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Start Protecting your Business in the Early Stages of Planning

Author: Krystal Chapin

September 22nd, 2014

In order to position oneself to reach the highest level of success and benefits available from starting your own business, it is important to begin with a solid foundation. Starting up a business is not something that can be done overnight: months, sometimes years of planning must take place before an adequate model is in place. The majority of business owners will pronounce their support for involving a lawyer during these crucial planning stages. The result could save you hassles and money later on. There are various different legal issues you can plan for before you get your business off and running.

One of the most important business decisions an owner will make initially is whether or not to incorporate or form a limited liability company (LLC). It is important to realize that if your business is not in one of these two structures, you will be subject to personal liability for the debts of your business. With a corporation or LLC, your losses are protected to be limited to the amount of your investment in the business, rather than your personal losses exceeding the investment. If you decide that a partnership is a more suitable business plan, you will be in need of a partnership agreement. This document will cover the rights and responsibilities of the parties involved, as well as address in advance, the countless scenarios that may arise.

Many businesses arise due to the creation of a product or idea. If this is the case for your business, it may be imperative that you get a patent to protect any inventions or new processes that your business will use. Without these useful licensing documents, your competitors are likely to replicate and benefit from your idea. It may also be the case that a business owner will want to trademark the name of their business or product. Corporate and Business Law lawyers are well versed in these processes and can make sure your business is legally protected from harm.

Lastly, most businesses are not a one-man-show; they require the time and dedication of numerous employees. The terms of employment for workers are an important aspect of a business plan that should not be overlooked. Internal and external relationships the business will formulate will undoubtedly create the need for many contracts to protect the owner and business from confidentiality breaches and other definite risks. The bigger the impact of the contract is, the more vital it becomes that a lawyer participate in its formation and negotiation.

At HoganWillig, our corporate and business law team knows that business owners and entrepreneurs operating in New York State face a multitude of legal issues. Our goal is to provide practical, useful advice that proves to you the value of engaging corporate legal counsel. We provide a wide variety of legal services to our business clients, from formation to dissolution and everything in between.

Supreme Court Hobby Lobby Ruling: Beyond Birth Control

July 3rd, 2014

On Monday, June 30th, a divided Supreme Court ruled that closely-held, for-profit corporations are not legally obligated to provide contraception coverage to their female employees.  Initially, the case began when Hobby Lobby, a Christian-owned craft supply chain, and Conestoga Wood, a Pennsylvania-based and Mennonite family-owned wood manufacturer, decided to challenge the contraception mandate included in the Affordable Care Act.  They argued that complying with the mandate, which requires companies to provide birth control to female employees at no cost, violates their religious freedom by forcing them to pay for contraception methods that they are morally opposed to.  They argue that certain forms of birth control, such as intrauterine devices and emergency “morning after” pills, too-closely resemble abortion because they could prevent a fertilized egg from implanting.

Prior to the ruling, the Obama administration had already granted an exception for churches, and had made accommodations for religious hospitals, schools and non-profits.  For-profit corporations were still required to either comply with the coverage rule or pay a fine.  Now, the Supreme Court’s decision expands the contraception mandate exception to encompass for-profit corporations that are religiously-held.  However, this exception applies to birth control only, and does not give religious employers the ability to refuse to cover other medical services that they might object to, such as vaccines or blood transfusions.

The majority opinion was authored by Justice Samuel Alito, who stated that within the Affordable Care Act, the Obama administration failed to demonstrate that the mandate was the “least restrictive means of advancing its interest.”  However, many believe that this ruling opens the door to a wide range of issues in the future on the grounds that a for-profit company can obtain a religious exemption, essentially allowing the employer to pick and choose which portions of the law to follow.  Justice Ruth Bader Ginsburg filed the dissenting opinion, asserting that the decision is less narrow and more far-reaching than the majority suggests: “In a decision of startling breadth, the Court holds that commercial enterprises, including corporations, along with partnerships and sole proprietorships, can opt out of any law (saving only tax laws) they judge incompatible with their sincerely held religious beliefs.”

The ruling may blur the lines of religious freedom rather than clarify them.  Some are concerned about the ruling’s enhancement of “corporate personhood,” as it recognizes that a company itself can have a religious identity, which in turn affects its employees.  Further, the decision may complicate many citizens’ decisions about their healthcare coverage.  While it has always been typical for people to rely on their employers for healthcare plans, as companies acquire an increased say over the coverage they offer, Americans may look elsewhere, on their own.  Thus, the Hobby Lobby case may give rise to subsequent decisions on religious freedom, civil rights, corporation status, and healthcare in the not-so-distant future.

When is an unpaid internship illegal?

