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Business Law

Monday, December 5, 2016

The Federal Trade Commission Act and its Affect on Advertising

The law forbids businesses from including baseless statements or assertions in their advertisements.  According to the Federal Trade Commission Act (FTCA), a business must ensure that their representations are not misleading or unfair, and the entity must have data that supports all claims.  Evidence may, for example, be substantiated based by surveys, expert testimony, or scientific studies and tests. 

A “deceptive” advertisement, as described in the FTC's "Deception Policy Statement" is one that suggests or omits a critical fact in an attempt to mislead customers. Similarly, an “unfair” advertisement is categorized as one using a deceptive practice that may result, or has resulted in, significant customer harm. Typically, the harm caused could not be avoided by the customer, and minimal benefit is experienced by any of the clientele engaging in the same practice.

The Federal Trade Commission (FTC) is charged with investigating national ads to determine whether they are fraudulent. Local advertising, on the other hand, is usually the domain of agencies of the county, state, or city, such as the Better Business Bureau (BBB). In both cases, certain criteria are used to evaluate the “words, phrases, and pictures” within the endorsement to identify potential deception. Deception is characterized as that which a “reasonable consumer” would falsely believe to be true.  All investigations are confidential until legal action is commenced or a claim is settled.   

There are several remedies available for deceptive claims, including the issuance of a cease and desist order.  Such an order prohibits a business from continuing to disseminate misleading or dishonest advertisements.  A cease and desist order is often combined with substantial fines or with a requirement that the offending company authenticate any and all future ads.  Other penalties may compel a business to notify its customers of the false ads, or to provide refunds for falsely advertised purchases.    

Unfair competition may also come into play in cases of deceptive advertising. Companies that feel they have been unfairly treated by competitors may have legal recourse. The National Advertising Division (NAD) is associated with the BBB, and an aggrieved party may file a cause of action against a competitor through NAD.  Depending on the specific circumstances, a business may have the legal authority to sue its rival for posting deceptive ads under the Lanham (Trademark) Act. Individuals who feel their businesses have been harmed by the false or deceptive advertising practices of a competitor may have remedies available to them. A reputable business attorney is in the best position to give advice about which course of action should be pursued.


Sunday, September 25, 2016

How Buy Sell Agreements Can Protect a Small Business


Is it necessary for small business owners to put a buy sell agreement in place?

Small business owners have a number of important considerations to make even before the enterprise is launched including selecting the appropriate business structure, securing the use of a name, obtaining the necessary licenses, and completing the required state filings. In addition to these concerns, it is crucial to create agreements among the owners and partners, none the least of which is a buy sell agreement.

Buy Sell Agreements at a Glance

A buy sell agreement is designed to clarify the redistribution of ownership interests if one of the partners or owners dies. These agreements can also handle other unplanned events such as disability and bankruptcy or divorced. In short, putting a buy sell agreement in place allows the partners/owners to redeem the stake of an a deceased or departing owner.


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Monday, August 15, 2016

Why Should I Incorporate my Small Business?

Not every small business needs to form an LLC in order to function. A child selling lemonade by the side of the road has no use for a Tax ID number. It doesn’t seem practical to set up a new business entity to host a garage sale or a Tupperware party. As a venture starts to grow from a hobby to a full-time job, however, there are questions every business owner should ask to determine whether it is best to incorporate the business into a legal entity.

Do I need to protect my personal assets?

The greater the risk of being sued, the more necessary it becomes to file the necessary paperwork to form a Limited Liability company. This will limit the owner’s financial liability to the assets invested in the business. This means that, if a business gets sued, the business owner’s personal assets, like his or her home, automobile, personal bank accounts, and belongings, may not be targeted by the lawsuit. Common lawsuits of concern are for the satisfaction of contracts and leases and personal injury claims for accidents on the premises. Similarly, a bank may not seek a business owner’s assets to repay a loan unless the business owner signs a personal guarantee. Banks often require such a guarantee for new businesses that have no credit history.

