Basic business law What in it for you Industry by tonze.danzel

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									The CED Clinic is supported by the Economic Development Administration,
                                                                          1
U. S. Department of Commerce, through its University Centers Program.
                               2


Community Economic
Development Clinic
Creighton Univ. School of Law
   Milo Alexander, Attorney      Address: Milton R.
    and Director                   Abrahams Legal Clinic/
   Senior certified law           2120 Cass St/ Omaha,
    students                       NE 68178
   State-wide
   Small businesses (<5          To apply: Call 402-280-
    employ.)                       3068, 8:30 a.m. to 4:30
     Limited resources            p.m., Monday through
     New & Existing               Friday.
     Formation
     Contracts, leases
                                  Fax: 402-280-5708
     Trademark
     Employee questions
     Other                       No charge. (Client pays
                                   filing & publication
                                   charges.)
                        3




              Disclaimer


Presentation is for general information
purposes and is not intended as legal
advice. You should consult an attorney
about your individual situation before taking
action.
              4




A BUSINESS LAW ASSORTMENT:

   1. PERSONAL LIABILITY

2. INDEPENDENT CONTRACTOR

      3. TRADE NAMES
  1. LIMITED
   LIABILITY
   What is it?
How do you get it?
How do you lose it?
             6




    Limited Liability:
   What Is a Liability?


A legally enforceable
 obligation to pay a
         debt
                          7




         Limited Liability:
       What Does It Protect?
  Protects business owner’s property from
business’ debts & creditors (and vice versa).

 With limited liability, creditors of a business
may not take the business owner’s individual
 property to collect a debt of the business.

   Business owner doesn’t risk everything.
                       8




         Limited Liability:
        Sources of Liability

         “Liability” can arise from:
 Breach of contract, for example:
  • Failure to deliver goods or services
  • Failure to pay for goods or services
  • Failure to pay rent or mortgage
                  9




        Limited Liability:
       Sources of Liability

   “Liability” can arise from:
Negligence/accident:
 “Slip and fall” in store
 Failure to yield right of
  way/collision
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          Limited Liability:
     How is a Liability Enforced?
           Unsecured creditor
1.   Law suit
2.   Judgment
3.   Collection
                    11




     Limited Liability:
How is a Liability Enforced?
         Collection includes:
 Garnishment of wages, bank
  accounts
 Attachment or taking of property
  including land, vehicles, tools, etc.
 Sheriff’s sale of property
                    12




          Limited Liability:
     How is a Liability Enforced?
              Secured creditor
        (lien or mortgage holder):
1.   Take & sell secured property
2.   Judgment for remaining amount
     (deficiency)
3.   Collection
                  13




        Limited Liability:
         Who’s Liable?
          General Rule:
Only liable for debts arising from
contracts you’ve made or from
     your own negligence

Not liable for another “person’s”
               debts
                     14




    Limited Liability:
 How Do You Create It?

Limited liability created by formation
    of business that is a separate
            legal “person”
           from its owners.

Organizing documents must be filed
      With Secretary of State
                        15




  Business Forms that Are Not
   Separate Legal “Persons”
              Sole Proprietorship
 Business owned by 1 person who has not
        formed LLC or corporation

            General Partnership
 Business owned by 2 or more people who
have not formed LLC, corporation, or limited
               partnership

      Result: Unlimited owner liability
                         16




    Business Forms That Are
   Separate Legal “Persons”

      Limited Liability Company (LLC)

                Corporation

(Others: Limited Partnership, Limited Liability
                Partnership)

        Result: limited owner liability
                       17




        No Limited Liability:
           An Example
 James Owner sole owner of dairy business
              Pastures of Plenty
 James’ property used in business includes
  cattle, dairy equipment, bank account
 James’ property used outside business
  includes home, bank accounts, 2nd farm
 Sole proprietorship not a “person.” Only
  James can sign contracts or be negligent.
                      18




        No Limited Liability:
           An Example
           As sole proprietorship:
 No legal separation James/Pastures of
  Plenty
 All property and debt belong to James
 James liable for unpaid vet or feed
  supplier
 Creditors sue James, get judgment
 Can collect judgment from any/all
  James’ property
                       19




          Limited Liability:
            LLC or Corp
 Same facts: James Owner & Pastures of
                   Plenty
     James organizes business as LLC
  Pastures of Plenty, LLC is separate legal
                  “person”
James transfers/contributes property to LLC
         Contracts in name of LLC
   (Results same if James incorporated,
          Pastures of Plenty, Inc.)
           Limited Liability
Separate “Persons”=Separate Property
James Owner                     Pastures of Plenty, LLC
• Home                          • Cattle
• Pasture land                  • Dairy equipment
    – Leased to LLC             • Truck
•   Personal vehicle            • Checking account
•   Stocks & bonds              • Certificates of deposit
•   Personal checking account
•   Personal savings
•   2nd farm


