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Monday, October 7, 2019

What Is A Joint Venture Agreement ("JV")?

There are several types of business organizations that are recognized by the law as a legal entity. This includes an individual (a natural person or individual proprietorship), corporation, partnership, limited liability partnership, joint venture or any other form of business organization. 

A joint venture is an agreement between two or more entities to combine their property and/or efforts for an undertaking and to share the profits and/or losses equally (unless otherwise specified). Each party to a joint venture agreement (a “joint venturer”) contributes to and has control over the business venture.  There must be intent by the parties to associate as joint venturers either by their actions or by a written joint venture agreement.  

A joint venture’s closest entity “cousin” would be a partnership.  The difference is that a joint venture is usually for a single limited purpose whereas a partnership is typically formed for an ongoing enterprise.  A joint venture has a duration that is specified in the agreement, or if not stated, then until the undertaking is completed or no longer possible.  A real estate example would be a joint venture to build a development.  The joint venture would end when the agreement states it ends, when the development is built or when a municipality declared it not permissible to build.

A joint venture agreement should clearly define the scope of the joint venture and what activities are permitted and prohibited.  In addition, a joint venture will have tax implications that should be considered and addressed upfront.  The parties to a joint venture may also agree to confidentiality and non-competition agreements as well.  

An important concern in forming a joint venture is potential liability to third parties.  A lawsuit brought by a third party for damages or personal injury caused by one joint venturer can be imputed on the other participants. For example, joint venturer A could be liable for the negligence of joint venturer B in the undertaking.  

In the context of a real estate transaction, a typical provision found in a commercial lease to protect the landlord and tenant from the possible imputed liability of a joint veture is:

“No Joint Venture.  This Lease shall not be construed to create a partnership, joint venture or similar relationship or arrangement between Landlord and Tenant hereunder.”

The Bottom Line

At the end of the day, a joint venture can be quite an “adventure” and parties to a joint venture agreement should consider the benefits and risks before collaborating resources with the goal of mutual gain. 


Monday, September 23, 2019

What is a Surety Bond?

A "surety bond" is a legal tool used to guarantee that a promise will be kept.  It ensures that contractual requirements will be met and work will be done according to specifications.  If they are not, the bond will cover some or all of the damages that result.

 

The "surety bond" commits three parties to a binding contract. 

 

First, there is the "principal," the contractor, business or individual purchasing the "surety bond" as a way to assure others that work will be done as agreed.

 

Second, there is the "obligee," the party seeking assurance that the "principal" will fully complete the task.  Obligees are sometimes government agencies putting out bids, or any company or institution trying to be certain that it does not suffer financial loss at the hands of a contractor.

 

Third, there is the "surety," often an insurance company, which backs the bond and makes payment to the obligee in the event that the principal fails to meet its responsibilities.

 

How Does a Surety Bond Work?

 

A contractor  (the principal) usually pays an annual premium to an insurance company (the surety) in exchange for the insurer's commitment to uphold the contractor's promise to the organization or company that hired the contractor (the obligee).  If the contractor misses a deadline or breaches some other term of a contract, the organization it contracted with can ask the insurer to cover any losses that have ensued, up to the amount of the surety bond.  If the company has a valid claim, the insurance company will make payment.  After making good on the bond, whether the maximum amount or a lesser sum, the insurer usually tries to recover the funds from the contractor.

 

When Is a Surety Bond Required?

 

There are a number of circumstances in which an individual or business may need to buy a surety bond. 

 

  • To receive contracts from the government or from some general contractors, a construction firm or other bidder may need to have a surety bond.  Varieties of surety bond can include:  "bid bonds" guaranteeing that a contractor will accept a contract if its bid is successful; "performance bonds" guaranteeing that a contractor will complete a contract according to its terms; "payment bonds," guaranteeing that a contractor will pay subcontractors and suppliers, particularly on federal projects; and "maintenance bonds," guaranteeing that a contractor will provide upkeep and repairs for a certain amount time.

 

  • A surety bond such as a "license bond" or "permit bond" is sometimes a requirement for receiving certain business licenses or permits.

