CAN A SPOUSE BE HELD LIABLE FOR THE DEBTS OF THE OTHER?
The question of whether a spouse can be held liable for the debts of the other spouse is often asked from married (or to be married) couples, but the answer is not uniform and depends largely on the laws of the state where you reside.
COMMON LAW TREATMENT
The large majority of states that are NOT one of the nine “community property” states discussed below, operate under the “common law” system, derived from Great Britain. In these common law states, the liabilities of married couples are generally determined under the “title” theory, meaning whichever spouse is on title for the asset, owns the asset, and whichever spouse was responsible for incurring the debt is solely responsible for that debt. Spouses in common law states are generally not jointly liable for debts unless they both are involved in procuring the debt as a “joint debt.” As a result, if a married individual in a common law state alone incurs a debt, the creditor would generally be limited to recovering from that individual’s assets only, and no recovery could be made from assets titled in the name of that individual’s spouse. On the surface, this would encourage married couples to segregate their finances so that valuable assets are held in the name of the spouse with less risk, and corresponding debts in the name of the spouse with higher risk. However, these rules are very state specific and, of course, moving your assets around when a creditor is already on the horizon raises fraudulent conveyance concerns, and so any asset protection planning should be done before the need arises.
Some common law states create an exception to the “title” rule for debts that are deemed for “necessities” or for “family expenses.” In those states, spouses may be jointly liable for debts that are necessary for the family such as education, household, or medical debt, even if the debt was obtained by one spouse only. States also vary in how broadly they define debts deemed to be “necessities” or for “family expenses,” and so it is important to understand how your state defines these terms to understand under what circumstances a creditor can attach the assets of both spouses for the debts of only one. Other states impose joint liability if the liability was created when a spouse was deemed to be acting as an agent of the other spouse, and so anyone concerned about spousal liability would need to familiarize themselves with the rules unique to their state.
TENANCY BY THE ENTIRETIES
In states that recognize “tenancy by the entireties,” assets owned jointly by the spouses as “tenants by the entireties” are deemed to be owned by the couple as a whole, and not owned by each spouse individually. In these jurisdictions, a creditor of one spouse is generally unable to attach property owned “by the entireties” unless the other spouse also joined in the creation of the debt. Therefore, married couples in states that allow “tenancy by the entireties” often hold valuable real estate in this manner which can provide effective asset protection against creditors of just one of the spouses. Again, these rules may not uniform, as some states may find that a debt entered into by one spouse is nevertheless a joint debt if the non-debtor spouses knows, benefits, consents, or ratifies the debt.
In the nine community property states (CA, AZ, TX, WA, ID, NV, NM, WI, and LA), which derives their marital property law from the Spanish system, each spouse in a marriage is deemed to own a ½ interest in assets that are deemed community property. Since each spouse has a half-interest their individual debts could be attached and satisfied by a creditor against their 1/2 interest. Therefore, by contrast to the common law system, which relies heavily on “title,” the key component in community property states is not who owns the property, but how the property is characterized. For these reasons, experts generally agree that community property states are more creditor friendly than their common law counterparts.
For example, assume a couple consisting of a primary wage earner and a homemaker. The wage earner purchases a house during marriage using wages from employment, and takes title in the wage earner’s name only. The homemaker then gets into a car accident which is not fully covered by insurance. The resulting liabilities would obviously depend on the specific state, but generally in a common law state, the house could be protected from the homemaker’s liabilities because title is held in the wage earner’s name only, whereas in a community property state, ½ of the house could be exposed because the property would likely be deemed community property in which the homemaker owns a ½ interest. Therefore, marriage in a community property state could effectively expand the potential assets that creditors of either spouse can reach, to the extent a married couple acquires assets characterized as community property.
Since exposure of assets in community property states depends on characterization, there is an incentive for married residents in community property states to consider marital property agreements that alter the characterization of assets (i.e. pre-nuptial or post-nuptial agreements). The procedural requirements to form an enforceable marital property agreement, and the extent to which such an agreement will protect assets will depend on the laws of the state. Therefore, consulting with an expert who understands these nuances in the respective state is essential to ensure that any asset protection goals are maximized. (ALSO: see Estate Planning Discussion in this issue concerning Trusts v. pre-or post-nuptials for asset protection)
Any married individual concerned about asset protection would be well served to understand the specific rules in your state governing the exposure of your assets to creditors, what tools exist in your state to mitigate your exposure to spousal liability, and how to utilize these tools in a manner that maximizes your protection in the event of an unforeseen liability. Most important is the need to engage in this planning before it is actually needed, as any planning done when a creditor is already in the fray may be vulnerable to attack as a fraudulent conveyance.
PHONE 949-413-6535 WFB LEGAL CONSULTING, Inc.—Lawyer for Business– A BEST ASSET PROTECTION Services Group
Traditionally, businesses have relied on outbound marketing techniques such as advertising, direct mail campaigns and sales calls to find new customers. But a new trend has emerged in recent years—inbound marketing.
What is inbound marketing?
Simply put, inbound marketing is about making it easier for customers to find your business via the Internet, as opposed to you trying to find them through traditional marketing and advertising techniques. Your company’s website is the cornerstone of your inbound marketing strategy. It is the online gateway to your business, whether people find you via a search engine, one of your social media posts, or a customer review site.
Why inbound marketing?
Here are some reasons inbound marketing matters.
- People’s buying patterns have changed
Consumers are smarter than ever about tuning out pure marketing messages. Nowadays, people want to be in control of the buying process, and that’s why
they are increasingly turning to the Internet. To help them, you need to offer relevant, high-quality content. Over time, you will be increasingly perceived as an expert and trusted advisor in your field and not just a vendor seeking to sell something.
- Inbound marketing is cost effective
Research indicates that businesses relying on inbound marketing strategies have a lower cost per sales lead than those using outbound marketing strategies. Indeed, a blog costs the same whether it attracts 1,000 or 100,000 visitors whereas with outbound techniques such as direct mail, the costs vary depending on your number of impressions. What’s more, many of the content publishing tools you will need for your inbound marketing program are inexpensive.