June 26th, 2014

During the summer months, thousands of college students and recent graduates flock to companies and organizations for internships in the hopes of bolstering their resumes.  About half of these positions do not offer the students any compensation.  Although there is a mutual benefit in the tradeoff between experiential learning for the students and free labor for the organization, there is growing concern within the workforce that many of these unpaid internships are illegal in their failure to comply with wage and hour law.

Non-profit organizations are less likely to incur violations because people can legally do unpaid work for them in the form of volunteerism. However, the U.S. Department of Labor warns for-profit companies that it is difficult to establish unpaid internships that comply with the law.  Companies often rely on summer programs as a “trial run” to determine whether or not they want to offer the student a full-time position post-graduation, and students with high hopes of getting these coveted job offers are unlikely to complain about working for free. For these reasons, violations of labor law are widespread in the realm of summer internships, but difficult to identify or stop.

Generally speaking, if the intern derives a greater benefit from the unpaid internship than the company does from the free labor, the internship can be considered legal.  For example, the completion of summer internships satisfies academic credit requirements for many colleges.  However, if the employer is the “primary beneficiary” of the intern’s labor, the intern should be compensated at least minimum wage and be covered by the protections of federal wage and hour law.  The Labor Department offers these six rules for employers establishing unpaid internships:

  1. They must give training similar to that of an academic or vocational institution
  2. They must not displace existing workers
  3. They must give prime benefit to the intern
  4. They must not give immediate advantage to the employer
  5. They do not promise a future job
  6. There is a mutual understanding that the position is unpaid

If you or your organization has any questions or concerns about the legality of unpaid internship programs, please call the offices of HoganWillig at (716) 636-7600.

Changes to New York Law Impacting Not-for-Profit Corporation

Author: Kevin Mahoney

May 19th, 2014

Towards the end of December, 2013, the Governor signed the “New York Non-Profit Revitalization Act of 2013″ which contains a number of changes primarily to the Not-for-Profit Corporation Law most of which become effective July 1st of this year. Changes to the law can impact your company based on a number of different factors, such as its size and purpose. The following are some highlights that may affect your company.

  1. There used to be four classification types based upon an organization’s purpose (A-D). The statute now uses a different characterization scheme, where not for profit corporations are classified as being either “charitable” or “non-charitable.” This classification change has occurred automatically and your organization does not need to file any new paperwork in that regard.
  2. The Attorney General is granted some new enforcement powers which in large part relate to preventing improper private benefits at the corporation’s expense. Preventing improper transactions as a result of conflicts of interest is certainly a focus of this legislation. The take away for your company is that it is important for you to document your process relative to significant transactions in order to be able to prove that you have complied with the law, that your transactions were appropriate, and also to assist your company should the Attorney General’s Office become involved in reviewing your transactions.
  3. All Not-for-Profit Corporations need to adopt a conflict of interest policy unless one already exists. That policy needs to have six main components:
    • Define the circumstances that constitute a conflict of interest;
    • Provide the procedure for disclosing conflicts of interest;
    • Prohibit the person with the conflict of interest from being present at or participating in deliberations on the matter;
    • Prohibit any attempt by the person having the conflict to improperly influence deliberation or voting on the matter;
    • Require that the resolution of the conflict being documented in the corporate records; and
    • Provide procedures for disclosing, addressing and documenting conflict of interest situations.
  4. Additionally, every director (board member) must submit annually a disclosure statement to the Board identifying any relationships or transactions which may give rise to a conflict of interest.
  5. Your organization may enter into transactions with “related parties” (defined as including any director, officer or key employee, a “relative” which extends to great grandchildren) as long as it has been determined by your governing body that the transaction is fair, reasonable and in the best interests of your company. To the extent that there is a “substantial financial interest” in this transaction by the “related party,” the company also must consider (1) available alternatives to the extent possible, (2) approve the transaction by a majority vote; and (3) at the same time document the basis for the approval including the consideration of alternatives.
  6. There is a prohibition now that committees for the corporation (those including non-directors) shall not have the authority to bind the board or the company. To the extent that your company had delegated that level of authority to a committee, it should be re-structured so the final decision resides with the board or the company.
  7. The financial threshold for required CPA reviews and/or audits have also been amended. Ultimately, your fiscal year gross revenue determines what would be required of your company.
  8. There is a “whistleblower policy” requirement for not for profit corporations that have twenty or more employees and, in the prior fiscal year, had annual revenue greater than one million dollars.
  9. There were some changes to allow certain board and member activities to be dealt with via fax or email. Board members are permitted to participate in board and committee meetings via video conference or other forms of video communication.
  10. Additionally, meeting notices and waivers of meeting notices will also be permitted to occur by fax/email. As you may know, the Not-for-Profit Corporation Law currently requires that a written notice of any meeting where any action is to be taken be provided to each member stating the place, date and time of the meeting. That notice currently needs to be provided personally (via hand delivery) or by mail. As of July 1, 2014, those notices can be provided by facsimile or email. Please note that those are the only acceptable forms of providing the notice. In other words, a listing of meeting dates in a Bylaw or policy, a posting on a bulletin board or a message on Facebook does not constitute personal, mail, fax or email notice. Generally, a notice must be provided at least 10 days, but not more than 50 days, before the meeting depending upon the type of meeting. It also should state what action(s) may be taken at the meeting, as well as who has called for it.