 

  • A business may need a "business service bond" or "fidelity bond" to protect itself or its clients against theft or other crimes by its employees

 

  • "Judicial bonds" may be needed by parties in civil or criminal litigation to guarantee court remedies or penalties.  These can include "bail bonds."

 

  • "Fiduciary bonds" are sometimes needed by individuals working with probate courts.  These ensure that these individuals will care for the assets of others professionally and honestly.

 

If you need advice relating to surety bonds, a business law attorney can help.


Friday, September 13, 2019

When Must a Business Charge Sales Tax on Out-of-State Purchases?

A 1992 Supreme Court decision Quill Corp. v. North Dakota established the principle that an out-of-state retailer does not have to collect state sales tax if it does not have a physical location—a store, business office, or warehouse—in the state where the purchase originated.

Theoretically, the consumer placing the order in a state that has a sales tax could be responsible for paying the tax on an out-of-state order.  An out-of-state retailer can voluntarily collect sales tax and remit it to the state, but there is no legal obligation for it to do so.  Because requiring consumers to "self-report" on large numbers of small transactions is burdensome, states generally do not do it, except on very expensive out-of-state purchases.

 

Sales Taxes on Online Transactions 

The long-established principle that out-of-state stores with no in-state presence need not collect sales tax has been challenged in the Internet era.  Many brick-and-mortar businesses have complained that out-of-state online companies have an unfair advantage because they do not have to charge customers sales tax.  States have also lost billions in sales tax revenue to tax-free online orders. 

In 2008, New York enacted the so-called "Amazon Tax" forcing Amazon and similar e-tailers to collect sales tax.  New York got around the Quill requirement of a physical presence in the state because Amazon has countless affiliates and "associates" marketing products through it, and some of those are located in New York.  Other states have enacted similar laws.  Illinois, for example, passed the "Main Street Fairness Act" targeting online retailers with affiliates in Illinois.  Currently Amazon collects sales tax in 23 states.

Some online retailers, such as Overstock.com, have cancelled affiliate programs in states with an "Amazon Tax" to avoid having to collect state sales taxes.

 

Which States Have an "Amazon Tax"?

Currently 23 states have sales taxes on online retailers like Amazon:

Arizona

California

Connecticut

Florida

Georgia

Indiana

Kansas

Kentucky

Maryland

Massachusetts

Minnesota

Nevada

New Jersey

New York

North Carolina

North Dakota

Pennsylvania

Tennessee

Texas

Virginia

Washington

West Virginia

Wisconsin

South Carolina will start collecting tax in 2016.  Five states have no sales tax at all -- Alaska, Delaware, Montana, New Hampshire, and Oregon.  Others have yet to target online businesses.

 

Summary

Businesses online or off that have no physical connection to a state, other than shipping products to it, are generally shielded from having to collect sales tax by Quill.  Businesses that have a physical presence in a state may have to collect sales tax if required by state law.  Those with no physical presence but with representatives, affiliates or associates in a state may be required to collect state sales tax by laws like the Amazon Tax.  An experienced business law attorney can assist you in determining whether you are obligated to collect sales taxes.


Friday, September 6, 2019

Who Owns A Business's Customer List?

Many businesses have customer lists that they consider their own private property.  It is common, however, for sales representatives and other employees to regard customer lists as theirs too, something they can take to a new employer. Employment agreements, confidentiality agreements, non-competes, and non-solicitation agreements can all be used to eliminate confusion over whether a customer list is transferable or not. 

In the absence of clear contractual protections, however, case law and state trade secret laws may decide whether a list is the exclusive property of a business.  If the list is a "trade secret," a business owner may have an easier time protecting it and obtaining damages for its use by ex-employees and competitors. The Uniform Trade Secrets Act, that has been adopted by most states and the federal Defend Trade Secrets Act provide for penalties and remedies for the misappropriation of trade secrets.

When is a list a trade secret?

Generally, a list receives "trade secret" protection if, first, it contains information not readily ascertainable from public sources.  Merely listing customers and general contact information is usually not enough to elevate the information to trade secret status. Second, owners must usually take some measures to keep the information confidential.