- Visitors are more likely to turn into customers
The people who find you online through inbound marketing are likely to be actively looking for your product or service. They are “warm” leads, as opposed to the ones you would find through cold calling or blanket advertising.
Here are some steps you can take to reap the benefits of inbound marketing.
- Developing a Content Strategy—Your strategy should identify gaps in your content and outline goals for developing what you need, whether it be a blog, advice articles, how-to videos, e-books or other material. You should then make a realistic editorial plan and assign responsibilities to staffers or freelancers. Don’t forget it’s important to learn and implement strategies to optimize your site and content to be found by search engines—a process known as search engine optimization (SEO).
- Work to engage potential customers—This is the essence of a social media strategy. A key step here is to determine whether your customers are already participating in certain social media communities such as Facebook, Twitter or LinkedIn. You need to be where they are—interacting with them and posting links to content on your site. Also, think about and test whether they are more responsive to certain content formats (e-books, videos, podcasts, etc.) than others. This will help you to prioritize your efforts.
- Focus on converting visitors into customers—Considering the potential high value of inbound leads. It’s simply not enough to offer them great content. Once they have found you, you have to think about how to convert them into customers. This means making it easy for them to take the next step. You might want, for example, to highlight sales offers on your homepage or set up an automatic email confirmation process that includes a sales offer when visitors download a free e-book.
The potential for increasing sales through inbound marketing is promising, but does this mean you should stop doing outbound marketing altogether? Probably not. You have to find the right balance between inbound and outbound marketing efforts. Besides, it will take time before the volume of leads you obtain through inbound marketing counterbalances the volume of leads obtained through more traditional techniques.
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
As far as a business strategy goes, it doesn’t need to be particularly complicated. Often the best tips are the most obvious — and the most effective business strategies take inspiration from immediate surrounds of the company and potential customer base. In order to ensure success in a business, regardless of the projected size, a comprehensive business strategy is required.
Here’s what any entrepreneur would do well to consider when composing a business strategy.
- Assess the market
Is your product or service niche? Or is your product or service already offered by countless other businesses? In order to garner the interest of customers, you’ll need to provide something with none of your competitors can.
Don’t enter into a market without knowing exact what to expect, and always research it first.
- Take your surroundings into account
If you have plans to set up a physical shop, it’s worth taking in certain points regarding the spending and saving of those who live in the area. If your shop offers something that’s cheaper elsewhere, you’re unlikely to garner initial interest from customers.
For example, businesses in economically depressed areas would benefit from offering cheaper products and services given that data shows a high level of debt in the area.
On the other hand, in areas of lower debt, there’s more scope for offering more expensive services and products.
- Be prepared to change
Having a roadmap to work to and a goal to aim for is excellent, but don’t let spanners in the works throw you off. Instead, make room in your business strategy to accommodate any changes. Keep up to date with the industry you have chosen, and be ready to jump on any business opportunities as they appear.
- Consider your strategic actions
It’s essential to think about how you expect to get the word out about your services and products early on — whether that be through the internet or through advertisements. Take note of previous marketing campaigns, not matter how small the scale, which have worked for competitors in your field, and consider emulating them.
- Include a social media strategy
The importance of social media within the success of a business cannot be overestimated. Having a good social media presence can offer your company plenty of opportunities to improve, interact with customers, and extend your services to those further afield. Creating an engaging and easy to use website does not have to be expensive, and will make a business much more accessible if it has not been done already.
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
IMPLIED EMPLOYMENT CONTRACTS AND WRONGFUL TERMINATION
Employment relationships are presumed to be “at-will” in all states except Montana. In general, an at-will employment relationship means that either the employer or the employee is free to end the relationship at any time and for any reason (or no reason) at all. However, “wrongful termination” is a major exception to at-will employment. Common law wrongful termination includes terminations after an implied contract for employment has been established.
COMMON LAW IMPLIED-CONTRACT EXCEPTION TO AT-WILL EMPLOYMENT
A widely recognized exception to the at-will employment presumption prohibits terminations after an implied contract for employment has been established. Such a contract can be created through employer representations of continued employment, in the form of either oral assurances or expectations created by employer handbooks, policies, or other written assurances.
Although employment typically is not governed by a contract, an employer may make oral or written suggestions to employees regarding job security or procedures that will be followed when adverse employment actions are taken. These suggestions may create an employment contract, for all intents and purposes.
HOW THE IMPLIED-CONTRACT EXCEPTION IS TREATED BY COURTS
Many courts across the country have found that the representations made in employee handbooks can create an implied contract, absent a clear and express waiver that the guidelines and policies in such handbooks don’t create contract rights. A common situation involves handbook provisions stating that employees will be disciplined or terminated only for “just cause” or under other specific circumstances, or provisions indicating that an employer must follow specific procedures before disciplining or terminating an employee.
For example, a California court stated (Guz v. Bechtel) that where there is no express agreement, the issue is whether other evidence points to a mutual understanding of employment terms (an implied contract, in other words). However, the court also found that an employee’s mere passage of time in the employer’s service, even where marked with positive evaluations, can’t alone form an implied contract that the employee is no longer at-will. Absent other evidence of the employer’s intent, employment longevity, raises, and promotions don’t in and of themselves constitute a contractual guarantee of future employment security.
In states that recognize the implied-contract exception to at-will employment, courts have generally agreed that at-will disclaimer language in an employee handbook or policy manual doesn’t necessarily mean an employee is employed at will. However, even if disclaimer language isn’t controlling, the provision is considered in determining whether the parties’ conduct was reasonably understood to create binding limits on an employer’s right to terminate an at-will employment relationship. This means that courts generally look at all pertinent evidence, including any disclaimer language, in determining the terms under which a worker is employed.
Because courts review all pertinent evidence and weigh many factors, the implied-contract exception has been applied in a fact-sensitive manner. In states that recognize the exception, it can be difficult to predict how a certain case will be decided. However, courts have begun to review implied contract cases more strictly.
