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SUMMARY OF 10 TIPS FOR SMALL BUSINESSES

I hope everyone has enjoyed my monthly tips over the last year for those who own, or want to own, a small business .  I thought as a closing for this series that I would summarize the tips in a one-page document that you can take with you and refer back to when you need a reminder.

First Tip: Create your corporate shield to “shield” you as an individual from liability by creating a corporation or a limited liability company for your business.

Second Tip: Get appropriate business insurance (worker’s compensation, unemployment, business liability, professional liability, health, etc.) and pay taxes.   

Third Tip: Do not misclassify your employees as independent contractors; do an analysis of the type of work, supervision, tools/equipment, control, etc. of your “independent contractors” to ensure they have not been misclassified.

Fourth Tip: Know the employment laws that affect your business such as Title VII, Equal Pay Act, Age Discrimination in Employment Act (ADEA), Americans with Disabilities Act (ADA), Family and Medical Leave Act (FMLA), worker’s compensation standards and Arizona state laws.

Fifth Tip: Set written employment policies in an employment handbook, consistently follow your own policies, and train your supervisors on how to implement your company policies.

Sixth Tip: Make sure you are promoting your employee benefits to your company’s advantage and do not forget the benefits that you can offer that do not cost you anything.

Seventh Tip: Make sure you have written contracts that lay out the true terms of the contract and avoid “handshake deals” which can create serious problems for your business if you end up in court.  

Eighth Tip: Integrate written social media policies into your workplace such as prohibiting employees’ use of social media at work, employees posting your company’s confidential material, trade secrets, or proprietary information, etc. 

Ninth Tip: Determine if you need a trademark or service mark for your business and if so, register your trademark or service mark with the United States Patent and Trademark Office (USPTO) to obtain exclusive nationwide ownership of the trademark and the presumption that the trademark is valid over others. 

Tenth Tip: Beware of personal guarantees because if you do sign a personal guarantee, you have to be willing to pay on the debt if the main borrower, whether it’s your business or your child, fails to pay. 

The information contained herein is general information not legal advice, and does NOT establish an attorney-client relationship with Lori Brown.

TENTH TIP; PERSONAL GUARANTEES

The next tip for those who own, or want to own, a small business: BEWARE OF PERSONAL GUARANTEES.

I have represented several individuals in the last year who signed personal guarantees and then were sued on that guarantee.  A personal guarantee can come up in several situations. 

The first situation that comes to mind is when a small business enters into a contract to lease office space and the landlord requires the business owner to personally guarantee payment of the lease.  Or, if a small business wants to set up an account with a new vendor, the vendor might require the business owner to personally guarantee payment for the products being provided. 

 In your personal life, a guarantee situation could arise where one family member signs a guarantee to secure payment for another family member.  Think of a parent co-signing on a car loan for an adult child.  

 One of the main reasons that lenders require personal guarantees is that if the main borrower does not pay, then the lender can go after the guarantor.  So in the office space lease situation, if there is a default on the lease, the landlord can sue the business who entered into the lease and also sue the owner of that business, i.e., the guarantor.  If the landlord wins that lawsuit, the landlord can then go after the business’ assets, and if the business no longer has any assets by that time, the landlord can also go after the business owner’s personal assets to obtain payment.  Or, in the parent co-signing for the child situation, the lender can go after the parent’s personal assets to secure payment for the loan.

 Moral of the story: consider the long term consequences before you sign a personal guarantee.  If you do sign a personal guarantee, you have to be willing to pay on the debt if the main borrower, whether it’s your business or your child, fails to pay.  And, be sure to read all of the terms of the contract and guarantee before you sign so you understand the terms and conditions of the loan. 

The information contained herein is general information not legal advice, and does NOT establish an attorney-client relationship with Lori Brown.

EIGHTH TIP; SOCIAL MEDIA AND THE WORKPLACE

The next tip for those who own, or want to own, a small business: integrate social media policies into your workplace.  