What steps can a company take to ensure that a list is viewed as a trade secret?

The following are elements which, when present, can lead to a customer list being deemed a trade secret.

• The list contains unique, non-public information about each customer, such as ordering history, needs and preferences, and private phone numbers and e-mail addresses.  The more a customer list contains valuable details compiled about each customer, the less likely a court is to say that the list could have been readily assembled from public sources. 

•  The list is marked "private" or "confidential," and employees are informed that it the property of the company. 

• Electronic versions of the list are password-protected, and access is limited to certain users.

• Printed copies are kept under lock and key.

• When the list is shared with third parties, there is a confidentiality agreement.

• The owner can show that time and effort were invested in building and maintaining the list.

A recent case involving former employees of an insurance company shows how these factors can influence a court.  In that case, the customer list contained more than just customer names, birth dates and drivers' license numbers.  It also contained laboriously compiled information about the amounts and types of insurance each customer had bought, the location of insured property, the personal history of policyholders, policy termination and renewal dates, and other potentially valuable details.  The list conferred a powerful, competitive advantage and the court deemed it a "trade secret."

Meeting the criteria spelled out in that case and in the suggestions above does not guarantee that a customer list will be deemed a protected trade secret.  It could, nonetheless, increase the odds.


Friday, August 23, 2019

Pitfalls in Providing Employee References


Employees do not always depart on the best of terms. When that is the case, what are your obligations in terms of disclosure when a prospective employer contacts you to check for references? Keeping negative opinions to yourself might seem like a surefire way to stay out of court. A bad reference might lead an employee to file a lawsuit, but that does not mean he or she would be successful. Theories of liability include defamation, negligent misrepresentation and negligent referral.

Particularly risk-averse employers follow a policy of only confirming employment when someone calls for a reference. This approach does not necessarily insulate you from liability, however. In workplace violence situations, for example, you might find yourself in litigation for simply providing dates of employment for an individual when you were aware of his or her tendency toward or history of violence or other misconduct.

When providing a reference, share only factual information. Hunches, gut feelings and bad vibes are not good topics for discussion. For example, if you suspected a former employee was stealing from you, but you never had conclusive proof, it is probably advisable not to mention your suspicion. The best course of action is usually providing complete and accurate information to anyone checking a reference. Some states have passed laws providing varying degrees of immunity to employers who provide honest references about former employees.

When you are asked for a reference, you should keep track of:

  • which employees you were contacted about;
  • who contacted you;
  • the date of any conversations;
  • the method of communication (phone, email, in person); and
  • what you said, particularly if you provided anything more than confirmation of employment.

An experienced business law attorney can effectively advise you about providing employee references and other challenging issues you face in running your business.


Friday, August 9, 2019

Are Non-Compete Agreements Appropriate For My Business?

The aim of non-compete agreements is to bar departing employees from working for your business competitors or from starting a competing business. These agreements used to be reserved for high-level employees or people working in certain fields who had access to sensitive information. While non-compete agreements are becoming more common, they are only enforceable to a limited degree and in some states not enforceable at all.

In considering whether a non-compete agreement can be enforced, courts generally examine whether there is a legitimate business interest at stake and whether the agreement is narrowly crafted to protect that interest. Courts tend to disfavor restrictive covenants such as non-compete agreements because it limits commerce and can prevent an individual from earning a livelihood. Here are a few factors to consider when looking to implement a non-compete:

  • What is unique about my business? If there is something about your business that sets it apart from its competitors - a product, a process, a method of doing business - a non-compete agreement could protect your advantage. It might also be wise to consider other protections such as patents.

  • Over what area would I need a non-compete to apply? Would employees be barred from working at a competing business across the street? In the same city? Within 50 miles? Within the same state? The larger the radius, the less likely a court is to enforce it.

  • To which companies would a non-compete need to apply? Are your employees going to be able to get jobs in your field if they leave your company, or would your agreement make them essentially unemployable? Courts typically frown on agreements that leave people completely out of work.