For example, the California Supreme Court considered a case (Dore v. Arnold) in which an employee received an offer letter describing his commencement date, salary and benefits, and initial probationary period. The offer letter contained a paragraph stating that employment would be at-will and that the employer “has the right to terminate your employment at any time just as you have the right to terminate your employment with [the employer] at any time.” The employee signed the letter, signifying his acceptance of the various employment terms. The court held that this express language alone was sufficient to bar an implied contract claim. The court made this determination despite the offer letter not containing all of the material terms of the employment relationship.
This means that, in accordance with the courts’ more careful recent application of the implied-contract exception, an express agreement that indicates an at-will policy generally won’t be trumped by evidence of an implied agreement.
The implied-contract exception to the at-will employment presumption is a changing area of law. It is important to determine how your state courts have applied the exception. Because employers have reacted to the exception by carefully drafting documents to unambiguously state that the parties agree to at-will status, it can be difficult to bring a valid implied contract lawsuit. If you need help in understanding the implied-contract exception, or legal assistance in suing your employer based on an implied contract, you should contact an employment attorney.
WFB LEGAL CONSULTING, INC.–A BEST ASSET PROTECTION Services Group
LAWYER for BUSINESS
Avoiding probate doesn’t always have to be complicated. You can take simple steps to ensure that certain types of property pass to your heirs without going to probate court. One of the easiest methods is to designate beneficiaries to inherit your bank accounts, retirement accounts, securities, vehicles, and real estate automatically, without probate.
Payable-on-Death Bank Accounts
Payable-on-death bank accounts offer one of the easiest ways to keep money — even large sums of it — out of probate. All you need to do is fill out a simple form, provided by the bank, naming the person you want to inherit the money in the account at your death.
As long as you are alive, the person you named to inherit the money in a payable-on-death (POD) account has no rights to it. You can spend the money, name a different beneficiary, or close the account.
At your death, the beneficiary just goes to the bank, shows proof of the death and of his or her identity, and collects whatever funds are in the account. The probate court is never involved.
If you and your spouse have a joint account, when the first spouse dies, the funds in the account will probably become the property of the survivor, without probate. If you add a POD designation, it will take effect only when the second spouse dies.
When you open a retirement plan account such as an IRA or 401(k), the forms you fill out will ask you to name a beneficiary for the account. After your death, whatever funds are left in the account will not have to go through probate; the beneficiary you named can claim the money directly from the account custodian. Surviving spouses have more options when it comes to withdrawing the money, than do other beneficiaries.
If you’re single, you’re free to choose whomever you want as the beneficiary. If you’re married, your spouse may have rights to some or all of the money.
Transfer-on-Death Securities Registration
Almost every state has adopted a law (the Uniform Transfer-on-Death Securities Registration Act) that lets you name someone to inherit your stocks, bonds or brokerage accounts without probate. It works very much like a payable-on-death bank account. When you register your ownership, either with the stockbroker or the company itself, you make a request to take ownership in what’s called “beneficiary form.” When the papers that show your ownership are issued, they will also show the name of your beneficiary.
After you have registered ownership this way, the beneficiary has no rights to the stock as long as you are alive. But after your death, the beneficiary can claim the securities without probate, simply by providing proof of death and some identification to the broker or transfer agent. (A transfer agent is a business that is authorized by a corporation to transfer ownership of its stock from one person to another.)
Transfer-on-Death Registration for Vehicles
Arizona, Arkansas, California, Connecticut, Delaware, Illinois, Indiana, Kansas, Missouri, Nebraska, Nevada, Ohio, Vermont, and Virginia offer car owners the sensible option of naming a beneficiary, right on their certificate of registration, to inherit a vehicle. If you do this, the beneficiary you name has no rights as long as you are alive. You are free to sell or give away the car, or name someone else as the beneficiary.
To name a transfer-on-death beneficiary, you’ll need to fill out the paperwork required by your state’s motor vehicles department.
Transfer-on-Death Deeds for Real Estate
In some states, you can prepare a deed now but have it take effect only at your death. These transfer-on-death deeds must be prepared, signed, notarized and recorded (filed in the county land records office) just like a regular deed. But unlike a regular deed, you can revoke a transfer-on-death deed. The deed must expressly state that it does not take effect until death.
States that allow TOD deeds are Alaska, Arizona, Arkansas, California (effective January 1, 2016), Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
WFB Legal Consulting, Inc.–A BEST ASSET PROTECTION Services Group–Lawyer for Business
Contribution by DONNA BALLMAN
In a recent ruling, the National Labor Relations Board said an employer broke the law when it dismissed an employee who criticized it on Facebook and in an email, and who encouraged employees to unionize. The NLRB ordered the employer to reinstate the employee to his old job with back pay. The employee had posted comments like these on Facebook:
“At OnBoard you will receive no health insurance, sick days, vacation days or one single benefit. You will ride around on unsafe buses, without the benefit of a PA system, or sometimes even a seat.” And perhaps most egregious of all of the flaws, “PAYCHECKS BOUNCE, yes that’s right, they bounce.”
You may know that you can’t be fired for encouraging co-workers to unionize. What you may not know is that you don’t have to encourage co-workers to unionize or be part of a union to be protected by the National Labor Relations Act, which states:
“Employees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
The “concerted activity” provision applies whether or not the company has a union, and covers pretty much every workplace. It covers anything that non-supervisory employees of non-government employers do for mutual aid or protection. So, can you be fired for what you say on Facebook and Twitter? It depends on what you say, and who you say it with or about. Here are some examples of social media firings that the NLRB found to be illegal:
1. Calling a manager immature and saying the company founder would roll over in her grave. When employees had posted an exchange about working conditions, the NLRB found that they were fired illegally. It probably didn’t hurt that the exchange ended with this:
“hey dudes it’s totally cool, tomorrow I’m bringing a California Worker’s Rights book to work. My mom works for a law firm that specializes in labor law and BOY will you be surprised by all the crap that’s going on that’s in violation 8) see you tomorrow!”
Lesson learned: If you’re going to rant, mention that you think they’re breaking the law or something about worker’s rights.