Do I need flexibility in my obligation to pay income taxes?

A C corporation, which is a type of Limited Liability Company, has the flexibility to shift the business’s tax burden from one year to another. Normal business expenses and salaries can be deducted from a business’s taxes that may ultimately reduce a business owner’s tax burden depending on the income he or she derives from the business and from other sources.

Do I need to protect my company name?

In most states, companies register their names with the state to ensure that only one business can operate under that name. This is important for branding and marketing purposes. Adding LLC to the end of a company’s name can also add legitimacy to a new business, thus enhancing the brand.

Do I want to sell all or part of the business?

Ownership of an LLC or corporation can be shifted easily compared to those of a sole proprietorship. Adding partners and selling the business can be difficult if there are no lines between where the business ends and the owner begins. Once a business is incorporated, it lasts until it is dissolved, meaning it continues to be an asset for a business owner’s estate after the individual passes on.


Thursday, July 21, 2016

How To Increase Your Chances for Start-up Success


What do successful small business startups have in common?

As most of us are aware, starting a new business is risky. The U.S. Small Business Administration reports that about half of all startups survive the first 5 years and only about one-third survive for 10 years. Having a


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Monday, July 18, 2016

Investment Strategies for Minority Investors

As a minority business investor, it is essential to have an investment strategy that will maximize your returns. Once an investment decision is made, it is critical that a target business will enhance value of a broader investment portfolio.  At the same time, many minority investors are also business owners who know what makes for a successful enterprise. This post is a discussion of what minority investors should look for in a privately held business.

What makes for a great minority investment?

Since a minority investor has a significant but non-controlling ownership interest in a business, the first rule of thumb is to invest in business enterprises that you understand and with which you are comfortable. At the same time, great investments can also be found outside your business comfort zone provided that you have good management skills and the acuity to understand your target's business model.

Investing in a small business starts at the top,  that is with the owners. Accordingly, getting to know the owner and understanding how they do business is critical in your decision-making process. One key attribute you should look for in an entrepreneur is passion. Without it, he or she will lack the vision to steer the company toward success. It is also wise that you exercise caution by conducting background checks particularly with an eye toward ascertaining any legal actions in which the owner and other key people have been involved.

Of course, it's not only a matter of the people, it's about the numbers. The onus is on you to do your own due diligence, perform your own research and undertake an analysis of the proposed business plan. An investment proposal can be filled with numbers that amount to nothing more than smoke and mirrors. It's your job to ensure the numbers add up.

Level of Investment

Once you've done your homework on the target business, you need to decide how much to invest and how closely you will be aligned with the entity. Determining how much to invest is really a matter of risk management. In order to safeguard your investment, it is critical to negotiate a deal that is mutually beneficial. In particular, you should consider having an exit strategy with an understanding that your investment will be repaid by a certain date at an agreed upon rate of return.

You must also decide whether you will have no active participation in the decision-making and operations of the business or if you will be involved in the management of the entity. Even as a minority investor, your stake in the business may be significant enough to warrant having a seat at the table in order to advise on policy and evaluate management's performance.

Business Categories

As a minority investor, there are many business categories to consider that depend on your investment strategy. For example, investing in a start-up tends to be high-risk since management may not have a track record of success or a proven business model. Nonetheless, start-ups can also offer great rewards if they are breaking ground in a new business method or technology. The caveat is that the majority of start-ups are short-lived and destined for failure within the first 5 years.

If you are looking for a growth opportunity, there are business enterprises that have successfully launched but need another infusion of capital to grow. These businesses have an initial track record that will allow you to determine if your investment will be rewarded, even if it is subordinated to original investors. On the other hand, opportunities can also be found in companies that have stopped growing because of insufficient capital but still have a solid business plan.

