This fourth part is on the boring, yet crucial ongoing topics of accounting and employment law.
Accounting
It is the language of capitalism and commerce. A balance sheet is a snap shot of your company’s finances. No investor will take you seriously without good accounting paperwork.
An Income Statement is an annual or monthly recording of revenues and expenditures. A cash flow statement is like an EKG of how the money is circulating. Cash flow is the most important metric you have to monitor.
Accounting allows you to do analyses on which operations are profitable and which are not.
Employment Law
This is a minefield that you and your management need to understand.
With interview questions, do NOT ask:
Race- What are you, Filipino, Hispanic?
National Origin- What kind of name is that?
Family- Do you have kids? Are you pregnant?
Age- When did you graduate from Central High?
Mere brush with the law- Have you been arrested (not convicted)
Sexual Harassment: You can be sued under two theories
Hostile work environment- Jokes, pin-up calendars, whistling
Quid Pro Quo- If you do sexual favors for the boss, your work life improves.
Brief EVERYONE upon joining, and continue. Set up a procedure.
Job descriptions must be exacting as to qualifications and have no hint of any prejudice. For example, don’t say “Computer Literate, say “Proficient with Microsoft Word, Excel, QuickBooks.” For example, avoid saying “no more than 20 years in Grade” that is age discrimination.
Every 3-6 months have a formal, consistent, regularized counseling.
With trouble makers, first give them a verbal warning and document the incident. If it happens again, have a written form where you explain what happened, and what the expectations are. If it happens again, you might want to consult an attorney but there is now a paper trail.
Make sure any termination is strictly job related and not based on any
personal animosity or prejudice.
The status of workers is very important. W-2 Employees work for you under your control. A whole host of laws and taxes need to be adhered to. 10-99 Independent Contractors have a horizontal business relationship with you. Basically If the company controls the time & manner of the work as well as provides the resources, the law says that is a W-2 worker even if a contract says “1099.”
Monday, November 29, 2010
Entrepreneurs, Welcome to the Law, Part 3
Part 3 is about contracts and how parties litigate over points. Basically, the better the contract you negotiate ahead of time, the stronger your litigation position will be.
Contracts
Any contract can be written from scratch, and any contract handed to you is written to benefit the writer. These are the basics of any contract.
*Keep negotiating until you get each of these.
- Define the duties and standards of performance. In other words, explicitly write down every thing each side has to do. Not only what to do, but how well it needs to be done.
- Define ambiguities, terms, and foreseeable issues. Every business has jargon, special terms, and technical terms. Everything should be clear to both sides. If there is an issue that could come up, define it and the contingency plans. This is what makes contracts so wordy.
- Define the context, inherent risk, and the assumptions of the contract. Risky businesses need a lot of assumptions and calculations. Make sure that both sides understand the nature of the business and how risky it is.
- Clearly set out the pricing structure. Spell out how much money is due, and when it is due.
- Define control and property rights. This is the proverbial baby in the bathwater. This is the cash cow. My be it is a house, the right to live in a house, the right to make money off of a book, or any other set of rights. In addition to the right to money, define the right to have final authority over the property.
- Write duration and termination clauses. When and how either of you can get out of this arrangement must be understood.
- Set forth the process to resolve controversies. A contract or lease is a legal document, meaning it can be enforced in court. You must have a plan for arbitration and litigation. An important part is whether it will be decided in your state, or elsewhere.
-Make sure each party acknowledges in writing that they understand the seven points above.
Primer on Litigation
Documented evidence is the key to all legal disputes. About 95% of all civil lawsuits are settled, and about 95% of all criminal charges are plea bargained. Hardly anything goes to trial. In the settlement negotiations, the side with the most documented evidence has the most leverage.
The practice of law however is geared toward trials. Trials are about proving the elements of various laws. A good example of lawyerly thinking is watching the instant replay of a close call in football. You must show the ball in possession with both feet in bounds. Those are two elements that must be proven, with a receiver being pushed out of bounds an exception. Documented evidence and witness statements are all about proving an element at trial. In a press release, do not admit to an element of a cause of action (law being sued about).
Common lawsuits for a businessperson are “Slip ‘n Falls” torts, wrongful termination, breach of contract, and false imprisonment.
The Media
Reporters are storytellers. They are using you for a controversial story and you are using them for free publicity. There is no such thing as off the record, so make sure everything you say is designed to promote your company’s message.
Contracts
Any contract can be written from scratch, and any contract handed to you is written to benefit the writer. These are the basics of any contract.