2. Complaining about a co-worker’s complaint. The NLRB said that it was illegal for a nonprofit organization to fire five employees who had a Facebook discussion, complete with foul language, about a co-worker’s intention to complain to management about their work performance. The company said that they were fired for harassing a co-worker for complaining, but the NLRB disagreed. Lesson learned: It’s best to complain with a group of co-workers.
3. Foul rant about supervisor. In what is probably the most famous Facebook firing case, the NLRB found that an employee’s rant was protected. The employee’s comments included:
“looks like I’m getting some time off. love how the company allows a 17 (company term for psychiatric patient) to become a supervisor,” and saying the boss was “being a d***” and a “scum***.”
The company said that she was rude and unprofessional, and violated their internet policy. Her co-workers then weighed in with comments supporting her and with further negative comments about the supervisor. The company had a policy that prohibited: “disparaging, discriminatory or defamatory comments when discussing the company or the employee’s superiors, co-workers and/or competitors.” It also prohibited employees from depicting the company in any way in social media. Part of the NLRB’s beef was that the restriction was too broad. A big reason that the NLRB found her activities protected was the fact that it resulted in comments from co-workers. If you post something just to vent and it doesn’t result in a discussion with co-workers, you may not be in the same boat. Lesson learned: Encourage co-workers to comment about your post.
Nevertheless, before you decide to slam your employer on Facebook or Twitter, take a look at these cases where employees’ firings were found to be perfectly legal:
1. A reporter complaining about a lack of homicides to cover. It wasn’t the complaint, but the way he said it that got him in trouble: “What?!?!?! No overnight homicide. … You’re slacking, Tucson.” Another began, “You stay homicidal, Tucson.” The NLRB said the post was offensive, and was not a complaint about working conditions.
2. Mocking a neighbor. The NLRB found that the firing of a BMW salesman for photos and comments posted to his Facebook page did not violate the NLRA because he was fired exclusively for posting photos of an embarrassing accident at an adjacent Land Rover dealership, which was not concerted activity and was not protected. However, the NLRB also found that comments he posted criticizing his company for serving hot dogs, chips and bottled water at a luxury car event, were protected, along with photos of it. However, the company convinced the NLRB that he was fired solely for the neighbor-mocking. The NLRB also noted that the company’s social media policy was illegal. That didn’t help this guy though.
3. Complaining about a tips policy. Where a bartender had a Facebook conversation with his stepsister saying that he hadn’t had a raise in five years and that he was doing the waitresses’ work without tips, he might have been OK if he had stopped there. Instead, he called his employer’s customers “rednecks” and said that he hoped they choked on glass as they drove home drunk. The NLRB said that the employer didn’t break the law when they fired him for his rant. The NLRB also said that, because he only complained about his own working conditions, he also didn’t engage in concerted activity that was protected. Had he said that all the bartenders were doing the waitresses’ work without tips (and had he not insulted the company’s customers), he might have had better luck.
4. Complaining about own working conditions. An employee who posted a nasty rant was not protected, not because of the foul language, but because he only griped about his own working conditions, even when co-workers commented about his post. It said things like, “Wuck Falmart! I swear if this tyranny doesn’t end in this store they are about to get a wakeup call because lots are about to quit!” and “You have no clue…[boss] is being a super mega p***! Its retarded I get chewed out cuz we got people putting stuff in the wrong spot and then the customer wanting it for that price…that’s false advertisement if you don’t sell it for that price…I’m talking to [Store Manager] about this s*** cuz if it don’t change Walmart can kiss my royal white a**!” Had he said “we get chewed out” instead of “I get chewed out,” the result might have been different.
5. Saying the workplace is spooky. An employee of a mental health facility was not protected when posting comments that included these: “Spooky is overnight, third floor, alone in a mental institution, btw Im not a client, not yet anyway,” and, “My dear client ms 1 is cracking up at my post, I don’t know if she’s laughing at me, with me or at her voices, not that it matters, good to laugh.” Unfortunately, her co-workers weren’t her Facebook friends, so the NLRB said the exchange was not considered concerted activity. She also wasn’t advocating any change, but was just reporting what was happening at the time. No protection.
6. Criticizing the company on an elected official’s Facebook page. An employee was fired after she posted comments on Sen. Richard Lugar’s Facebook page that were clearly about working conditions. They included: “The reason they contract out to us? BECAUSE WE’RE THE CHEAPEST SERVICE IN TOWN! How do we manage that? BY PAYING OUR EMPLOYEES $2 LESS THAN THE NATIONAL AVERAGE! We both make less than $10an hr. And he’s worked for them 3.5 yrs! …the fact that we’re employees of a cheap contract company instead of government employees hurts us.” She was complaining about her husband’s and her working conditions, but the NLRB said it still was not considered concerted activity because she didn’t discuss it with co-workers, or even her husband.
What about the First Amendment? The First Amendment only applies to government action, not a company’s actions. It doesn’t provide you any free speech protection at work unless you work for government.
Applying the law, this recent case of a waitress fired for posting, “Stupid Cops better hope I’m not their server FDP.” (FDP means F*** Da Police). Granted, she had reason to be irked, since a police officer had issued a $2,500 ticket to her 3-year-old for public urination when he pulled down his pants in his own front yard. Still, this is one of those posts that probably isn’t protected.
On the other hand, an employee who complained about sexual harassment on Twitter and posted photos of the harassers, and who was fired because of the fact that she publicly shamed them, probably has a remedy with the NLRB, assuming that she isn’t a supervisor (and possibly with the EEOC, even if she is a supervisor). It will be interesting to see what happens if she takes some legal action.
If you were fired or disciplined for complaining with or on behalf of co-workers about working conditions, you only have six months from the date that you were told you were being fired or disciplined to file a Charge Against Employer with the NLRB, which is your first step. If the NLRB thinks you’re right and files a complaint on your behalf, the administrative law judge can order that the employer cease and desist their illegal practices. If you win, you can get reinstatement, back pay and interest. You can’t get emotional distress or attorney’s fees. Still, it might be a good idea to talk to a lawyer for business in your state before you contact the NLRB. My take is why disparage any business if you are angry and not prepared to file formal charges. Don’t let your emotions get the better of you.