For investors with a greater appetite for risk, companies that are failing can be ripe for a turn- around, provided that your stake comes with a hand in the decision-making and that the business fundamentals remain sound. Even bankrupt entities with cash flow potential offer investment opportunities for investors who are willing to have a high level of involvement.

The Bottom Line

For the minority investor, the nature of investing is high-risk, and every opportunity is unique - some offer greater rewards as well as higher risks. Your ability to make a decision on the merits of a business plan depends on your capacity to be a good business manager as well as a shrewd dealmaker. Investing in a privately held business requires a lot of up-front sweat equity in researching your target company, analyzing financial reports, evaluating the businesses track record, and ascertaining management's skills.

In particular, investing in a closely held business is an investment in the owners as well as the business. These entrepreneurs need to be innovative and have the ingenuity and passion to grow the business. In the final analysis, investors and owners need to be honest partners and strike a deal that is a win-win. The goal for both parties is to ensure the enterprise is successful and offers a worthwhile return on investment.

If you do your homework, your investment in privately-held businesses can be quite lucrative. That being said, it's always in your best interest as a minority investor to have a lawyer on your side of the table to craft an investment agreement, advise you of your responsibilities and shield you from potential litigation.


Monday, June 13, 2016

Common Frivolous Suits Filed Against Small Businesses

Frivolous lawsuits are an all-too-common problem for small businesses. This is because, under current laws, there is almost no risk to trial attorneys or their clients for bringing even absurd cases to court. While large companies routinely retain attorneys and have the financial means to protect themselves from frivolous lawsuits, small businesses may be left out in the cold if served with an unwarranted lawsuit. Regardless of whether there is any validity to the plaintiff's claim, the small business owners will have to hire attorneys and will typically incur legal fees even if they win the case.

 

Disturbing Statistics about Frivolous Lawsuits against Small Businesses

There are two common types of frivolous lawsuits small business owners have to deal with: product or professional liability and personal injury. According to a recent survey, such unnecessary lawsuits cause financial, not to mention emotional, damage throughout the country. Some of the alarming statistics concerning small business owners in the U.S. are:

  • Over 50 percent of all civil lawsuits target small businesses annually
  • 75 percent fear being targeted by a frivolous lawsuit
  • 90 percent settle frivolous lawsuits simply to avoid higher court costs
  • Owners pay $20 million out of their own pockets to pay tort liability costs
  • U.S. tort costs have increased more than the gross domestic product since 1950
  • On average, those earning $1 million per year spend $20,000 of it on such lawsuits

How Can Small Business Owners Protect Themselves from Frivolous Lawsuits?

The best way for small business owners to protect themselves from frivolous lawsuits is to consult with an experienced, reputable business attorney to help them evaluate possible areas of vulnerability in their company. The attorney should assess their potential exposure in terms of:

  • Employment law, including harassment, discrimination and wrongful termination
  • Intellectual property (IP), protecting them from unintentional theft of IP
  • Contracts management
  • Electronically stored information (ESI)
  • Fraud, establishing internal controls to prevent employee fraud

 

Beyond retaining helpful legal counsel to protect their businesses, small owners must, of course, ensure that they are taking proper precautions in terms of quality control of their own products, services, plant maintenance and staff behavior.

Insurance against Frivolous Lawsuits

If small business owners want optimal protection against frivolous lawsuits, they should look into the possibility of purchasing property or liability insurance for their company. After having an attorney examine their business practices to ensure that they are taking all possible precautions against being sued, they may want to consider buying an insurance policy their lawyer deems appropriate.


Monday, February 29, 2016

Common Tax Deductions for Small Businesses

Automobile deductions:

Whether an individual uses a personal vehicle for his or her own business or company owns a vehicle, the depreciation of value and costs associated with that vehicle may be deducted from the company’s income at year's end. A taxpayer must keep track of all of these expenses and document them by maintaining receipts and records of expenditures in order to claim the deduction. Alternatively, a business may declare standard deductions for the vehicle based on the mileage of the vehicle. In 2015, this standard deduction is 57.5 cents for every business mile driven. If a vehicle is driven for both business and personal use, the IRS will require a taxpayer to identify the percentage of use dedicated to business.