This past year I learned how to use Facebook for business.  I had a personal Facebook page for several years but was not an avid user.  I heard people talk about using social media for business, but I didn’t understand what that meant.  About six months ago, I went to a basic social media class and started a Facebook business page.  I learned how to post, use pictures, tag, schedule future posts, use hashtags, etc.  Now I post legal tips everyday to my Facebook page and I am slowly building an audience.  The idea of a Facebook business page might be old news to some of you and new news to others.  The fact of the matter is that a growing business needs to use every avenue available to market and social media seems to be “the” tool to use at the present moment.  Social media is also being used to investigate potential employees.  It is not uncommon for companies to choose not to hire a potential employee after viewing information posted by or about the employee on social media outlets.  And, I am seeing more and more stories about employees being fired due to items posted via social media.  Think about what you would do if your employee was posting negative comments about your business while he was at work.  Being proactive and adopting and integrating social media polices in your workplace is one way to avoid social media problems.   

A lot of workplace rules about social media really are common sense, but they still should be put in writing and reviewed with your employees regularly.  Some possible policy considerations include:

  • Prohibiting employees’ use of social media at work
  • Prohibiting employees from posting messages or material that could damage your company’s image or  reputation
  • Prohibiting employees from posting your company’s confidential material, trade secrets, or proprietary information
  • Prohibiting employees from posting messages that defame or slander management and co-workers
  • Prohibiting employees from posting messages that disparage your company or another company

My rule of thumb is everything that is posted on the internet is public.  I tell employees and employers alike not to rely on “privacy” settings because those seem to change regularly.  One of the main reasons social media is used is to expand your “reach”.  You get your word out by posting and hoping that others “like” and “share” your posts.  But, that “reach” could quickly become your enemy if something is posted about your business that is less than favorable.  The old school version would be hitting the send button in an email and the next instant realizing that you sent the email to the wrong person, or worse, hit “reply all” when you wanted to only reply to the sender.  So go out and use social media to its fullest advantage.  But, you also need to keep a close eye on what you and others are posting about your business. And, of course, I invite you to check out and “like” my business page: https://www.facebook.com/BusinessLawyerLoriBrown and I hope the information you find there will be educational and entertaining. 

The information contained herein is a business advertisement with general information not legal advice, and does NOT establish an attorney-client relationship with Hymson Goldstein & Pantiliat, PLLC or Lori N. Brown.

SEVENTH TIP: THE IMPORTANCE OF WRITTEN CONTRACTS

The next tip for those who own, or want to own, a small business: make sure you have written contracts WITH CLEAR TERMS

I had a case a few years back where my client sold her home health business to a “friend”.  The two friends decided not to get a lawyer and instead used a form contract for the sale of the business.  Of course, a dispute arose after the contract was signed.  The buyer had made a down payment on the purchase of the business and then was supposed to make installment payments to pay off the balance.  But, after running the business for a short time, the buyer decided that she had not received what she expected and therefore she stopped making payments.  The dispute ended up in a lawsuit and the case went to arbitration.  The arbitrator ultimately decided that no one won the case because there was a “mutual mistake” involved, meaning the parties never really agreed on the terms of the agreement.  This was a very rare result because usually in a lawsuit someone wins.  In the end, both sides lost out, the seller never got her money, and the buyer did not get the business she expected.   

The above situation illustrates the importance of having written contracts that lay out the true terms of the contract.  When a contract ends up in court, the judge will look to the “four corners” of the contract, meaning only what it says in the contract, not some verbal side deal that was never written down.  The purpose of a contract is to deal with all potential issues that could arise.  You want to make sure that your written contracts “say what you mean”.  DO NOT just sign a business contract, read it carefully (or have an attorney review it for you).

And, the days of a “handshake deal” do not exist anymore.  I was doing legal research recently and read a quote from a case that I thought summed up this issue well and all business owners would be wise to remember:

“An agreement that is based on trust and is not documented is fine as long as there is plenty of money and as long as there are no problems. The purpose of legal agreements is to define, in advance, who has superior rights when there are not enough assets to go around.”[1]

The information contained herein is general information not legal advice, and does NOT establish an attorney-client relationship with Lori Brown or Hymson Goldstein & Pantiliat.