Here are some noteworthy mistakes employers make in managing their businesses. These behaviors and approaches have common sense solutions however, and there are recommended actions they can take to remedy such problems.
- Take credit for the project or an employee’s idea or plan.
Smart managers learn quickly that one of the most significant forms of employee acknowledgement and recognition occurs when a manager gives credit – publicly – where credit is due.
On the flip side, managers who consciously or unconsciously take credit for an employee’s idea, completed project or contribution, are universally despised. And the reality is, the credit-grabbing manager is fooling nobody. The manager’s job is to get things done through people. No one expects that all the brilliance is the manager’s. In fact, managers who can bring out the brilliance in others are cherished. Managers look like good managers when their reporting staff succeeds. In a worst-case scenario, employees will begin withholding ideas, wait until witnesses are present to share potential solutions, and make sure that they address the idea with the manager’s boss, just to ensure that they receive credit. Your boss’s reaction? He wonders why your employees won’t talk with you.
- Make rules to control the actions of a few employees that must be extended to the many.
You will always have problem employees and smart managers address the problems directly with the problem employee. Unthinking managers make up new policies and make everyone accountable for adhering to the new policies – whether their performance was problematic – or not. A corollary to making new rules to govern the behavior of a few people occurs, for example, when a manager addresses a problem or issue with his or her whole team when a limited number of team-mates were performing inadequately. By dressing down the whole group, the manager alienates the positive, productive employees who wonder what the problem is and resent being “yelled at.” And, the employees who have the problem hide out in the crowd, fail to take the criticism to heart and rarely reform their behavior. For example, in a high school, the principal became increasingly upset with a few teachers who persistently arrived late to work and were unprepared to teach their first session. Or worse, they were not there on time to supervise their students. He began by yelling about attendance at every staff meeting. When his yelling created no improvement, he yelled louder and threatened the entire teaching staff with suspension. Then, he created a sign-in list in the main office and required teachers to sign in and out daily so he could monitor them. This caused, on a daily basis, teachers who formerly entered the building by the door convenient to their classroom, to make two unnecessary treks to the office each day. Several had to make child care changes and all felt as if they were not trusted. The sign-in list was a true morale buster the entire school year and the behavior of the miscreants never changed.
- Keep the wrong people – for too long.
Managers know fairly quickly that a new employee may not be a good fit for the organization’s needs. But, managers hesitate to address the problem quickly and decisively. They dislike conflict, delude themselves into believing the employee will improve with training, or dread the recruitment and resultant time investment in finding a replacement. They also hate to look like they made a bad choice. No one likes to be wrong. But, wrong becomes right when a manager quickly addresses a bad employment decision or match. In a recent email, a manager told this sorry tale. He hired an employee who had repeatedly demonstrated an unwillingness to abide by the company safety rules. Within the first 60 days of employment, the employee had received two written warnings. On the day he wrote to me, the employee disobeyed another safety rule and broke his ankle. The organization had decided to fire this employee, but they let the situation go on too long. Now they have a mess, a worker’s comp claim, an injured employee, a safety record-able accident, consultation with a lawyer, and all the immeasurable time and attention that addressing the situation will require.
- Make promises that you can’t – or won’t – keep or promises that have conditions attached that you don’t share.
Employees take managers at their word and they are willing to listen and give credence to a manager’s promises one time. If they’re burned, they won’t trust the manager and he will have difficulty overcoming the lack of trust in the future. Six words are important in a manager’s vocabulary. They are, “I don’t know; I’ll find out,” when a manager is faced with any questions or situations about which he or she can’t predict the outcome. In a colleague’s company, for example, a manager promised employees that they would receive comp time for working every weekend for six months. The manager refused to honor the promise because the project failed. At best, the manager won’t have any employees who are willing to work overtime now or in the future. Morale and motivation are shattered. And, at worst, the manager will lose everyone. In this instance, all but two members eventually quit.
- Fail to trust employees until an employee proves himself untrustworthy.
Similar to dealing with offenders directly before subjecting all employees to rules, managers need to make trusting employees their norm, not blindly, but believe that the majority of employees are trustworthy. Then address untrustworthy behavior directly with the employee who is untrustworthy. When managers treat employees as if they are not worthy of trust, they will regard their manager with distrust in return. During an economic downturn, a colleague’s company announced that all exempt employees would be expected to work 7.5 extra hours per week without an increase in pay. The manager decided to check employee attendance by walking around to see if employees were working the extra hours. He even started spot-checking how long employees spent at lunch and breaks. Why was this wrong? Before the added requirement, almost everyone in the department had already been working 50-60 hour weeks, rather than the 35 expected hours. The manager’s actions inspired many employees to cut back on their hours to work just the hours expected. Plus, when he checked and found people in the cafeteria for 30 minutes instead of 15 minutes for what he thought was break, he took punitive action. He forgot to check whether the employees were actually in a meeting about work or on break. Distrust and micro-management breed distrust. Managers have a tough job because they deal every day with people. But, they don’t have to make their jobs even more difficult. Addressing management and employee interaction with common sense goes a long way toward developing an employee-friendly workplace. Positive employee morale and motivation result when managers do the right things right with people.
In this newsletter, I will cover the most common legal business structures, so you can understand which type might be right for your startup. Keep in mind that while this advice is based on my work with tens of thousands of companies over two decades, it’s general information. It’s not a substitute for the advice from an attorney or tax adviser who is familiar with the details of your particular situation.
Sole Proprietorship/General Partnership
The simplest business structure is the sole proprietorship (when there’s only one owner) or general partnership (when there are two or more owners). If you never formally set up a business with the state, then you’re operating as a sole prop or partnership. This is a completely legit way to operate a business in the U.S., but there’s a major downside. As a sole proprietorship/general partnership, there’s no distinction between the owner(s) and the business. This means that all of your personal assets are at risk should your business be sued or can’t pay its bills. For many, this is too big a risk to take.
