Archive for category Common Business Problems
Be sure you have the right to use images, photos, graphics and other materials on your company’s website. Even if you hire a third party developer to design your website, you are still liable for copyright infringement if you in fact do not have the right to use images, photos, graphics and other information in your company’s website. There are a number of stock photo companies which, for a fee, grant a license for you to use the stock images, photos and graphics.
There is a company called Getty Images which buys and owns a large amount of the images, photos and graphics which are seen on the Internet. It is my understanding that Getty Images has sophisticated software which scans the Internet, and has the capability of locating websites which use images, photos and graphics that do not have licensed rights to do so. Getty Images then sends threatening demand letters, asking for a substantial sum of money for each image, photo and graphic used in order not to sue for copyright infringement. Accordingly, in reviewing your company’s website, be sure to have license or other rights (or use your own material) to use the images, photos and graphics displayed there. If you use a third-party to develop your website, be sure to stress the importance of using images, photos and graphics where you have a legal right to use them. It is possible to obtain an indemnification agreement from the third party website developer, indemnifying you or your company if images, photos and graphics are used without the right to do so (although indemnification is only as good as the third party website developer is able to reimburse you).
© Walling Law Firm, P.C. 2014
When selecting a company’s name, be sure it does not infringe on someone else’s right to use a same or similar name. Just because the Secretary of State allows you to use a name, it does not necessarily mean that you have a legal right to use that name under U.S. copyright and other laws. Also, it does not give you exclusive rights to use that name.
If it is of large concern, there are companies which can perform a nationwide name search for you. An example of when this could be necessary is if you are about to spend substantial sums on advertising. For example, you don’t want to put your company’s name and logo on products if someone down the road may challenge your right to use that name or logo.
At the start-up of a company, owners often are not so much concerned about protecting the company’s name and are more concerned about day-to-day operations. After a time, as the company develops goodwill, a company’s name can become quite valuable and is, if nothing is done, largely unprotected.
It can be wise to have filed an application to register your company’s name as a trademark or servicemark with the U.S. Patent and Trademark office (a trademark is for the sale of goods and a servicemark is for the sale of services). Once a company’s name is registered with the U.S. Patent and Trademark office, generally someone else may not use that name or a confusingly similar name for the sale of the same or similar goods or services. If not done fairly early-on, by the time an application to register a trademark is filed, some companies unfortunately find that someone else has already registered their company’s name with the U.S. Patent and Trademark Office.
You can avoid these problems, including possible usurpation of your company’s name by others, by at any early date filing with the U.S. Patent and Trademark Office an application to register your company’s name (but not before the name is actually used in interstate commerce). Having a company’s name registered with the U.S. Patent and Trademark Office can add substantial value to the company if the company or its assets are sold. Although the filing of an application to register a trademark furnishes some immediate protection, the process takes close to a year before the trademark registration is issued. Usually, there are no objections to an application to register a trademark. It is not typical, but occasionally there can be an objection by another entity claiming it is using the same or similar name for the sale of similar goods or services, which can result in trademark litigation.
© Walling Law Firm, P.C. 2014
Whenever a company, corporation, or a limited liability has more than one owner (unless the owners are married), a buy-sell agreement can be of critical importance.
When a person goes into business with another person, typically they do not want the risk of being in business in the future with some unknown person. Without a buy-sell agreement, things can occur which cause a business owner’s interest in a company to go to another person. This can happen by a voluntary sale or gift, death, divorce, or an involuntary transfer to creditors or a bankruptcy trustee.
For example, without a buy-sell agreement: (1) If a co-owner dies, the deceased co-owner’s estate or family members will then own the deceased co-owner’s interest in the business (unless the deceased co-owner’s valid Will states otherwise); (2) If a co-owner becomes involved in a divorce, then his or her spouse can potentially make a claim to his or her interest in the business; (3) If a co-owner has creditors (whether by contract or in tort, such as a bad car accident), and a creditor obtains a judgment against the co-owner or his or her estate, then the judgment attaches to the co-owner’s interest in the business, and the creditor can levy on it and become a co-owner of the business (and hold it hostage); (4) If a co-owner files bankruptcy, then without a buy-sell agreement a bankruptcy trustee may make a claim to the bankrupt co-owner’s interest in the business and sell it to a third person (or hold it hostage). In all of these situations, without the presence of a buy-sell agreement, then a co-owner may find himself or herself in business with a total stranger.
In the event of death by a co-owner, without a buy-sell agreement the other co-owners do not know what to do as to the deceased co-owner’s estate or family, and the deceased co-owner’s estate or family does not know what to do as to the business. Depending on the deceased co-owner’s percentage interest in the business, this can adversely (and disastrously) affect the continued operation of the business, and, regardless of the percentage interest of the deceased co-owner, can result in time-consuming and costly litigation among the surviving co-owners and the deceased co-owner’s estate or family. A buy-sell agreement can avoid these situations and provide a road map for the surviving co-owner to have an option to buy out a deceased co-owner’s interest in the business from the deceased owner’s estate or family.