                                                            20
            Limited Liability
   Separate Persons = Separate Debts
James Owner               Pastures of Plenty, LLC
• Mortgages/liens:        • Liens
   –   Home                   – Dairy equipment
   –   Pasture land           – Truck
   –   Personal vehicle   •   Employee wages & w/h
   –   2nd farm
                          •   Lease payments
• Personal expenses       •   Suppliers
   – Utilities
                          •   Vet
   – Groceries
   – Etc.                 •   Operating expenses


                                                     21
Limited Liability: Creditors Collect
    Only From One “Person”
  James Owner’s       Pastures of Plenty, LLC
    Creditors               Creditors


   Collect From           Collect From
 James’ Property         LLC’s Property
       Only                   Only




                                                22
               Pastures of Plenty, LLC
                    Goes Broke
           James Owner                Pastures of Plenty, LLC
    LLC creditors cannot take:        LLC Creditors can take:
•   Home                         •   Cattle
•   Pasture land                 •   Dairy equipment
•   Personal vehicle             •   Truck
•   Stocks & bonds               •   Checking account
•   Personal checking account    •   Certificates of deposit
•   Personal savings
•   2nd farm


                                                                23
           James Owner Doesn’t Pay
             Mortgage on 2nd Farm
          James Owner                Pastures of Plenty, LLC
    2nd Farm Mortgagee can:            2nd Farm Mortgagee
       Foreclose/Take land            Cannot collect from:
      Deficiency judgment       •   Cattle
          Collect from:         •   Dairy equipment
•   Stocks & bonds              •   Truck
•   Personal checking account   •   Checking account
•   Personal savings            •   Certificates of deposit
•   Other assets if necessary


                                                               24
                      25




         Limited Liability:
          Maintaining It

       To maintain limited liability
      must maintain separation of
      owner & LLC or corporation.

As long as there are separate “persons,”
there will be separate property & debts.
                            26




     Losing Limited Liability

 Don’t   treat LLC as separate “person”:
    Don’t give LLC property of its own
    Treat LLC’s property as if it were yours
 Personal guarantee of LLC’s debt
 Act negligently yourself
          Losing Limited Liability:
       LLC with Little or No Property
                                   Pastures of Plenty, LLC
   James Owner Property                   Property
• Nothing transferred to LLC   • Checking account sufficient
• In addition to other           to cover operating expense
  property:                       – Any excess to James’
   – Cattle                          account
   – Dairy Equipment
   – Truck                           JAMES LIABILE
   – Certificates of deposit            FOR ALL
                                      LLC’S DEBTS



                                                             27
      Losing Limited Liability:
  Owner Treats LLC Assets as His Own
  James Owner’s Expenses          LLC Assets & Debts
• House payment
• Weekly groceries
• Personal vehicle payments   Paid from LLC checking
   Paid from LLC accounts             account




                               JAMES LIABLE FOR
                                ALL LLC’s DEBTS

                                                       28
         Losing Limited Liability:
     Personal Guarantee of LLC Debt
        James Owner               Pastures of Plenty, LLC
• James guarantees notes on   • Owns dairy equipment &
  LLC’s dairy equipment &       truck; liens on both
  truck
                              Dairy equipment & truck
                              creditors can collect from both
                              LLC & James.


But: James protected from
other LLC creditors

                                                            29
               Losing Limited Liability:
                Owner’s Negligence
        James Owner                 Pastures of Plenty, LLC
   While driving LLC truck
    James runs red light,       Injured party can collect from
 causing accident & personal          both James & LLC.
            injury.

James liable because of his     LLC liable because it owns the
negligence.                     truck.

• BUT: James not liable LLC’s   • BUT: LLC not liable James’
  other debts                     other debts

                                                                 30
                     31




        Limited Liability:
    You Still Need Insurance
 Limited liability not a guarantee
 Reduces risk
   Does not eliminate it
 May be sued anyway
   Attorney fees & other costs
 Need liability insurance too
   Type & cost will depend on risks of
    business
2 EMPLOYEE OR
INDEPENDENT
CONTRACTOR?
Who’s in
charge?
                       33


  Employee or Independent
        Contractor:
    Why is it Important?
More paperwork and expense for business if
          worker is employee:

 Withhold  & transmit income tax & FICA
 Match employee’s FICA (7.65% of
  earnings)
 Federal unemployment insurance
                            34


  Employee or Independent
        Contractor:
    Why is it Important?
          Mistakes can be costly
 Employer may be liable, employment &
  income taxes
    Social Security
    FICA
    Income tax withholding
    Personal liability even if LLC or corporation

 Worker   can request IRS review of status
                           35




                 Gray Area

 Parties’   characterization does not control

 No hard and fast rules; list of
  considerations

 Can   request opinion from IRS, Form SS-8
                       36




    Control vs. Independent
          Judgment


The more decisions that are made by the
  worker as opposed to the business the
  more likely it is that the worker is an
  independent contractor.
                       37




        Behavioral Control
              Who decides:

 How work is performed?
 What tools & equipment are used?
 What materials are purchased & from
  whom?
 Whether to hire additional workers and
  who is hired?
                             38




          Financial Control

 To the extent the worker has control over gain
   or loss on the job, the more likely it is that the
       worker is an independent contractor.