For those of you just out of school and sitting on more debt than assets, take note. You still should be concerned about personal liability, since settlements can actually last up to 22 years…you need to think about protecting whatever assets you might have down the road.
Generally speaking, a sole proprietorship can work for some part-time freelancers or for those of you who are testing the waters in the very early stages. But, if you’re planning on delivering a product to a customer, you should be concerned about personal liability and should look at one of the formal business structures covered below.
Limited Liability Company (LLC)
The key benefit of the LLC is that it helps limit the personal liability of the owner, while keeping the corporate formalities to a minimum. As an LLC, you’ll typically be required to file an annual report each year with the state and make sure you keep your business and personal finances separate. As we’ll see below, the corporation has many more requirements.
For tax considerations, the LLC can be treated as a pass-through entity: profits and losses are passed along and reported on the owner’s personal tax returns. If your LLC loses money during its first few years, you can apply your percentage of the loss to your personal return and reduce your personal taxes.
The one main downside of the LLC is that an LLC doesn’t have stock. You can give out membership stakes in the business. These ownership stakes are very similar to stock shares, except there aren’t separate classes of membership stakes with the LLC. Additionally, if you’re thinking about giving employees equity in the company, the LLC can be difficult. The problem is that members own 100% of the LLC at all times, so in order to give equity to someone new, an existing member will need to sell/give some of their ownership to the new member. This can make things much more complicated than just setting aside shares of stock with a corporation.
Like the LLC, the corporation separates the business owner from the business, helping to protect personal assets from liabilities of the company. But, there are quite a few key differences.
As a corporation, you will have to deal with many more bureaucratic requirements. For example, you’ll need to create a board of directors, hold an annual shareholder meeting, and document important decisions and actions in meeting minutes. An LLC typically doesn’t need to do any of this. And unlike an LLC, a corporation’s profits/losses aren’t passed along to the owner’s personal tax returns. The corporation itself pays taxes on its profits. If you’re planning on putting most of the company profits in your own wallet, this can create an issue: first, the corporation is taxed on the profits and then, you’ll be taxed personally when you distribute those profits to yourself. This is what we call “double taxation.”
You can elect S Corporation tax treatment with the IRS to have pass-through taxation like the LLC. But not everyone can qualify; for example, all S corporation owners need to be residents of the U.S. and you can’t have more than 100 shareholders. You might be wondering if there are any advantages to forming a corporation. While a corporation is more complicated to manage and can potentially create a double taxation issue, there are some situations where it makes sense.
First, with a corporation, you can easily set aside shares of stock to distribute to future employees down the road. And from a taxation standpoint, the corporation makes sense when you want to keep money in the company. With the LLC and pass-through taxation, you’ll be taxed personally on your percentage of the business’ profits whether you actually see that money or it stays in the business.
Lastly, venture capitalists, accelerator programs, and anyone else that takes equity usually prefer companies to be corporations. This is because investors want to create preferred shares of stock (which isn’t possible with an LLC) and it’s easier to calculate and distribute equity with a corporation. In addition, some VCs are actually restricted from investing in an LLC. If you’re seriously pursuing or considering VC funding, then you may want to create a corporation for your startup. If you think VC funding may be years down the road, then you can start off as an LLC, keep the formalities to a minimum, and convert the LLC to a corporation when you need to.
The bottom line is take some time to understand the different structures and decide which is right for your startup. Most importantly, be sure to protect you personal and minimize the risk of your new venture.
WFB LEGAL CONSULTING, INC.–A BEST ASSET PROTECTION Services Group
LAWYER for BUSINESS
BUSINESS LICENSES AND PERMITS
Compliance is key when starting a business. When you’re embroiled in the excitement of starting a new business, it’s easy to ignore the need for licenses and permits. However, failing to do so, and doing it right from the beginning, is one of the most common mistakes new entrepreneurs make.
The following are some of the most common licenses and permits business owners may need and where to go for more information.
Contact your city’s business license department to find out about getting a business license, which essentially grants you the right to operate a business in that city. When you file your license application, the city planning or zoning department will check to make sure your area is zoned for the purpose you want to use it for and that there are enough parking spaces to meet the codes.
You can’t operate in an area that is not zoned for your type of business unless you first get a variance or conditional-use permit. To get a variance, you’ll need to present your case before your city’s planning commission. In many cases, variances are quite easy to get, as long as you can show that your business won’t disrupt the character of the neighborhood where you plan to locate.
Residential neighborhoods tend to have strict zoning regulations preventing business use of the home. Even so, it’s possible to get a variance or conditional-use permit for a home-based business. In many areas, attitudes toward such businesses are becoming more supportive, making it even easier to obtain a variance.
Fire Department Permit
You may need to get a permit from your fire department if your business uses any flammable materials or if your premises will be open to the public. In some cities, you have to get this permit before you open for business. Other areas don’t require permits but simply schedule periodic inspections of your business to see if you meet fire safety regulations. If you don’t, they’ll issue a citation. Businesses such as restaurants, retirement homes, day-care centers and anywhere lots of people congregate, are subject to especially close scrutiny by the fire department.
Air and Water Pollution Control Permit
Many cities now have departments that work to control air and water pollution. If you burn any materials, discharge anything into the sewers or waterways, or use products that produce gas (such as paint sprayers), you may have to get a special permit from this department in your city or county. Environmental protection regulations may also require you to get approval before doing any construction or beginning operation. Check with your state environmental protection agency regarding federal or state regulations that may apply to your business.
Some cities and suburbs have sign ordinances that restrict the size, location and sometimes the lighting and type of sign you can use outside your business. To avoid costly mistakes, check regulations and secure the written approval of your landlord if applicable, before you go to the expense of having a sign designed and installed.
County governments often require essentially the same types of permits and licenses as cities. If your business is outside any city or town’s jurisdiction, these permits apply to you. The good news: County regulations are usually not as strict as those of adjoining cities.