*Keep negotiating until you get each of these.
- Define the duties and standards of performance. In other words, explicitly write down every thing each side has to do. Not only what to do, but how well it needs to be done.
- Define ambiguities, terms, and foreseeable issues. Every business has jargon, special terms, and technical terms. Everything should be clear to both sides. If there is an issue that could come up, define it and the contingency plans. This is what makes contracts so wordy.
- Define the context, inherent risk, and the assumptions of the contract. Risky businesses need a lot of assumptions and calculations. Make sure that both sides understand the nature of the business and how risky it is.
- Clearly set out the pricing structure. Spell out how much money is due, and when it is due.
- Define control and property rights. This is the proverbial baby in the bathwater. This is the cash cow. My be it is a house, the right to live in a house, the right to make money off of a book, or any other set of rights. In addition to the right to money, define the right to have final authority over the property.
- Write duration and termination clauses. When and how either of you can get out of this arrangement must be understood.
- Set forth the process to resolve controversies. A contract or lease is a legal document, meaning it can be enforced in court. You must have a plan for arbitration and litigation. An important part is whether it will be decided in your state, or elsewhere.
-Make sure each party acknowledges in writing that they understand the seven points above.
Primer on Litigation
Documented evidence is the key to all legal disputes. About 95% of all civil lawsuits are settled, and about 95% of all criminal charges are plea bargained. Hardly anything goes to trial. In the settlement negotiations, the side with the most documented evidence has the most leverage.
The practice of law however is geared toward trials. Trials are about proving the elements of various laws. A good example of lawyerly thinking is watching the instant replay of a close call in football. You must show the ball in possession with both feet in bounds. Those are two elements that must be proven, with a receiver being pushed out of bounds an exception. Documented evidence and witness statements are all about proving an element at trial. In a press release, do not admit to an element of a cause of action (law being sued about).
Common lawsuits for a businessperson are “Slip ‘n Falls” torts, wrongful termination, breach of contract, and false imprisonment.
The Media
Reporters are storytellers. They are using you for a controversial story and you are using them for free publicity. There is no such thing as off the record, so make sure everything you say is designed to promote your company’s message.
Entrepreneurs, Welcome to the Law, Part 2
Part 2 deals with the burgeoning areas of intellectual property law and social media law.
Intellectual Property
This is a biggie, it is about your legal right to make a profit. “Property” does not mean owning a house. It means the right to use and make money off of something. If your business involves creation or invention, it is intellectual property is fundamental to your business model.
Patents are for technical and scientific designs. Also included are new business processes. You are basically saying to the rest of the business community, that they cannot use this design without your permission, and your permission will cost them money.
Copyrights are for literary and artistic creations, in addition to software code. They last for the life of the author plus 70 years. Once I type something, like a blog post, I own a copyright in how these ideas are expressed. I can best protect my legal and business interests by filing for a copyright. I do not own the ideas or the facts, just how I articulate them.
Trademarks and trade names are about brands. The more unique sounding them name, the stronger legal protection you have, that is why medicines have such weird sounding names. Ironically, having a business name that is good for search engine optimization is bad for having a unique trade name.
*The least an entrepreneur needs to know: intellectual property belongs to the entity that paid for the work to be created or invented.
So if you are in the technology business, you need to merge product development and accounting. Technical documents, lab reports, designs and the like should be coded with the source of the money that paid for that labor. That way you can document what you have done on your own without investors, government, or other business partners. That will give you a stronger hand in controlling your company and the revenues from your products.
Social Media
Social media is by its nature, immediate and informal. But it is in writing and very public. Browsing and posting can very easily violate: employment law, securities law, defamation law, intellectual property law, criminal law, consumer protection law, and tort law. Whoever in the company is authorized to post about the company must be trained.
1. Thou shall not plant false testimonials about your products and services. Any promoting of a product on a blog must include some indication that the blogger was paid by the company.
2. Thou shall not mislead consumers as to the qualities and prices of the products and services you sell; evidence shall set you free. Just like in regular advertising.
3. Thou shall not release information designed to harm a market. Whether you post a false rumor about your company that hurts financial speculation, or causes confusion about consumers, you could get into big trouble by lying online.
4. Licensed professionals shall not give advice that is individual in nature. For example, as a lawyer, I am giving very general advice, not specific to any person.
5. Thou shall not engage in illegal promotion schemes, and take care to adhere in interstate and international laws. Watch out for sweepstakes and raffles and the like.