[1] In re Moye, Case No: 07-37770 (Bankr. S.D. Tex., 2008). 

SIXTH TIP: EMPLOYEE BENEFITS

The next tip for those who own, or want to own, a small business: make sure you are promoting your employee benefits to your company’s advantage.  

There are many types of benefits that employers can offer to employees.  Insurance is usually the first one that comes to mind, such as medical, dental, vision, life, short-term disability, and long-term disability.  There are other benefits as well, which include:  paid sick; vacation and/or personal days; paid holidays; 401(k) matching programs; etc.  A small business owner’s main concern when deciding on what benefits to offer to employees is:  “How much is it going to cost me?”  This is a valid concern that has to be considered in conjunction with obtaining and retaining employees.  For instance, if you offer no benefits at all, will you continually have turnover with your employees because they are taking jobs elsewhere with better benefits?

I think small business owners sometimes forget to consider the importance of “employee relations” or the “spin” that can be put on what they have to offer their employees.   I am a mother of three young children and have learned the importance of the “spin.”  If I tell my kids they can have a “little bit” of ice cream for dessert, they cry and scream.  But, if I tell my kids I am giving them “a lot” of ice cream (especially if I put the ice cream in a small bowl), even though it’s the same amount I would have given them in the first scenario, they happily eat their ice cream.  The same rule applies in the workplace.  It may sound simple, but if you have staff lunches and the company picks up the tab for everyone’s lunch, promote that event as a “company sponsored” or a “company paid for” event.  Or, if you offer health insurance to your employees, consider letting the employees know how much you are paying to offer that benefit to them. 

And, don’t forget the benefits you can offer that do not cost you anything!  For instance, some employers offer their employees short or long-term disability insurance or identity theft protection.  These “benefits” are fully paid for by the employee, but the employee gets the benefit at a cheaper rate through a group plan offered via the employer.  The employer’s obligation only comes in deducting the premiums from the employee’s paycheck and transferring that money to the vendor.

At Hymson Goldstein & Pantiliat, PLLC, we have experienced employment law attorneys who can help you review your benefit policies to ensure they meet the needs of your company and your staff.

The information contained herein is general information not legal advice, and does NOT establish an attorney-client relationship with Lori Brown or Hymson Goldstein & Pantiliat.

SECOND TIP: INSURANCE AND TAXES

The next tip for those who own, or want to own, a small business: get appropriate business insurance and pay taxes.  Several small business owners have come to me recently with questions about whether they should pay their workers as employees or independent contractors.  This issue, employees versus independent contractors, is one I will address in a later letter.  To understand this issue, you have to first understand why a small business owner would not want to have employees: having employees means having to pay more taxes and for more insurance.

An employer with employees pays its share of employment taxes to the federal and state governments.  Additionally, all businesses need insurance, but businesses with employees need more insurance.  Some of the typical insurances that a small business should consider, some of which are mandatory, are:

• Worker’s Compensation Insurance

• Unemployment Insurance

• Business Liability Insurance

• Professional Liability /Errors and Omission Insurance

• Medical/Dental/Vision/Life/Disability Insurance

Failing to properly pay taxes or get insurance can lead to, among other things, the IRS coming after you for back taxes, interest and penalties or your business having to pay out of pocket for an employee’s work related injury.  You would not want to get in to a situation where you open a successful business and that business is brought to its knees due to unexpected liabilities or losses.  Protect your business investment and assets with the appropriate and necessary insurance and payments to Uncle Sam.

Sincerely,

Lori N. Brown

The information contained herein is a business advertisement with general information not legal advice, and does NOT establish an attorney-client relationship with Lori Brown or Hymson Goldstein & Pantiliat, PLLC.

FIRST TIP: CREATE YOUR CORPORATE SHIELD

As promised, we begin with our first tip for those who own, or want to own, a small business. My first tip is to create your corporate shield.

