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Preventable Losses from a Business Perspective

Ertl and kistemaker preventable losses from a business perspective

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Page 1: Ertl and kistemaker preventable losses from a business perspective

Preventable Losses from a Business Perspective

Page 2: Ertl and kistemaker preventable losses from a business perspective

Do you have the proper legal protection for doing business?

Know the different between a:

Sole proprietor

Partnership

Limited Liability Company (LLC)

Corporation (C Corp and S Corp)

Page 3: Ertl and kistemaker preventable losses from a business perspective

owned and run by one individual (or married couple)

no legal distinction between the owner and the business

The owner receives all profits (subject to taxation specific to the business)

Owner has unlimited responsibility for all losses and debts.

Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's.

owner has no less liability than if they were acting as an individual instead of as a business.

Page 4: Ertl and kistemaker preventable losses from a business perspective

General Partnerships In a general partnership, each partner can incur obligations on

behalf of the partnership, and each assumes unlimited liability for the partnership's debts. ◦ For example, if the partnership owns a truck, and the truck strikes and injures a

pedestrian, each partner is personally liable for any damages or judgments.

Limited Partnerships Usually one general partner (although there can be more). The other partners are called “limited partners.” The general partner has full management responsibility runs the

day-to-day operations of the business = they wield most of the power but they also bear the lion’s share of the liability.

A limited partner cannot incur obligations on behalf of the partnership and does not participate in the firm's daily operations or management. (usually involves nothing more than making an initial capital investment in exchange for a share of the firm's profits.) (cannot exceed their financial contribution to the partnership). ◦ So, if a truck owned by a limited partnership accidentally injures someone, the

damaged party could go after the general partner’s personal assets but could only go after a limited partner’s actual investment in the partnership.

Page 5: Ertl and kistemaker preventable losses from a business perspective

Personal liability protection for owners

Can spread profits between the owners and the corporation to lower the effective tax rate

Formal meetings and corporate minutes

Annual state reports

No membership restrictions

Page 6: Ertl and kistemaker preventable losses from a business perspective

Personal liability protection for owners

Income/loss passed directly to shareholders

Formal meetings and corporate minutes

Annual state reports

Membership restricted to 100 shareholders

Page 7: Ertl and kistemaker preventable losses from a business perspective

Personal liability protection for owners

Income/loss passed directly to members

Option to be taxed as corporation or LLC

Annual state reports

No membership restrictions

Page 8: Ertl and kistemaker preventable losses from a business perspective

Choose a name.◦ A good name should be unique, yet tells what kind of business you are doing.

Make a choice on what type of company you want to form.

Incorporate if you have decided to be a Corporation or LLC with the State

If you are going to d Do Business As or under a name different in any way than your corporate entity name then you need to register your DBA with the state. ◦ This includes if you intend not to use the “Inc.” or “LLC” part of your corporate name in your

advertising or in your day to day business.

Register with the IRS to obtain a Federal Employer Identification Number – also called your FEIN or EIN. This is your entities “social security” number and a must have to do business, open a bank account, etc.

Obtain an occupational license from the county and/or city in which your business is located.

Bank Account: You are required to have a bank for the LLC or corporation. All monies coming in and going out must go through the company bank account.

Page 9: Ertl and kistemaker preventable losses from a business perspective

If you are going to have an employee sign a non-compete non-solicitation contract understand what those are.

The contract must be signed by the person you are seeking to enforce the restriction against.

Items to consider:

◦ Geographic Limitations

◦ Time Limitations

◦ Exceptions

Page 10: Ertl and kistemaker preventable losses from a business perspective

Generally, an employer may prohibit a former employee from competing within a particular geographic radius.

The radius, however, should not be overly broad.

Generally 30-60 miles or the counties within which you do business is reasonable.

◦ For example, if the employer provides a particular product or service that is commonly available, a court would likely find a restriction that covers the entire state in which someone resides unreasonable.

◦ If the particular product or service is extremely unique, perhaps a state-wide, even a multi-state regional restriction may be enforced.

◦ Most commonly, our firm has encountered non-competition agreements that restrict a former employee from competing within the same county where the former employer is located.

Page 11: Ertl and kistemaker preventable losses from a business perspective

An employer may prohibit competition for a reasonable period of time following termination

of employment.

Generally, as to employees, agents or independent contractors not associated with the sale of a business Florida courts presume a restriction of 6 months or less reasonable and anything more than 2 years unreasonable

There are similar but different restrictions as to distributers, dealers, franchisee or licensees.

Similarly, the courts allow for longer time protection if the restrictions is agreed upon in conjunction with the sale of a business.

Page 12: Ertl and kistemaker preventable losses from a business perspective

While non-competition agreements are generally enforceable in Florida, some professionals are exempt from certain types of restrictions for various public policy reasons.

For example, a law firm could not lawfully prohibit a client from continuing to retain a particular attorney, even if that attorney left the law firm and started his/her own practice nearby.

Although attorneys, like some other professionals, would be exempt from such a limitation, they may still be restricted from soliciting other clients, patients, or patrons of their former employers.