Does the worker have a chance to profit from or
           lose money on the job?

       Or is the worker paid by the hour?
                      39




     Financial Control

  Is the worker free to work for other
              businesses?

  Does the worker have a significant
             investment in
 his or her own tools and equipment?

Is the worker reimbursed for expenses?
                     40




              Benefits
 Doesthe worker’s compensation include
 benefits usually associated with
 employment?
  Health insurance, paid leave, etc.
  Looks like employee
                         41




                Contracts
 Do   the parties have a contract:

  1.That worker is independent
   contractor? AND
  2. With provisions consistent with
   independent contractor status such as
   control over times and manner of work?
                      42




    Helpful Independent
Contractor Contract Provisions
 Descriptionof work
 Work must meet company’s reasonable
  expectations
 Date of completion
 Fixed payment (not hourly)
 Indep. cont. to use own tools & skills
 Indep. cont. free to hire others
 Indep. cont. free to accept other
  employment
3. NEBRASKA
TRADE NAME
 How do you
 create and
 protect it?
                 44




     What’s a Nebraska
       Trade Name?

“ Every name under which any
 person does or transacts any
business in this state other than
the true name of such person.”
    Neb. Rev. Stat. §87-208
                 45




       NE Trade Name
Choosing a Name: Prohibitions

  1. Similarity to existing trade
name likely to cause confusion,
   mistake, or deception of
            customers
                           46




        NE Trade Name
  Choosing a Name: Prohibitions
    2. Merely descriptive; primarily
   geographic; or primarily surname
  But: 5 years continuous use =
  evidence that name is associated
  with given product or company

 (For   complete list: Neb. Rev. Stat. §87-209)
                           47




      Nebraska Trade Name:
        Choosing a Name

 Check  with NE Secretary of State (SOS) to
 see if name is in use:
    On-line search: www.sos.state.ne.us
    Safest: written request, fax number: 402-471-
     3666 or e-mail: sos.corp@nebraska.gov
                         48




     Nebraska Trade Name:
       Choosing a Name

 If a national market is ultimate goal, take
                special care:

 Name   should be “fanciful,” “arbitrary,” or
  “suggestive”
 Will want Federal registration
              Definition        Example
                                 49                Distinctiveness
Fanciful      Coined words      EXXON              Inherently
              with no outside                      distinctive
              meaning
      Abercrombie Spectrum of
Arbitrary       Words in  SHELL (for               Inherently
      Distinctiveness use
                common    gasoline)                distinctive
              but do not
              describe or
              suggest goods
Suggestive    Suggests what     BULLDOG (for       Inherently
              product is        picture hangers)   distinctive
              without
              describing it
Descriptive   Draws attention   TENDERVITALS       Needs acquired
              to ingredients,   (for cat food)     distinctiveness
              quality, or                          (consumer
              nature of the                        awareness) for
              product                              protection
Generic       Language          ASPIRIN            No protection
              name of the
              product
                          50




        Nebraska Trade Name
              Creation
 Use   in commerce creates trade name
    Commerce includes nonprofit activity
    Document date of 1st & continuous use
    Dispute may hinge on first use in commerce
 May reserve name in NE for 120 days prior
 to use in commerce
    See SOS web site
    Non-renewable
                            51




        Nebraska Trade Name
            Registration
 Registration   protects name in NE only
     NE SOS, Form 20.
     $100 filing fee
     Published notice once, newspaper
      “general circulation” town or county
     Proof of publication filed SOS & county clerk
      within 45 days. Failure to file voids name.
     Must be renewed after 10 years
                            52




       Nebraska Trade Name:
            Registration
 Registration   provides remedies:
     Injunction, prohibit future use
     Damages to registrant
     Profits of subsequent user due to use
     Attorney fees
                       53




  Nebraska Trade Name:
      Preservation
Use trademark symbol        ™ with name
Notice to public, claim of exclusive use

   May be used without registration


Use of   ® requires federal registration
                          54




      Nebraska Trade Name:
          Preservation
 Monitor   use of same or similar name
    Internet search
    Published notices
    SOS website
 Challengeuse in connection with similar
 goods/services in NE
    Cease and desist letter
    Litigation
                            55




        Federal Registration
 Beyond   scope of presentation
 Provides national protection
 If fed registration unchallenged 5 years,
  becomes “incontestable”
     Proof of prior use not a defense
     Would still have to show registered mark in
      use your geographic area, similar products
 See   www.uspto.gov

								
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