Capital expenses: Also called startup costs, the IRS allows a business to deduct up to $5,000from its income in its first year of expenses for expenditures made before the doors of the business opened. Any capital expenses remaining after the first $5,000may be deducted in equal increments over the next 15 years.

Legal and professional fees: Fees paid to professionals like lawyers, accountants, and consultants, may be deducted from a company’s income each year. If the benefit of a professional’s advice is spread out over a number of years, the tax deduction must also be spread equally over the same period. The cost of books or tuition for classes to help avoid legal or professional costs may also be deducted.

Bad debt: A business may deduct the losses suffered as a result of a customer who fails to make payment for goods sold. However, a business that deals in providing a service may not deduct the time devoted to a client or customer who does not pay. A service business may deduct expenses made in an attempt to help that customer or client.

Business entertaining:The cost of meals or entertainment purchased for business purposes must be documented by receipts in order to maintain the right to deduct the cost from income for tax purposes. Only 50percent of the total cost of entertainment expenses may be deducted.

Interest: If a business operates on a business loan or a line of credit, the interest on that loan may be deducted from income for tax purposes.

Normal business expenses: The cost of advertising, new equipment, depreciation of existing equipment, moving expenses, business cards, office supplies, travel expenses, coffee and beverages, software, casualty and theft losses, postage, business association dues, and all other business expenses can be deducted.


Monday, December 14, 2015

Estate Planning in the Digital Age

Why is it important to consider computer information when engaging in estate planning?


In this age of technological acceleration, when most people are constantly increasing the daily use of their computers to include banking, personal and business record-keeping, shopping and, medical and tax information, it is essential to include conversations about computer data in estate planning consultations. Access to computer information is most often protected by not one, but a multitude, of passwords. Without finding a reliable, safe way to pass along knowledge of these passwords to your heirs, your most careful inheritance plans can be thwarted.

A case that highlights the problem occurred in the United Kingdom last year when two brothers had to fight Apple, Inc. in order to get their full inheritance. Though one of the brothers had inherited his mother's iPad, he did not have access to her password. The documents he did have -- death certificate, Will, an attorney's letter stating he was his mother's co-executor -- were all considered insufficient evidence of his mother's intention to provide him with access to her iPad. Fortunately for these brothers, Apple finally relented, saving them the expense and inconvenience of obtaining a court order. Nonetheless, this case demonstrates the problems inherent in ignoring the digital aspects of estate planning.

Managing electronically stored finances is currently vital because such digital storage is so widespread. As some estate planners have noted, a decade ago, even 5 years ago, the issue was not as crucial as it is now, and it is becoming more relevant every day. Without providing your heirs with user identification and passwords, you will certainly delay the inheritance process and may precipitate a situation in which probate is required.

Not only can the absence of password and ID information prevent financial management of a deceased monies and documents, it can prevent access to intellectual property, such as personal writings, photographs, artwork, architectural or engineering plans.

For all of these reasons, clients must, when consulting with their estate planning attorneys, go over any and all matters that they routinely handle on their computers and make sure to record important access information. What complicates this process is that such information is not static. Because people frequently change their passwords, records must be regularly updated.

When planning your estate, it is essential to have a competent estate planning attorney at your side, one who is familiar with ever-changing, laws and computer systems. Doing this will give you peace of mind that your loved ones won't have to suffer added stress at the time of your passing and that the inheritance you worked so hard to leave them will not become part of the billions of dollars of unclaimed assets that are annually turned over to the state.

Monday, October 19, 2015

Start-up Business: When is the Best Time to Consult with a Lawyer?