In many states, people in certain occupations must have licenses or occupational permits. Often, they have to pass state examinations before they can get these permits and conduct business. States usually require licensing for auto mechanics, plumbers, electricians, building contractors, collection agents, insurance agents, real estate brokers, re-possessors, and anyone who provides personal services (i.e., barbers, cosmetologists, doctors and nurses). Contact your state government offices to get a complete list of occupations that require licensing.
In most cases, you won’t have to worry about this. However, a few types of businesses do require federal licensing, including meat processors, radio and TV stations, and investment advisory services. The Federal Trade Commission can tell you if your business requires a federal license.
Sales Tax License
There are two reasons you need a certificate of resale (in some states, this may be called a “seller’s permit” or a “certificate of authority”). First, any home-based business selling taxable goods and services must pay sales tax on what it sells. The definition of a taxable service varies from state to state. Depending on individual state rulings, both the parts and labor portions of your bill may be taxable.
Sales taxes vary by state and are imposed at the retail level. It’s important to know the rules in the states and localities where you operate your business because if you’re a retailer, you must collect state sales tax on each sale you make.
Before you open your doors, be sure to register to collect sales tax by applying for each separate place of business you have in the state. A license or permit is important because in some states it’s a criminal offense to undertake sales without one.
Health Department Permits
If you plan to sell food, either directly to customers as in a restaurant or as a wholesaler to other retailers, you’ll need a county health department permit. This cost varies depending on the size of the business and the amount and type of equipment you have. The health department will want to inspect your facilities before issuing the permit.
With the end of the year lurking just around the corner, the time has come where you must tie up any loose ends regarding the financial and legal aspects of your business. Ending the year the right way will give you the security you need to get a running start going into 2017.
1) Get your financial books in order
Before you can decide to make any last-minute tax moves, you’ll first need to know your business’s financial picture for the year. If you haven’t done so already, take charge of your books to determine what you’ve made and what you’ve spent for 2016. Whether you’re a solo freelancer with a box of paper receipts or a business owner with a bookkeeper on your payroll, you’ve got to get a handle of your business’s profit and loss before you can do anything else.
2) Assess your tax strategies
If after organizing your books, you find yourself with a larger than expected profit, you may want to consider if there are any major purchases you should make while it’s still 2016. Particularly because as of now, the Section 179 deduction limits are set to plummet in 2017.
In addition, if you haven’t already set up a retirement plan, you have until December 31 to sign the paperwork with a financial institution to create a plan (then you have until the extended due date of the 2016 income tax return to make tax-deductible contributions for the year).
3) Look at your estimated tax payments for 2016
Once you have a firm grasp of your business’s profitability for the year, you should assess the estimated tax payments you’ve already made and then plan for your final payment (due January 15) accordingly.
4) Hold an Annual Meeting for your LLC or Corporation
If you’re operating your business as an LLC or Corporation, you’re required to hold an annual meeting for your shareholders (Corp) or members (LLC). Don’t overlook these administrative requirements – if you’ve gone through the work to incorporate your business, you want to keep it in good standing.
5) Check if you need to file your Annual Report
The Annual Report is another admin formality that’s required to keep your Corporation or LLC in compliance. Depending on the state where you incorporated, you may be required to file a report once per year or every two years (due either on the calendar year (i.e. by December 31) or on your date of incorporation). The bottom line? Make sure you know your annual report obligations and deadlines and don’t be late.
6) Verify your 1099/W2 information
If you have vendors and/or employees, this is the time to make sure your records are up to date. Put together a list (or update it) of all the vendors/contractors that you’ll be giving a 1099 to for 2016; make sure you have current mailing addresses and correct Federal ID Numbers. Likewise, if you have employees, update your records for current addresses, names, marital status, etc.
7) Close an inactive business
If you have an inactive business (and no plans for bringing it back online next year), you should formally close it by filing an “Articles of Dissolution” or “Certificate of Termination” document (if it was operating as an Inc. or LLC). Until you file this paperwork with the state, you’ll still be on the hook for an annual report, fees, tax returns, etc. For this reason, you should take the time to close it within 2016, so you’ll be free from any financial or administrative responsibilities the following year.
8)Touch base with your best customers
Your business would be nowhere if it weren’t for your customers or clients. Amid preparing your year-end tax reporting and evaluating your business’s cash flow, make time to personally contact your business’s best clients or customers. The end of the year is an ideal time to show your customers how much you appreciate their business, as well as find out some new ways that you can better serve them in the next year.
HOW TO HIRE AN ATTORNEY
Hiring a good lawyer is crucial to any successful business. Here’s everything you need to know about finding, interviewing and hiring the very best.
There are two professionals every business will need early on: an accountant and a lawyer. The reasons for hiring an accountant are pretty obvious–you need someone to help you set up your “chart of accounts,” review your numbers periodically, and prepare all your necessary federal, state and local tax returns. The reason for hiring a business attorney may not, however, be so apparent. A good business attorney will provide vital assistance in almost every aspect of your business, from basic zoning compliance and copyright and trademark advice to formal business incorporation and lawsuits and liability. First, some general rules about dealing with lawyers:
- If you are being sued, it’s too late. Most small businesses put off hiring a lawyer until the sheriff is standing at the door serving them with a summons. Bad mistake. The time to hook up with a good business lawyer is before you are sued. Once you have been served with a summons and complaint, it’s too late–the problem has already occurred, and it’s just a question of how much you must pay (in court costs, attorneys’ fees, settlements and other expenses) to get the problem resolved.
America’s judicial system is a lot like a Roach Motel–it’s easy to get into court, but very difficult to get out once you’ve been “trapped.” While nobody likes to pay attorneys’ fees, the fees a lawyer will charge to keep you out of trouble is only a small fraction of the fees a lawyer will charge to get you out of trouble once it’s happened.
- Big firm or small firm? Generally speaking, the larger the law firm, the greater the overhead, therefore the higher the hourly rates you will be expected to pay. Still, larger firms have several advantages over smaller ones. Over the past 20 years, lawyers have become incredibly specialized. While larger firms are more expensive to deal with, they have some advantages: 1) they usually have all the legal skills you need “under one roof,” and 2) they have a lot of clout in the local, regional and (perhaps) national legal community. Certainly, if you run a fast-growing entrepreneurial company that plans to go public (or sell out to a big company) someday, you would need to work with lawyers whose names are recognized in the investment banking and venture capital communities.
