Law as a Widget (LaaW)

Minimum Document Checklist for New LLC’s and Corporations

Posted by | Startup | April 14, 2016

Disclaimer: Obviously, this blog does not provide legal advice. How do you know? This is free. Legal advice you have to pay for.

It's not easy to know which business documents you need for your new LLC or corporation.

It’s not easy to know which business documents you need for your new LLC or corporation.

One of the largest problems we see when new clients come in is that they are lacking even the most basic legal documents for their business. Considering how many free or low cost legal templates are online, there is no excuse for not having the minimum to keep your business legal. It is difficult for us to help after something goes wrong when there has been no foundation laid.

Here’s a great example, a business comes in after being sued. The business is small and doesn’t have a lot of money, so the plaintiff wants to go after the business owner. Typically the corporation or LLC is supposed to protect the owner in this case. However, often courts will look at the documents and see that they are incomplete, or not kept up. In that case, they will say that the corporation or LLC is void and the owner is the defendant. They call this piercing the corporate veil.

So here is a list of the absolute minimum documents you need to have in order to keep your business legal. Without these, your company is not providing you with sufficient protection:

Corporation

  • Articles of Incorporation
  • Bylaws
  • Initial shareholder meeting minutes
  • Initial directors meeting minutes
  • Stock Purchase Agreement
  • Company receipt for contributions
  • Owner receipt for shares
  • Annual report
LLC

  • Articles of Organization
  • Operating Agreement
  • Initial member meeting minutes
  • Member interest purchase agreement
  • Company receipt for contributions
  • Owner receipt for interest
  • Annual report

 

Recommended:

  • Indemnification Agreement
  • Buy Sell Agreement
  • Non-disclosure Agreement (NDA)
  • Executive Employment Agreement
  • Employment Agreement
  • Independent Contractor Agreement
  • Business Plan
  • Online Terms and Conditions
  • Privacy Policy
  • Intellectual Property Transfer Agreement

 

Of course, our LLC and corporation packages include all of your minimum documents and even a few from the recommended list to make sure your business is off to a strong start.

 

Photo by imagerymajestic at freedigitalphotos.net

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Don’t Let this New Credit Card Law Hurt Your Business

Posted by | News | October 01, 2015

The Important Law Change Affecting Small Businesses

The new PIN credit card reader.

Businesses need to have the new PIN credit card readers to avoid liability for fraudulent cards.

Today a new law goes into effect that may change the nature of your business if you accept credit cards. This major change in credit card liability is impacting small businesses across the U.S. Even if you don’t accept credit cards on a regular basis, it’s still important to know in case you plan to do so in the future. Beginning today, October 1, 2015, a new law requires credit cards to have special chips that enable PIN numbers. The credit card companies are already issuing these, and you might have even received one.

Here’s the catch – businesses must get new credit card readers by today. What happens if you don’t switch to the new readers?

You know how credit card companies will take a fraudulent charge off your bill? That’s because they accept liability for security and have to eat the costs if someone fraudulently uses your credit card. However, if a business does not switch to the new card readers by October 1, then that business takes on the liability for fraudulent charges instead of the credit card company.

In other words, if you sell something and it turns out that purchase was fraud, then you’re not getting paid. This will hit retail shops and restaurants especially hard since they make lots of transactions.

Small Businesses are at Risk

A recent study found that nearly two-thirds of small businesses were not ready for the October change, so I wanted to make sure you were aware. It’s a potentially very large burden for a business to take on and could really affect the bottom line. Fraudulent credit cards are expected to amount to $3.6 billion in losses this year. Victims include about 10% of all U.S. small businesses. Not only are you losing a percentage of each sale to the credit card companies, but they’re not even taking on the risk of fraud any more.

What should you do?

Get a new credit card reader ASAP. Intuit, Square, and CapitalOne all sell the new card readers. At one point, Square was offering a limited number of free ones, but I’m not sure if that is still happening. And share this post with anyone you know that processes lots of credit cards and might be at risk.

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Is Reg A+ Crowdfunding for You?