If you are starting a new business venture, it is vital that you assemble your team of advisors immediately. Many entrepreneurs are short on cash during the start-up phase and forego hiring of legal counsel or other professional advisors in order to preserve capital for other aspects of the business venture. But this approach is usually penny-wise and pound-foolish. Especially since many small business start-up lawyers are a lot more affordable than you think.

Your attorney can be an invaluable member of your team of advisors. Business attorneys have seen first-hand the mistakes entrepreneurs make and know how to structure transactions to avoid them. It is best to consult with an attorney early on in the process, before you formally organize the company because the foundational issues are critical to the long-term success of your new venture.

There are many issues to be considered; and the earlier you do so, the better. You’ll want to ensure you choose the most advantageous business structure. From C-Corporations to S-Corporations to Limited Liability Companies and other hybrid entities, you have many options. They must all be carefully considered, in light of your particular situation. How many owners and who they are, liability issues, licensing restrictions, and anticipated profits all play a role in determining what type of entity affords you the most asset protection, and costs you the least in taxes.

During this foundational process, your legal advisors can also help you determine equity splits, which can save you headaches down the road. For example, it is generally advisable to avoid dividing business ownership according to percentages. Doing so can create problems later if additional investors need to be brought in. However, if the appropriate number of shares are authorized at the outset, and issued according to a plan for long-term company growth, you ensure your company can access capital in the future.

Vesting schedules can also be established before stock is issued to the company founders, enabling the initial shareholders to obtain full ownership rights to their shares over a period of time. However, this may not be advantageous in every situation, and must be carefully considered.

Even after your initial formation is complete, there are still a number of legal issues that require your attention. There are agreements to negotiate which may include leases, employment contracts, independent contractor agreements, customer purchase or service agreements and many more.

Steps should be taken early on to protect your intellectual property. Depending on the nature of your business, you may need to obtain and enforce patents and copyrights. If your company has a “brand” you will likely want to obtain a federal or state trademark to protect it for your own exclusive use.

The federal and state employment regulations can be onerous. From verboten interview questions to potential allegations of discriminatory hiring practices, a start-up lawyer can help you avoid the pitfalls and ensure you have a happy, productive work force.

Finally, your attorney can help you identify and secure other professionals and services, such as accountants, recruiters, bankers and even start-up friendly print shops and website development and hosting services.


Monday, September 21, 2015

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, August 7, 2015

Small Business Succession Planning

As a small business owner, what do I need to consider when deciding the best course of action for the future? 

You’ve spent your life building and growing your business. You’ve invested time, money, and more sweat equity than you could possibly recall. Yet, you’ve come to terms with the fact you won’t be around forever to manage everything – and you’re not quite sure what the next step should be. 

Sound familiar? If so, it may be time to meet with a reputable business succession attorney at the Winters Law Firm – a team of legal professionals with a keen understanding of the unique estate planning needs of Indiana small business owners. For help, contact our Valparaiso office right away, and consider the following as you plan for the future: 

Issue #1: Family Dynamics: For many, the obvious choice in business succession planning is to pass the dynasty on to the next generation. However, this choice should not be made lightly, and oftentimes families hand over the reins to children only to see the business liquidated and sold a short time later. Thoughtfully consider the strengths and weaknesses of family members before making this pivotal decision, and do not be afraid to consider other options. 

Issue #2: Transition Style: Are you ready to retire and get out of business altogether? Or would you rather stay on board in a “consulting” role as your children or partners continue in the day-to-day management of the enterprise? The answer will depend heavily on the current management structure, and whether there is anyone in place who knows the ins and outs of the business with the same keen attention to detail as the founder. 

Issue #3: Liquidation: It may be a difficult concept to consider, but for some small business owners it makes the most sense to sell the business and use the proceeds for a comfortable retirement. For high net worth businesses, this option will also prompt the need for a strategic and well-thought-out estate plan – which our office can help with as well.

If you are ready to discuss your options in business succession planning, please do not hesitate to contact the estate planning attorneys at Winters Firm right away: (219) 307-4373. 

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