6. Thou shall not mislead investors and shareholders as to internal and external risks to your company. I cannot stress this enough. If a tweet from your company is inconsistent with anything in the prospectus given to investors, you are asking for a lawsuit.
7.Thou shall not publicize any sale of equity or control of the company. Again, writing publicly about equity, shares, or revenue sharing is technically violating securities laws.
8. Thou shall not release trade secrets. Self explanatory.
9. Thou shall not post the copyrighted, trademarked, or patented material of another.
10. Thou shall not defame. Note, that if you as a business person participate in a discussion or controversy online, you may be losing your “private person” status making it harder for you to sue someone for libel.
*Basically educate your management and employees about law and online social media. Remember the speed with which online posting can be spread...and taken out of context.
Intellectual Property
This is a biggie, it is about your legal right to make a profit. “Property” does not mean owning a house. It means the right to use and make money off of something. If your business involves creation or invention, it is intellectual property is fundamental to your business model.
Patents are for technical and scientific designs. Also included are new business processes. You are basically saying to the rest of the business community, that they cannot use this design without your permission, and your permission will cost them money.
Copyrights are for literary and artistic creations, in addition to software code. They last for the life of the author plus 70 years. Once I type something, like a blog post, I own a copyright in how these ideas are expressed. I can best protect my legal and business interests by filing for a copyright. I do not own the ideas or the facts, just how I articulate them.
Trademarks and trade names are about brands. The more unique sounding them name, the stronger legal protection you have, that is why medicines have such weird sounding names. Ironically, having a business name that is good for search engine optimization is bad for having a unique trade name.
*The least an entrepreneur needs to know: intellectual property belongs to the entity that paid for the work to be created or invented.
So if you are in the technology business, you need to merge product development and accounting. Technical documents, lab reports, designs and the like should be coded with the source of the money that paid for that labor. That way you can document what you have done on your own without investors, government, or other business partners. That will give you a stronger hand in controlling your company and the revenues from your products.
Social Media
Social media is by its nature, immediate and informal. But it is in writing and very public. Browsing and posting can very easily violate: employment law, securities law, defamation law, intellectual property law, criminal law, consumer protection law, and tort law. Whoever in the company is authorized to post about the company must be trained.
1. Thou shall not plant false testimonials about your products and services. Any promoting of a product on a blog must include some indication that the blogger was paid by the company.
2. Thou shall not mislead consumers as to the qualities and prices of the products and services you sell; evidence shall set you free. Just like in regular advertising.
3. Thou shall not release information designed to harm a market. Whether you post a false rumor about your company that hurts financial speculation, or causes confusion about consumers, you could get into big trouble by lying online.
4. Licensed professionals shall not give advice that is individual in nature. For example, as a lawyer, I am giving very general advice, not specific to any person.
5. Thou shall not engage in illegal promotion schemes, and take care to adhere in interstate and international laws. Watch out for sweepstakes and raffles and the like.
6. Thou shall not mislead investors and shareholders as to internal and external risks to your company. I cannot stress this enough. If a tweet from your company is inconsistent with anything in the prospectus given to investors, you are asking for a lawsuit.
7.Thou shall not publicize any sale of equity or control of the company. Again, writing publicly about equity, shares, or revenue sharing is technically violating securities laws.
8. Thou shall not release trade secrets. Self explanatory.
9. Thou shall not post the copyrighted, trademarked, or patented material of another.
10. Thou shall not defame. Note, that if you as a business person participate in a discussion or controversy online, you may be losing your “private person” status making it harder for you to sue someone for libel.
*Basically educate your management and employees about law and online social media. Remember the speed with which online posting can be spread...and taken out of context.
Entrepreneurs, Welcome to the Law, Part 1
As a business attorney, I advise entrepreneurs on how to start businesses. It occurred to me that all business owners need to know the scope of how the law applies to business. This blog post will not teach you the law, it will only clue you in to the types of issues that require an attorney’s advice.
Part 1
Part 1 is about the legal duties and legal relationships you have with others.
If you take out a dollar bill, you will notice on the left side the words “This note is legal tender.” What that means is that when one of those pieces of paper changes hands, the arm of the law applies.
Going into business, you now have a whole bundle of new obligations. Here is a quick overview:
Big Picture
First, figure out your business’ main line activity. It should be aligned with your personal values and your talents. You are offering a good or service that a market (a pool of money) is willing to pay money for.
Next design an organization and contractual alliance that you need to sell your good or service.
Lastly, pick the right legal structure for your organization. Make sure that your personal will, marital agreements, and insurance is aligned with your business relationships.