That meeting notice may be waived by any member either in person or by proxy before or after a particular meeting. After July 1, 2014, that waiver of notice may be written or provided by email or facsimile.

Of course, whether or not the actions of your company ever come under review is something only time will tell. Nonetheless, it only makes sense that the law is followed so that those actions are authorized and then not likely to be disturbed.

This is a general summary of some of these recent changes. There are more detailed requirements contained in the law so they should be consulted in greater detail. If you have questions or concerns relative to these changes and how they impact your company, please do not hesitate to contact the offices of HoganWillig at (716) 636-7600.

Taking Steps to Ensure that Your Business is “Divorce-Proof”

April 25th, 2014

Parting ways with your spouse does not necessarily mean divorcing your business.  In an ideal situation, you and your spouse hopefully agree that it is in both of your best interests to preserve the business so that it continues to provide income.  In a divorce, a privately-held business can be a significant portion of the marital assets.  As a result, it may be subject to division in the settlement and, without the proper arrangements, could be liquidated or fragmented.

There are several important steps that you can take to “divorce-proof” your business.  Perhaps most importantly, a prenuptial agreement drafted by a family law attorney is a crucial precaution, as it clearly identifies the business as your separate property, rather than as marital property; if you are already married, a postnuptial agreement may do the same.  It is also advisable to visibly position the business as your employer, and keep all business-related finances separate from your personal finances.  Buy-sell agreements can also be useful in preventing claims on the business by your spouse.

Protecting your business in the event of a divorce falls under the same category of important preventative measures as property insurance and liability insurance.  Including a defense against divorce is a wise step in constructing your long-term business plans.  If you have any questions or would like to speak with a family law or corporate attorney, please do not hesitate to call HoganWillig at (716) 636-7600.

CVS Lawsuit could Pose Major Changes to Tight Severance Contracts

March 29th, 2014

When companies downsize, they rely on severance agreements to shield themselves from the threat of lawsuits.  Among other legal components, severance contracts typically include a general release of claims, a non disparagement clause, and a covenant not to sue.  By agreeing not to sue their former employer, the departing individual receives money and/or other benefits.

However, some argue that these contracts are too tight; more specifically, the Equal Employment Opportunity Commission is pointing the finger at CVS, the country’s second-largest drugstore chain.  The EEOC, which is a federal agency mandated to enforce laws against bias in the workplace, is suing CVS for having an “overly broad” and “misleading” severance agreement, which according to the EEOC could impede workers from exercising their rights under job discrimination laws.

Regardless of whether or not an employee has signed a separation agreement, he or she still has the right to file a complaint with the EEOC if discrimination or wrongful termination occurred.  Further, a severance agreement cannot prevent a former employee from participating in an EEOC investigation.  The point of issue in this case arises where the EEOC believes that the misleading language contained in CVS’s severance contract discourages departing employees from exercising these rights, and that agreements of this nature can be very confusing to individuals who are stressed about job loss.  For many, there exists a conflict between a non disparagement clause, and the desire to bring charges with the EEOC.

If the Equal Employment Opportunity Commission wins this case, companies will undoubtedly be forced to take another look at the language within their severance contracts.

If you have questions regarding your rights as an employee, please contact HoganWillig at (716) 636-7600.

Choices in starting or running a business

Author: Leonard London

March 7th, 2014

When starting a business you will face many choices, one of which is the form of entity to be used. Choosing the best entity involves many considerations including limited liability, partnership issues, public perceptions and tax considerations. The considerations for each business are different and must be evaluated in order to reach the best decision. What might be best for a lemonade stand probably would not be best for a machine shop. The possibilities include:

  • Sole proprietorship using owner’s name
  • Sole proprietorship using assumed name
  • Partnership using owners’ names
  • Partnership using assumed name
  • Limited Partnership
  • Limited Liability Partnership
  • C corporation
  • S corporation
  • Limited Liability Company-disregarded entity
  • Limited Liability Company-partnership
  • Limited Liability Company electing to be classified as a C corporation
  • Limited Liability Company electing to be classified as an S corporation.

The attorneys at HoganWillig are prepared to help you sort through the choices in order to determine which type of entity is best for your business.


We Practice Law for Your Peace of Mind