The purpose of creating your corporate shield is to “shield” you as an individual from liability. This means that if a lawsuit later develops against your company, the lawsuit would be against the company and not you as an individual. For example, I had a client once that simply picked a name for his company and began operating as that company. That client was later sued as himself because the company he was operating as was not a true legal entity. In this situation, for example, the client is sued as: “Joe Smith doing business as ABC Company”. The big problem here is if Joe Smith loses his lawsuit and gets a judgment entered against him for any amount of money, the creditor on that judgment can lien any property Joe Smith owns, garnish his wages, garnish his bank accounts, etc. Bottom line, you want to avoid being sued as an individual for issues related to your business.

The way to create your corporate shield is usually by creating a corporation or a limited liability company. This is very formal process which requires, among many other things, a filing with the Arizona Corporation Commission. You need to be sure that your corporation or limited liability company is created properly with the appropriate documentation such as bylaws, issuance of stock, stockholder agreements, operating agreements, etc. There are also tax implications involved in the choice of entity and perhaps, tax elections to be timely made.

If you, your family members or friends need help with creating a corporate shield, our team of knowledgeable attorneys are here to help.

SEVERANCE AGREEMENTS

Lately I have been reviewing and negotiating severance agreements for a variety of clients.  I continue to be surprised that employers are offering severance pay in this economy.  You wouldn’t think, with so many people being out of work, and companies closing down regularly, that an employer would want to pay hundreds, if not thousands, of dollars to an employee who is being fired or laid off from employment.  But, I suppose it does makes sense when you consider that the main reason an employer offers severance pay is to obtain a broad release from the departing employee to prevent the employee from suing the employer.

For instance, the normal practice in a severance pay situation would be for the employer to notify an employee that s/he is being separated from employment and present the employee with a written severance agreement which describes the terms of the separation from employment.  Typical terms in a severance agreement include, among other things, the amount of money the employee is being paid, health insurance continuation (usually under COBRA), and, of course, release language that states that in exchange for the severance pay, the employee is releasing any and all claims the employee has against the employer.  Sometimes the agreement will include outplacement service to assist the employee in finding new employment and these terms are often very negotiable.

Thus, every employee being presented with a severance agreement must understand that once the severance agreement is signed by the employee, the employee has effectively released all of his or her claims against the employer.  Potential claims against the employer can sometimes be used to negotiate a higher severance payment from the employer.  But, in most cases, once that severance agreement is signed, a lawsuit can’t later be brought against the employer for issues related to the employee’s employment.

So remember not to just “take the money and run”.  If you are offered a severance package by your employer, you should carefully consider the written terms of the agreement, evaluate any potential legal claims you may have against your employer, as well as have legal counsel review the agreement before you sign.

BEING A WORKING MOM

As is common for many women nowadays, I wear many “hats” in my life.  I have a full-time, demanding job as an attorney, I am a mother to a two-year old and a one-year old (and a baby on the way), I am a wife, I am a daughter, I am a sister, etc.  People ask me on a regular basis: “how do you do it all?”  My stock answer is: “I just do”.

The truth is, in my daily life, when I do stop to think about all I have to do on a regular basis, I do get overwhelmingly stressed.  However, I suppose I then put my Scarlett O’Hara hat on and declare, “I’ll think about that tomorrow.”  Truly, necessity is what tends to rule my life.  I envy other women who (at least) appear to be tremendously organized and somehow have time to cook several meals at a time and freeze them.  My nightly menu consists of meals I can prepare in 15 minutes or less while I do my very best to keep my kids from destroying my kitchen in the meantime.  However, at the end of most days, when I put my children to sleep (and usually have to go “back to work” in my home office), I wonder, did I hug and kiss them enough and do they feel safe and secure knowing that their mommy loves them more than anything in the whole wide world?  It is then then that I realize how thankful I am for the crazy stress in my life because it is the unbelievable blessings in my life that also create my stress.

For all the mothers (and fathers) out there with this kind of stress, in honor of Mother’s day and Father’s day coming up, let’s all pat ourselves on the back for the truly tremendous efforts we have made thus far in our lives and remember, and be thankful, for the amazing blessings we have in our lives. 

Sincerely,

Lori N. Brown

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