  • How long would a non-compete need to last? The shorter the time an employee is restricted by the agreement, the more likely the court is to find the restriction reasonable.

  • Under what circumstances would the non-compete kick in? If an employee is fired, are they going to face the same restrictions as an employee voluntarily leaving your employ?

When considering any agreement with your employees, including restrictive covenants such as non-compete agreements, it is important to consult an experienced business law or employment law attorney who can properly advise you and help you craft an agreement that is likely to be enforceable.


Friday, August 2, 2019

Commercial Lease Disputes

Sometimes a business grows more rapidly than expected and its leased space is no longer large enough. Other times a business finds itself losing money and unable to pay rent. In those instances, it is the commercial tenant that desires to break its lease. There are times, however, when a commercial landlord seeks to break a lease and even threatens eviction for reasons that may lack merit.

A commercial lease is basically a contract that establishes a relationship between the parties and outlines the respective rights and obligations of each. These documents can be confusing and complex. Resolving a commercial lease dispute often involves business, contract and real estate laws.

Unlike residential leases, where the law heavily favors tenants, in the commercial world, the law tends to be more even-handed. The terms of the lease (even if all you have is an oral agreement) are most often going to be what governs the outcome of the dispute. This reflects the view that both parties involved in commercial lease agreements are sophisticated business entities that can protect their interests.

Since the terms of the lease are most likely going to govern if you file a lawsuit and take your dispute to court, it is essential that anyone evaluating your case examines your lease in depth. Even if an out-of-court settlement is negotiated, familiarity with your particular lease agreement is crucial for anyone advising you. Many commercial leases contain a dispute resolution clause that might require mediation or arbitration. These options can often lead to a resolution in less time and with less expense than traditional litigation.

Assessing damages and amassing the means to prove those damages is another important component to handling a commercial lease dispute. Typically, monetary damages are sought. There might be a clause in the lease regarding attorneys' fees. Again, it is vital that a competent and informed review of your particular lease is made to properly guide your case.

Contact an experienced business law attorney today to discuss your commercial lease dispute and learn what legal options are available.

 


Friday, July 19, 2019

When Can I Refuse Service to a Customer?

Many businesses have a sign hanging on the wall, often near the cash register, that says something like “We reserve the right to refuse service to anyone.” The reality is not as straightforward as the sign's message.

First, members of legally protected classes cannot ever be denied service based on their membership in their respective class.

  • The Federal Civil Rights Act guarantees all people the right to “full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation, without discrimination or segregation on the ground of race, color, religion, or national origin.”
  • The right of public accommodation is also guaranteed to disabled citizens under the Americans with Disabilities Act, which precludes discrimination by businesses on the basis of disability.
  • In addition to these federal protections, many states also protect people from discrimination based on gender, sexual orientation or other personal attributes.

Second, putting up a sign does not create the right to refuse service; the right exists, but you must be careful about when you exercise it. When a customer is not a member of a federally protected class, you can generally deny service so long as you have a legitimate business reason. Some reasons that have been found to be legitimate include:

  • When a customer is not properly dressed. Hence the other common sign, “No shirt, no shoes, no service.”
  • When a customer has poor hygiene, such as extreme body odor or being excessively dirty.
  • When a customer is being disruptive. This includes customers that are intoxicated.
  • When a customer harasses your employees or other customers.
  • When there are safety concerns, such as when there are too many people to serve.
  • If you are certain a customer cannot or will not pay.
  • When a customer comes in just before closing time or when the kitchen is closed.
  • Patrons accompanied by large groups of non-customers who wish to stay on premises.

Even the most compelling business reason cannot overcome obvious discrimination. Legitimate reasons for denying service cannot be used as a shield when the actual reason for the refusal of service is discrimination.

When creating policies and considering guidelines for your business, it is important to consult an experienced business law attorney for advice on how to comply with federal and state law.


Friday, July 12, 2019

Are employees owed overtime for checking and answering email after hours?

Technology is a double-edged sword. It allows us to work remotely and to have greater flexibility as to where and when we work, but the freedom it affords can also be a burden. When you can work from anywhere, and at any time, it often feels like you should be doing so!