Page 13: Ertl and kistemaker preventable losses from a business perspective

A non-competition agreement is a type of "restrictive covenant" and often referred to as such. The terms "non-compete" or "covenant not to compete" are also commonly used to refer to restrictions on competition following termination of employment.

Confidentiality agreements are another type of restrictive covenant that relate to the protection of a company's proprietary and/or confidential information, such as trade secrets, client lists, marketing materials, etc.

Trade secrets, in particular, may be reasonably protected for a period of 5 years. A time period of more than 10 years pertaining to trade secrets is presumed unreasonable.

Overall, employers and employees should use caution in dealing with non-competition agreements, because court awarded damages may be extensive. Courts are also permitted to award attorneys' fees/costs to a prevailing party, even absent or contrary to a contract provision providing or limiting the same.

Page 14: Ertl and kistemaker preventable losses from a business perspective

Very important for any size business to consider and review what the assets of their company are –most often they are intellectual property or other non-tangible assets.

Page 15: Ertl and kistemaker preventable losses from a business perspective

Trademarks protects a word, phrase, name, symbol, design, or combination.

They are used to identify and distinguish a product from others, such as in the use of trademarking a band logo or church name or service.

Servicemarks are similar but they distinguish the source of a service instead of a physical product.

For example, a band’s name would be a servicemark, distinguishing between providers of entertainment services.

The term “trademark” is often used to describe both kinds of marks, i.e. both trademarks and servicemarks.

If you claim the rights to a trademark, and have not yet registered your make with the United State Patent and Trademark Office, you may use the ™ symbol.

After registering your mark with the USPTO, you are entitled to use the ® symbol.

Page 16: Ertl and kistemaker preventable losses from a business perspective

A copyright protects works of authorship fixed in any tangible medium of expression, such as a musical composition, novel, or sound recording in a CD.

Copyrights pertain only to the following works:

literary works;

musical works, including any accompanying words;

dramatic works, including any accompanying music;

pantomimes and choreographic works;

pictorial, graphic, and sculptural works;

motion pictures and other audiovisual works;

sound recordings; and

architectural works - (etc. floor plans)

Page 17: Ertl and kistemaker preventable losses from a business perspective

Copyright owners have the exclusive right to: Reproduce the work: Only copyright owners can make copies of their work in any

variety of formats. Prepare derivative works: Examples of derivative works include an arrangement of

a song, language translation, or screenplay for a film based on a novel. Distribute copies: A work is distributed when it is made available to the public. Perform the work publicly: Whether it is a song, a dance, or a staged reading, only

the copyright owner may perform the work in public. For music, this includes public performance, whether in a concert venue, radio and TV broadcast, and digital audio transmission, or streaming.

Display the work publicly: Art displays, sculptures, song lyrics, and the individual images of a motion picture all constitute a public display.

Perform a digital sound recording. A digital recorded work is performed or played and transmitted digitally, as on internet radio.

Copyright owners also have the exclusive right to license or allow third parties to use their copyrights in the ways outlined above.

Copyright notices appear as: © Date of First Publication, Copyright Owner Name

Page 18: Ertl and kistemaker preventable losses from a business perspective

Trade secrets are information that companies keep secret to give them an advantage over their competitors.

A great example is the formula for Coca-Cola.

Trade secrets are not protected by intellectual property law the same way that trademarks or patents are.

Protection for trade secrets is done by non-disclosure agreement, stating the information must be kept confidential.

Companies often use non-disclosure agreements (NDA) to keep their trade secrets safe.

It is very common for Employees often have to sign an NDA.

Page 19: Ertl and kistemaker preventable losses from a business perspective

The importance of reviewing contracts with:

Customers

Vendors

Employees

We have seen sophisticated publically traded companies with errors like the wrong party being named in a contract and those simple mistakes have severe implications

Page 20: Ertl and kistemaker preventable losses from a business perspective

Then you probably use an invoice.

If you don’t utilize contracts –make sure your invoice has the important legal terms and provisions on the back b/c that becomes your contract

Have your customers sign the invoice. There could be the issue of consent if you don’t’ have your customers sign the invoice.

Page 21: Ertl and kistemaker preventable losses from a business perspective

Do your invoices match your contracts?

If not – it can create a conflict --- if you use both, then make sure your terms and conditions match –

If your Contract and invoice do not match then you will create a questions as to which takes precedent and what you thought was clear and enforceable may not be.

Page 22: Ertl and kistemaker preventable losses from a business perspective

How do you know you will get paid?

You need to review your contracts and invoices to make sure you have provided for: Attorneys fees and costs Late fees and interest Clear due dates

If there is a payment over time consider an acceleration clause if payments are not timely.

Are you someone entitled to a construction lien? Do you know the deadlines? Know your legal rights!

Do you have a collection procedure? Every business should have a policy as to when late notices are sent and as to

when you send the matter to your attorney. A defined policy that is followed by all will ensure no one slips through w/o payment.

Page 23: Ertl and kistemaker preventable losses from a business perspective

If you do all or even just some of what has been presented to you today, you can greatly minimize your legal and thus

financial risks.

Scan with your smartphone

(386) 310-7997Check out our website

www.e-kbusinesslaw.com

Facebook/ekbusinesslawTwitter: @daytonabizlawBlog: daytonabizlaw.com