Typical provisions in a buy-sell agreement provide that a co-owner may not sell his or her interest in the company, without first giving a right of first refusal to the company and the other co-owners. This prevents a co-owner from selling or giving his or her interest in the business to a third person. A typical buy-sell agreement also provides what happens in the event of death of a co-owner. A buy-sell agreement can provide that the other co-owners or the company may have a discretionary option (or it can be a requirement) to purchase the deceased co-owner’s interest in the business from the deceased co-owner’s estate. A buy-sell agreement can provide that the purchase price of the deceased co-owner’s interest in the company is to be at “fair value,” leaving the determination of “fair value” for a later date should it become necessary. Alternatively, a buy-sell agreement can provide a mechanism, such as an appraisal process or formula, for determination of fair value, arbitration, or provide a set dollar amount (an issue with a set dollar amount is that the fair value of the business will undoubtedly change over time).
A buy-sell agreement can provide that if the surviving co-owner exercises his or her discretionary option to buy out the deceased co-owner’s interest from the deceased co-owner’s estate, then the purchase price of the deceased co-owner’s interest in the company is paid by, for example, 20% cash down, and the balance financed, for example, at the Wall Street Journal’s prime rate plus 2%, amortized over a period of 3 years and payable in equal, successive monthly or quarterly installments (the terms can be adjusted in the buy-sell agreement to whatever terms work for the co-owners). This payment obligation is documented by a Promissory Note and secured against the deceased co-owner’s interest in the company, so that if the business fails to make the required payments, the deceased co-owner’s estate can get back the deceased co-owner’s interest in the business back. This same arrangement in a buy-sell agreement can be made applicable in the event of divorce, involuntary transfer (creditors), or bankruptcy of a co-owner.
Even with a buy-sell agreement, often a surviving co-owner and a deceased co-owner’s family will mutually agree to some other arrangement for the surviving co-owner to buy out the deceased co-owner’s interest in the company, with the buy-sell agreement serving as a general road map for the parties to follow and expressing the intention of the co-owners of a company of what is to happen if one of the co-owners dies.
Ideally, a buy-sell agreement will be backed up by life insurance so that the surviving co-owner or the company has the funds to pay to a deceased co-owner’s estate or family in order for the surviving co-owner or the company to buy out the deceased co-owner’s interest in the company (negating the necessity of a promissory note and security). However, many business owners, especially at start-up, find that life insurance is prohibitively expensive.
With or without life insurance, a buy-sell agreement is critical in situations where there is more than one owner of a company.
Other provisions which can be included in a buy-sell agreement are tag along rights (allowing a minority owner to tag along with the majority owners if the majority owners decide to sell their interest in the company to a third party buyer), come along rights (allowing the majority owners to require minority owners to also sell their interest in the company to a bona fide third-party buyer, if the majority owners are also selling their interest to the third-party buyer), put and call provisions, a company option to buy-out a co-owner’s interest in the company if the co-owner is terminated from employment by the company or becomes disabled, voting agreements, and the like. The terms of a buy-sell agreement can be tailored to whatever terms fit the needs and situation of the co-owners.
In setting up a company, many multiple owners do not know whether the company will survive and make it past the first year, and are often cashed-strapped and therefore avoid the expense of a buy-sell agreement. Buy-Sell provisions can usually fairly easily be incorporated into a limited liability company’s operating agreement. If a corporation, buy-sell provisions are included in a separate shareholders’ agreement. Once a company gets off the ground, a buy-sell agreement is of vital importance.
© 2014 Walling Law Firm, P.C.
An issue that I see time and time again is businesses which do not have an Employee Handbook. An Employee Handbook covers a range of rules and policies of the business, which are impossible to cover in a written Employment Agreement. If a business has an Employee Handbook, and if an employee violates a rule or policy in the Employee Handbook, then the business can take disciplinary action and reduce the risk that the business may be liable for charges of unlawful employment discrimination. Without an Employee Handbook in place, a disciplined employee can more forcefully argue that he or she has been discriminated on the basis of race, sex, religion, national origin, physical disability, or age, since the business does not have a written policy in place. Without an Employee Handbook, a disciplined employee is more likely to feel that he or she has been treated unfairly.
Matters covered by an Employee Handbook are often conduct-related, such as off-duty conduct which damages the business’ reputation, workplace violence (banning the bringing of knives and weapons to the workplace), outside employment such as moonlighting, moonlighting for a competitor, using company email for political or non-business purposes, on-line conduct at the workplace, acceptance of gifts or money from customers, use of company property for personal business or personal reasons, attendance, use of inappropriate or profane language, alcohol, drugs, bad hygiene, sleeping on the job, and the many other issues which arise from time to time whenever there is a gathering of two or more people.
Having policies in an Employee Handbook allows the business to take disciplinary action when there has been a violation of those policies. A business will often learn of an issue with an employee by way of complaints from other employees, and a business needs to have the tools necessary to discipline an offending employee. Of course, policies in an Employee Handbook should be enforced by the business in a non-discriminatory manner.