Financing your business
There are two types of financing. Both have implications for taxes, corporate governance, and intellectual property.
With debt financing, you are getting loans or selling bonds. You still own the company and your payments are regular and predictable. The lender wants a track record to know that they will be paid back.
With equity financing, you are selling a slice of the company for needed capital.
Legal duties of the Other Players
Your Board and Officers- Assuming you are incorporated, these people have a legal duty to be loyal to the company and treat it as if they owned it. This goes for nonprofits.
Investors- They may insist on becoming board members. Nevertheless, know that soliciting investment must be from someone accredited, basically wealthy. So do not ever ask friends of ordinary means to invest in your company. It is technically illegal to even talk about raising money unless it is a serious, private conversation with an accredited investor. Talk to a securities lawyer about starting a business with someone who is unqualified as an accredited investor, as opposed to asking for money later. The law is murky.
All conversations and prospectuses with investors should be done very carefully with guidance from a lawyer.
Employees-Adhere to employments laws discussed below.
Regulators- Make sure you have a good document retention policy. Management needs to make sure your business is operated in a legal way.
Opposing Counsel- Everyone in the company should know not to speak to a lawyer suing the company.
Media/blogosphere- Everyone in the company should know not to talk to reporters and to report any internet rumors to the PR person. Social media has its own discussion below.
Marketing, Your Duties to Consumers
Do not mislead consumers and be able to back up all claims. Do not lie or stretch the truth in writing. It is easy to slip up on a social media site.
Duty to Customers and the public
Have you ever noticed in a grocery store whenever someone spills juice on the floor, the workers immediately clean it up? They know that by opening their doors to commerce, they have a duty to keep their place of business safe. This they are liable for a slip and fall.
The same duty extends to the goods you sell. If you are a deli, and the bread you sold to a customer came from the wholesaler with poison, you are liable being in the stream of commerce.
Lastly, if your business involves a dangerous activity, you owe a duty to follow regulations and to be safe.
Part 1
Part 1 is about the legal duties and legal relationships you have with others.
If you take out a dollar bill, you will notice on the left side the words “This note is legal tender.” What that means is that when one of those pieces of paper changes hands, the arm of the law applies.
Going into business, you now have a whole bundle of new obligations. Here is a quick overview:
Big Picture
First, figure out your business’ main line activity. It should be aligned with your personal values and your talents. You are offering a good or service that a market (a pool of money) is willing to pay money for.
Next design an organization and contractual alliance that you need to sell your good or service.
Lastly, pick the right legal structure for your organization. Make sure that your personal will, marital agreements, and insurance is aligned with your business relationships.
Financing your business
There are two types of financing. Both have implications for taxes, corporate governance, and intellectual property.
With debt financing, you are getting loans or selling bonds. You still own the company and your payments are regular and predictable. The lender wants a track record to know that they will be paid back.
With equity financing, you are selling a slice of the company for needed capital.
Legal duties of the Other Players
Your Board and Officers- Assuming you are incorporated, these people have a legal duty to be loyal to the company and treat it as if they owned it. This goes for nonprofits.
Investors- They may insist on becoming board members. Nevertheless, know that soliciting investment must be from someone accredited, basically wealthy. So do not ever ask friends of ordinary means to invest in your company. It is technically illegal to even talk about raising money unless it is a serious, private conversation with an accredited investor. Talk to a securities lawyer about starting a business with someone who is unqualified as an accredited investor, as opposed to asking for money later. The law is murky.
All conversations and prospectuses with investors should be done very carefully with guidance from a lawyer.
Employees-Adhere to employments laws discussed below.
Regulators- Make sure you have a good document retention policy. Management needs to make sure your business is operated in a legal way.
Opposing Counsel- Everyone in the company should know not to speak to a lawyer suing the company.
Media/blogosphere- Everyone in the company should know not to talk to reporters and to report any internet rumors to the PR person. Social media has its own discussion below.
Marketing, Your Duties to Consumers
Do not mislead consumers and be able to back up all claims. Do not lie or stretch the truth in writing. It is easy to slip up on a social media site.
Duty to Customers and the public
Have you ever noticed in a grocery store whenever someone spills juice on the floor, the workers immediately clean it up? They know that by opening their doors to commerce, they have a duty to keep their place of business safe. This they are liable for a slip and fall.
The same duty extends to the goods you sell. If you are a deli, and the bread you sold to a customer came from the wholesaler with poison, you are liable being in the stream of commerce.
Lastly, if your business involves a dangerous activity, you owe a duty to follow regulations and to be safe.
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