Posted by | Crowdfunding, LaaW TV | July 28, 2015

The SEC finally passed some equity crowdfunding rules, but they come with some quirks. Is this the best method for your business to raise money? We take a look at the regs and discuss whether they are a good fit for your business.

For more on how these new rules work, check out our blog here.

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Selfies are Not Security

Posted by | Privacy, Security | July 13, 2015

It’s so hard to reach the kids these days, what with their internets and their Facepages. But Mastercard is going to try anyway. After all, what product is better for the young ones than unmanageable credit. Now they want to make “selfies” the new way to verify your identity using facial recognition verification software. It’s the perfect blend of pop culture meets privacy creepiness.

To make it better, the technology is not secure. Previous attempts at this software were breached when users drew animated eyes on photographs to overcome the “blink” commands. So why would they do this?

According to their security expert, “The new generation, which is into selfies… I think they’ll find it cool.”

To quote the kids these days, “I can’t even…”

BBC – Mastercard testing facial recognition security app

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The Problem with the Sole Proprietor

Posted by | Startup | June 29, 2015

Most businesses in the United States are run by sole proprietors. A sole proprietor is simply someone who operates their own business, but does not have a partner and never bothered to create a corporation or LLC. Most businesses use this model because it’s free and doesn’t require any paperwork. However, the easy road is never the best road when it comes to running your business.

The main problem with being a sole proprietor is that you are personally liable for anything your business does. If your business had some creditors you couldn’t pay or someone were to sue you, then they could take your business, your house, your car, and your dog (well, maybe not the dog). Creating an LLC or corporation protects your personal assets, dog included. This limits your liability to only the things that are part of the company.

In the business world, sole proprietors are usually frowned upon. First, having a registered company makes your business look more professional, and that can lead to increased activity. Second, many see it as a reflection on your work ethic and desire to succeed. If you can’t be bothered to cough up the small costs and paperwork associated with registering a company, then you’re thinking small and may not do the work necessary for your clients and customers.

Finally, investors won’t touch you. Investors want to see structure and purpose, and an understandable way to invest. Sole proprietors are simply asking for money to put in their bank account. This significantly limits your growth potential.

So it’s time to think big. Creating an LLC or an S-Corp doesn’t cost much, provides significant protection to your personal stuff, and makes you look like a real business. How can professionalism, investment, and increased sales hurt?

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Who Works for Uber?

Posted by | Employment, Sharing Economy | June 18, 2015

California Says that Uber Drivers are Employees, Not Contractors

Ride-sharing app Uber hit a major speed bump. The California Labor Commission ruled that its drivers are employees, not independent contractors. Uber was ordered to pay $4,000 to a driver for mileage and tolls. While that’s nothing for a company valued at $50 billion, this seemingly small distinction over what to call its drivers could mean significant changes in Uber’s business structure, and tons of money. It could also shake up the whole sharing economy just as it’s being created.

Employee vs. Independent Contractor

The difference between an employee and an independent contractor is very important for any business. The hard part is that the business does not get to choose how their workers are classified. And that classification is measured largely by the amount of control the employer has over the worker. If an employer controls the hours, wages, type of work done, and other things then the worker is likely an employee. If the worker has his own business, makes his own hours, and is paid a flat fee, it’s likely he’s an independent contractor. This distinction has a major impact on the business. The business must pay for its employees’ supplies, healthcare, withhold taxes from paychecks, and take on legal liability for the employees’ acts. An independent contractor must pay its own taxes, cover its own supplies, and is liable for their own acts.

Uber Drivers are Employees

The Commission looked at Uber’s business model and determined that Uber is “involved in every aspect of the operation.” Specifically, Uber sets rates, chooses drivers based on standards, and can fire drivers. This amount of control suggested to the Commission that the drivers were employees, not independent contractors like Uber argued. For Uber, that means it may have to pay for its drivers’ gas, car maintenance, tolls, healthcare, workers compensation, and taxes. Multiply that by more than 160,000 active drivers and you’ve got some significant costs. The driver who filed the suit only drove for a few months, and Uber had to pay her $4,000 in mileage and tolls. The Commission isn’t the only one that determines the employee/independent contractor question. The IRS is the most diligent watchdog on this matter, and courts are often involved. Florida’s unemployment agency has also ruled that Uber drivers are employees, and a court in San Francisco is considering the same question regarding tips.