A business will want to be certain that the Employee Handbook itself is not an employment agreement, and should specify that employment is at will unless otherwise agreed to in writing. An Employee Handbook has many legal implications, and it should first be reviewed by an attorney. Attorneys who practice in this area have templates which provide the bulk of the provisions for an Employee Handbook. An Employee Handbook is recommended for businesses of all sizes.
A common business problem I come across are companies which hire workers as independent contractors and not as employees. Many of these companies have no signed written independent contractor agreement stipulating that the worker is an independent contractor and not an employee. Even with a signed written independent contractor agreement in place, despite what the agreement says, unless a number of factors are satisfied the worker may nevertheless be classified as an employee and not as an independent contractor.
These factors vary according to state and federal laws, but the IRS has a list of factors here as a starting place. The IRS factors are:
1. Behaviorial Control (are instructions given to the worker as to when, where, and how to do the work; what tools or equipment to use; what other workers can assist with the work; where to purchase supplies; and the order or sequence of the work). The more behavorial instructions which are given, the greater likelihood that the worker is an employee;
2. Financial Control (does the worker have his or her own significant investment in the equipment used to perform the job; is there an opportunity for the worker to lose money on the job; is the worker free to also work for other companies; and is the method of payment akin to an employee or an independent contractor); and
3. Type of Relationship (is there a written agreement; are there employee benefits; is the relationship for a particular task or is it permanent; are the services provided a key activity of the business).
The determination of whether a person is an independent contractor or employee is fact sensitive. If a company or a worker is uncertain if a worker is an independent contractor or employee based on the IRS factors, that person can complete and submit IRS Form SS-8, and the IRS at no charge will make the determination for purposes of federal employment taxes and income tax withholding.
Georgia’s Employment Security Law provides that services performed by an individual for wages are deemed to be employment (and not an independent contractor arrangement) unless and until it is shown that (1)(A) such individual has been and will continue to be free from control or direction over the performance of such services, both under the individual’s contract of service and in fact; and (B) such individual is customarily engaged in an independently established trade, occupation, profession or business; or (2) such individual and the services performed for wages are the subject of an SS-8 determination by the IRS, which decided against employee status. O.C.G.A. Sec. 33-8-35(f).
Whether a worker is an independent contractor or is in fact an employee (even with a written independent contractor agreement in place) has significant consequences to the company as to liability, workers’ compensation, unemployment compensation, withholding requirements, FICA and Medicare, health insurance and other benefits, and the possible application of a host of federal and state laws. From the company’s perspective, sometimes the worst place to be is to for the issue to be unclear and in a gray area. This can result in litigated claims against the company by the worker, possible liability to third parties (for torts and wrongs committed by the worker while working for the company), company-wide audits by state and federal agencies, and many other issues.
Companies should also consider that independent contractors by the independent nature of their duty may often set their own hours and work for other companies, including competitors. Even if a worker can properly be classified as an independent contractor, if the worker is hired as an employee with the company, then the employee will owe a duty of loyalty and care to the company, and the company can exert greater restrictions on the employee, such as restricting the employee (in a written employment agreement) from working for a competitor while also working for the company.
Companies should consult with their accountant or attorney as to whether a worker is in fact an independent contractor or employee. If a worker may be properly classified as an independent contractor, a written independent contractor agreement should be drafted, prepared and signed. Even if a worker may be classified as an independent contractor, it sometimes may be better practice nevertheless to classify the worker as an employee so the company may exert greater control over the worker.
A common problem I see that happens over and over is a client who thinks that insurance covers something that really isn’t covered. It is amazing how either insurance agents when insurance is purchased verbally lead people to believing that something is covered, the policy has changed over the years so that a matter is no longer covered, there is a misunderstanding, or the client is simply mistaken.
Often it seems when a client asks the insurance agent if something is covered, the insurance agent says “yes, yes, yes, it is covered.” When there is a claim, the insurance agent responds, “Oh, that is not covered.”
It is costly when clients believe that a matter is covered by insurance and only find out when something goes wrong that it is not covered. If there is no insurance coverage, the insured (client) may have to hire and pay for its own attorney while the insurance company will provide and pay for an attorney if a matter is covered by insurance. The duty to defend is a major benefit of insurance. Most importantly, without insurance coverage a client may be liable for damages for which it thought it had insurance.
Carefully review or have your attorney review your insurance policies from time to time, preferably annually. You may find that you do not have a full and current copy of an insurance policy. The insurance policy may have been slowly amended over the years by the insurance company. A “declaration page” is only a one or two page summary and is not the full policy. If you do not or no longer have a full copy of the current policy, contact your insurance agent and they will mail or email you one. If you review your own policies, be sure and pay particular and careful attention to the part labeled exclusions. Insurance policies are notoriously difficult documents to read.
If a matter is excluded for which you need insurance, if you notice it before something goes wrong, often your insurance agent can provide a rider or endorsement which insures the matter for an additional (and quite often nominal) premium.