Studies suggest people are caving under the pressure - whether explicit or implicit - to work while technically off the clock. According to the Pew Research Center, approximately 44% of Internet users regularly perform some job tasks outside the workplace.

All the work that is being done outside of work hours is creating a compliance problem for many businesses. The federal Fair Labor Standards Act (FLSA) requires employers to compensate employees that are not exempt from the law for all time worked. These non-exempt employees must all be paid time and a half for all hours worked over 40 per week. This means that employees need to be paid (at overtime rates if applicable) for time spent checking and responding to emails, calls, texts, etc. during non-work hours.

In order to remain FLSA compliant in this technology-driven age, we advise our clients to take the following steps.

Develop a Timekeeping Policy that is Compliant with the FLSA

Explicitly tell your non-exempt employees, preferably in writing, whether or not they are allowed or required to work during non-work hours.  Make it clear that “working” includes checking emails and taking phone calls.

Implement the Timekeeping Policy

A policy is not worth the paper it is printed on if it is not actually implemented. Make it easy for employees to report their off-the-clock work, and discipline employees who do not report their off-the-clock time.

Enforce the Timekeeping Policy

When off-the-clock time is reported, pay your employees for it. Be clear about how much, if any, off-the-clock time employees are expected to work, and do not be afraid to discipline employees who do not comply with expectations.

If you have any questions about paying employees for work done off-the-clock or any other business related issue, contact an experienced business law attorney today.


Friday, July 5, 2019

Disaster DIY: Business Law Edition

Have you ever watched the TV show Disaster DIY on HGTV? The premise of the show is that many people have no idea what they are doing when it comes to home remodeling, but they try the “do it yourself” (DIY) approach  anyway. The host of the show then comes in to save the day, repairing what the DIYers have messed up, and teaching them how to do perform certain tasks.

This show has many parallels to the world of business law. It is tempting to try and find a DIY solution to legal issues. Budgets are tight, and professional legal advice can seem like a luxury when you are first starting out or struggling to meet quarterly goals, so many businesses adopt a DIY solution when what they really need is a good lawyer.

The Internet also encourages many businesses to DIY their legal issues, whether its access to legal info or various forms. But the problem is that advice on the Internet is not always accurate, particularly since business law is different in every state.

After pursuing the DIY route and disaster ensues,  business owners are forced to call in the professionals to clean up the mess.  Unlike the TV show, where the show’s producers cover the DIYers costs, the costs of fixing a legal DIY disaster rest solely on the business or the business owner. It often costs businesses significantly more to rework a legal framework that wasn’t carefully thought through. There are two reasons for this. First, proactive legal help is always going to be more cost effective than legal triage; it’s infinitely more costly to actively fight a pending lawsuit than it does to carefully draft and implement needed policies. Second, the results that even the best attorney can salvage from an awful situation are not likely to be as as ideal or as cheap as it would have been to avoid the disaster altogether.


Friday, June 21, 2019

How's Your Lawyer's Math?

Perhaps math isn’t every lawyer’s strong suit; although some lawyers prefer to stay away from fractions and decimals, it doesn’t mean they aren’t able to do math when needed to help their clients.

When it comes to businesses, math is intertwined in so many issues from basic day-to-day operations to complex corporate mergers and acquisitions.  For example, legal issues and litigation related to buying and selling a business, bookkeeping for an existing business and profit and loss statements, among other things, need to be handled by an attorney who is comfortable with arithmetic. 

Business related classes like tax and finance are some of the only law school classes that require the students do math. So, in order to do well in these classes and become competent to handle a business or tax matter, a student must at least be able to do basic math.  A widely reported study by Harvard law professors found that business classes were the most highly recommend by alumni for current students take to better prepare themselves for practice.

The gap between what most lawyers know about business law and what their clients need them to know is a wide one.  This is why you need to look for an attorney who has demonstrated excellence this field.  Part of that excellence must be a comfort with arithmetic.  You want an attorney who is already excelling in the field and not one that has to educate him or herself about basic finance and bookkeeping in order to handle your particular matter.


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