Sharing Economy or Just a Company Exploiting Workers?

Ultimately, this affects not just Uber and ride apps, but the sharing economy as a whole. The entire structure is based on the independence of those doing the work from the companies that bring them together with buyers. If that relationship is undermined, then these companies are nothing more than giant corporations with a large workforce – just like everyone else. WashPo – Uber Diver is an Employee

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NOEW Pictures

Posted by | News | May 16, 2015

New Orleans Entrepreneur Week

A couple months ago I gave a presentation at the New Orleans Entrepreneur Week (NOEW). The talk was called “Cover Your Assets: Asset Protection for the Small Business.” The talk went great and I got to meet some amazing people with some awesome businesses. Thanks to the Idea Village for putting this on and inviting me to participate. Finally got some pictures so I thought I would share them.

NOEW1 NOEW2 NOEW3

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How to Raise $50 Million from the People Around You

Posted by | Crowdfunding | April 01, 2015

Disclaimer: Obviously, this blog does not provide legal advice. How do you know? This is free. Legal advice you have to pay for.

New SEC Rules Open Equity Crowdfunding to Start-Ups

equity crowdfunding

The SEC dropped a bombshell last week when it announced changes to its Regulation A, small public offerings rules (often called “Reg A+”). While that may sound like boring dense legalese, pay attention. The new rules essentially allow your company to raise up to $50 million (that’s right, million) through equity crowdfuning. Some are calling this the mini-IPO.

sec reg A+ allows equity crowdfundingWhat is Equity Crowdfunding?

Equity crowdfunding is essentially where you allow anyone to invest in your company in small bits. They get a stake in your growth, and you get a pile of money. Until now, that trade-off had a number of significant legal hurdles. For example, you could only advertise to accredited (read: rich) investors, and you had to file with the SEC and any state you wanted to fundraise in. A nation-wide effort could mean 50 different securities filings. This SEC rule removes a number of those hurdles.

How This New Rule Works

So what does it do exactly? It modifies Reg A+ by raising the total amount you can raise from $5 million to $50 million. It then creates two tiers of fundraising. Tier I is limited to $20m, and Tier II can go up to $50m. Both can advertise and attract unaccredited inventors (read: not rich).The differences are in what is required of each tier. Tier II can raise up to $50m. However, there are increased reporting requirements and you have to get your past years’ financials audited. That can be pretty expensive. Investors are also limited in how much they can invest (based on their income or net worth). On the other hand, a Tier II campaign only files with the SEC, not all the other states. That’s a huge savings if you’re raising money across the country. Tier I only raises up to $20m (“only!”), and you don’t need your financials audited. An accountant’s review is enough. However, you will need to register with the states and the SEC. If you’re looking at raising nation-wide, this provision may make it significantly cheaper to do a Tier II instead. Tier I may be great for efforts focused on one state by companies with very little resources to start off with. Either way, these new rules change everything. VC’s and angels are no longer the only way to go – now you can get the people on your side. Talk to an attorney to see if equity crowdfunding under the new Reg A+ works for your goals. It could have big impacts on your bottom line, but also on how your company is organized. We’ll talk about that in future posts here on LaaW.

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$10,000 Per Person for a Data Breach?

Posted by | Security | March 20, 2015

If Approved, Target Settlement Opens the Door to Big Payouts

Still haven’t put in those security measures to protect your clients’ personal information? What if a data breach cost $10,000 per person? Target suffered one of the largest data breaches in history in 2013 when the credit card information for 40 million shoppers, and the personal information of 70 million shoppers was stolen.

Now they are settling a class action for $10m. The settlement would provide compensation of up to $10,000 for shoppers who show they suffered damages from the breach.

This is a useful number to consider. If you think it’s too expensive or a hassle to improve your security, try counting up customers you have personal information for. Then multiply that by $10,000. That is your potential liability if your company’s data is stolen.

Odds are, that amount is much higher than the cost of encryption or improved security.

Washington Post – Target data breach victims could get up to $10,000 each from court settlement

 

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