trend.

Back to the present case, I was thinking what my reaction would be if one of my business clients called with this sort of problem. I tend to err on the conservative side and would probably have counseled accommodation. Even though I think the behavior goes so far beyond what most would consider reasonable to be disruptive of the business. I noticed that Workplace Prof Blog has a post on the case and I do like his description of the employee's behavior:

A question that never seems to die, sort of like Frankenstein's monster. An employer giving the wrong answer is looking at a variety of problems. I remember reading a few years ago about the IRS scrutinizing small businesses about whether subcontractors were actually subcontractors.

Workplace Prof Blog's post,More on Independent Contractors vs. Employees, makes me think that the problem still exists and may be even bigger than might the conventional wisdom. Workplace Prof Blog has a very succinct description of the problem:

I will point out two ares of law where the classification makes a difference: 1) as alluded to above, tax law; and 2) worker's compensation. From my experience, employers know about those two areas of law and are precisely the reason for miscategorizing workers. Employers cut their costs (employee withholding and workmen compensation premiums) by characterizing employees as subcontractors. This a risky and shortsighted plan.

I suggest any employer who thinks about labelling their employees as subcontractors read the post at Workplace Prof - including his links to other sites.

Workplace Prof Blog had a post about the Depart of Labor providing an online calculator for overtime wages. I could not get the link to work except to start my e-mail program. Google lead me to FLSA Overtime Calculator Advisor. I have no idea how well it works. If anyone uses it from this blog, I would appreciate you leaving a comment in the Comment section.

I discovered the Chilling Effects Clearinghouse this past Saturday. I get asked some simple questions about the Internet (such as will someone get in trouble for posting something stupid to a web page.), but I think this site has the credentials to be a starting point for researching Internet issues. The site describes its credentials and its purpose in the first two paragraphs on the site:

Something I am not likely to see any time soon in my practice but an interesting question. The Internet lacks borders so how does the Internet affect trademark law?

e-Commerce Blog writes on the effect the Internet has on trademark use in the post Web use affects trade-marks and how an English court ruled on the issue.

The court reviewed the case law to determine when a trade-mark is in use via the Internet. The court took the position that placing a mark on the Internet from a location outside the U.K. can constitute use of that mark in the U.K. The fundamental question became whether or not the average consumer of the goods or services in issue within the U.K. would regard the advertisement and site as being directed at him.

Due to the fact the YouTube, MySpace and BadBoy sites all were used to advertise and promote Combs' Press Play album and tour -- including his U.K. dates -- the court determined it was a use directed at users in the U.K.

I wrote above that this will not be something that I will see any time soon. Why not? If you, dear reader, are in business consider the extent of your Internet presence. As more clients expand their Internet business, I suspect this problem will be seen more often. I am wondering if trademark searches should include not only the United States Patent and Trademark Office but also foreign sources also.

I saw No LA Kitchen Nightmares for Gordon Ramsay in the Telegraph (UK) and I remembered that I had not followed up on my article, I like Kitchen Nightmares. I want to make something clear that I think the earlier article muddled: I wrote about the Kitchen Nightmares on BBC America. I had not seen the American version till after I wrote my article. I have seen one episode of the American version and it angered me. My first reaction was in language Mr. Ramsay would know: it is crap. The hyped up, confrontational style has everything I hate about "reality" television. Which makes me think someone thought that Americans were too dim to follow the English format. That thought angers me deeply.

Restaurants are a business. Some restaurants become big businesses (take a look at the Telegraph article to get a taste of the money involved or go look at the closest McDonald's store). Most everyone thinks they can run one. If you think you can, take in as much of the BBC Kitchen Nightmares as possible.

OSHA, health department inspectors, government inspectors of any sort raise all sorts of problems for business owners. Assuming that the business owner has made a good faith effort to comply with the regulator's inspectors, I thought the following two paragraphs from the New York Times good advice for dealing with inspectors:

Restaurateurs and health department officials alike acknowledge that when an inspector calls, tensions run high. “It can be a deadly experience, and what you don’t want to do is let your emotions get away with you,” said Steve Millington, the general manager of Michael’s, the media-crowd hangout a few doors from Brasserie LCB.

“It’s like a cop giving you a speeding ticket,” he said. “You’ll be there until the cows come home. There’s almost a petulance to the inspectors. You really need to shut up and be servile to them.”

The Times headlined the story with Health Inspector Calls and Chef’s Pride Cracks. The article reads as a pretty good case study of what not to do when the inspector calls. Diplomacy has its place in this world.

Technobabble answers that question quite well with http://lawenforcementweb.info/2007/12/09/legal-assistance-ways-in-which-lawyers-can-help-your-business/.

With this blog getting few comments, I am left wondering what are the reactions to non-lawyers to this kind of post. I admit to some self-serving marketing of my services but even more than that is a lot of venting on my part. Venting? Yes, I get to vent my frustration towards business owners who prefer to wait till a complaint and summons lands on their desks before consulting a lawyer. Litigation costs more in money, time, and nerves than having a lawyer who they can talk to and who talks to them. For twenty years I have dealt with area businesses but I have never been able to convince of the benefits of getting a lawyer on board early in the business' life or of keeping one. By the time I saw them for a litigation matter, the majority were on the slide to failure. That concludes my rant for the day.

Go read the article at Technobabble, realize that it is not written by a lawyer, but this lawyer thinks it has a lot of good sense. Call me f you have an Indiana business or are starting up an Indiana business, and want to discuss this subject further.

IU Bloomington Law Professor Alex Tanford litigates direct-wine shipping cases. Direct-shipping has been a hot topic in the alcoholic beverages area for several years now and Tanford has been very successful in knocking down state laws barring direct shipment of beer and wine. This annoys the liquor wholesalers. The Indiana Law Blog has excerpts of the news stories on this here.

The problem lies with the Internet. The direct-sellers sell over the Internet to out-of-state buyers. Amazon has been doing the same thing for years but booksellers do not have the convoluted and complicated relationships between big money, politics, and taxes as the liquor wholesalers. If they must attack Professor Tanford, I assume that they are feeling the heat of the new economy on their neck.

For those starting a limited liability company or a corporation, you need an EIN. IRS maintains FAQs (Frequently Asked Questions) about EIN numbers. These FAQs include:

Do You Need an EIN?

Online EIN: Frequently Asked Questions

The Indiana Court of Appeals answered that question in Snell v. C. J. Jenkins Enterprises, Inc. (PDF format) on March10.

Snell sued the company as its employee under Indiana's Wage Payment Statute, Indiana's Wage Claims Statute, and Indiana's Wage Deduction Statute. Snell appealed after losing at the trial court level. He lost at the appellate court level, too.

The Court of Appeals based its decision on the Indiana Supreme Court ten factor test from Moberly v. Day(HTML format), 757N.E.2d 1007, 1010 (2001):

The Court of Appeals evaluates the facts of the case against each of these factors. That evaluation makes the case worth reading by any business owner.

Up early this morning trying to catch up on some reading and a little writing here. So what has Iowa got to do with Indiana? Both states share the federal Fair Labor Standards Act (FLSA). Rush on Business has three good articles on the FLSA. Start with the latest - Tips on How to Avoid Wage & Hour Lawsuits.

Since I left my in-house position, I have not kept as close an eye on the FLSA and these articles contain some very good reminders. For businesses I cannot think of any better advice than this:

Electronic discovery does not mean using some electric gadget to find something. For lawyers, discovery means finding the evidence from the other side. The federal and state rules have changed to recognize a world now mostly computerized. I am trying to get into this a bit deeper for my business clients and getting them ready for any future litigation.

Educating the clients on this subject, has been a bit difficult. Outside of the media reporting on e-mails in regards to the United States Attorney firings, there really is a lack of understanding with the general public about how much of our lives and business now resides in electrons dancing with one another in computer hard drives. Finding something written for clients instead of lawyers or technicians has not been easy. The clients do understand do not delete anything in any way that looks suspicious, if you delete anything the do it as part of a company policy that is neutral, and have some means of retrieving everything there is on any subject.

Meanwhile, I am educating myself with articles from blogs such as the The Illinois Trial Practice Weblog. That blog has posts such as Emails as "Smoking Gun" Evidence and All You Need to Know About Electronic Discovery. Dennis Kennedy is required reading on this subject. Thanks to The Illinois Trial Practice Weblog I also found myself back to DiscoveryResources.org.

All this and trying to keep with the stuff on my desk, too. Such is the practice of law.