Types of Attorneys
Like doctors, lawyers are becoming increasingly specialized. Someone who does mostly wills, house closings and other “non-business” matters is probably not a good fit for your business. At the very least, you will need the following sets of skills. The more skills reside in the same human being, the better!
- Contracts. You will need a lawyer who can understand your business quickly; prepare the standard form contracts you will need with customers, clients and suppliers; and help you respond to contracts that other people will want you to sign.
- Business organizations. You will need a lawyer who can help you decide whether a corporation or limited liability company (LLC) is the better way to organize your business, and prepare the necessary paperwork.
- Real estate. Leases of commercial space–such as offices and retail stores–are highly complex and are always drafted to benefit the landlord. Because they tend to be “printed form” documents, you may be tempted to think they are not negotiable. Not so. Your attorney should have a standard “tenant’s addendum,” containing provisions that benefit you, that can be added to the printed form lease document.
- Taxes and licenses. Although your accountant will prepare and file your business tax returns each year, your lawyer should know how to register your business for federal and state tax identification numbers, and understand the tax consequences of the more basic business transactions in which your business will engage.
- Intellectual property. If you are in a media, design or other creative-type business, it is certainly a “plus” if your lawyer can help you register your products and services for federal trademark and copyright protection. Generally, though, these tasks are performed by specialists who do nothing but “intellectual property” legal work. If your lawyer says he or she “specializes in small businesses,” then he or she should have a close working relationship with one or more intellectual property specialist.
What to Ask When Interviewing Attorneys
- Are you experienced? Don’t be afraid to ask direct questions about a lawyer’s experience. If you know you want to incorporate your business, for example, ask if he or she has ever handled an incorporation.
- Are you well-connected? Your business attorney should be something of a legal “internist”–one who can diagnose your problem, perform any “minor surgery” that may be needed, and refer you to local specialists for “major surgery” if needed. No lawyer can possibly know everything about every area of law. If your business has specialized legal needs (a graphic designer, for example, may need someone who is familiar with copyright laws), your attorney should either be familiar with that special area or have a working relationship with someone who is. You shouldn’t have to go scrounging for a new lawyer each time a different type of legal problem comes up.
- Do you have other clients in my industry? Your attorney should be somewhat familiar with your industry and its legal environment. If not, he or she should be willing to learn the ins and outs of it. Scan your candidate’s bookshelf or magazine rack for copies of the same journals and professional literature that you read. Be wary, however, of attorneys who represent one or more of your competitors. While the legal code of ethics requires that your lawyer keep everything you tell him or her strictly confidential, you do not want to risk an accidental leak of sensitive information to a competitor.
- Are you a good teacher? Your attorney should be willing to take the time to educate you and your staff about the legal environment of your business. He or she should tell you what the law says and explain how it affects the way you do business so that you can spot problems well in advance. The right lawyer will distribute such freebies as newsletters or memoranda that describe recent developments in the law affecting your business.
- Will you be flexible in your billing? Because there is currently a “glut” of lawyers, with far too many practicing in most geographic locales, lawyers are able to have to negotiate their fees as never before, and it is definitely a “buyer’s market.” Still, there are limits–unlike the personal injury lawyers who advertise on TV, business lawyers almost always will not work for a “contingency fee,” payable only if your legal work is completed to your satisfaction.
Most lawyers will charge a flat one-time fee for routine matters, such as forming a corporation or LLC, but will not volunteer a flat fee unless you ask for it. Be sure to ask if the flat fee includes disbursements (the lawyer’s out-of-pocket expenses, such as filing fees and overnight courier charges), and when the flat fee is expected to be paid. Many attorneys require payment of a flat fee upfront, so that they can cover their out-of-pocket expenses. You should always ask to “hold back” 10 to 20 percent of a flat fee, though, in the event the lawyer doesn’t do the job well.
Lawyers will be reluctant to quote flat fees if the matter involves litigation or negotiations with third parties. In such situations, you will have to pay the lawyer’s hourly rate. You should always ask for a written estimate of the amount of time involved, and notice if circumstances occur that will cause the lawyer to exceed his or her estimate.
If a lawyer asks you for a retainer or deposit against future fees, make sure the money will be used and not held indefinitely in escrow, and that the lawyer commits to return any unused portion of the retainer if the deal fails to close for any reason. You should be suspicious of any lawyer who offers to take an ownership interest in your business in lieu of a fee.
Questions to Ask Yourself Before Hiring an Attorney
- Is this person a frustrated businessperson disguised as a lawyer? Some lawyers get tired of being on the outside looking in when it comes to business dealings. Such a lawyer may attempt to second-guess your business judgment. Be wary of a lawyer who takes too keen an interest in the nonlegal aspects of your work.
- Does this person communicate well? J.P. Morgan once said, “I do not pay my lawyers to tell me what I cannot do, but to tell me how to do what I want to do.” The right lawyer for your business will not respond to your questions with a simple “That’s OK” or “No, you can’t do that,” but will outline all your available options and tell you what other businesses in your situation normally do.
- Do I like this person? Don’t forget to follow your instincts and feelings. You should be able to communicate openly and freely with your attorney at all times. If you feel you cannot trust a lawyer or you believe the two of you have different perspectives, keep looking.
For many entrepreneurs, the idea of consulting a lawyer conjures up frightening visions of skyrocketing legal bills. While there’s no denying that lawyers are expensive, the good news is there are more ways than ever to keep a lid on costs. Start by learning about the various ways lawyers bill their time:
- Hourly or per diem rate. Most attorneys bill by the hour. If travel is involved, they may bill by the day.
- Flat fee. Some attorneys suggest a flat fee for certain routine matters, such as reviewing a contract or closing a loan.
- Monthly retainer. If you anticipate a lot of routine questions, one option is a monthly fee that entitles you to all the routine legal advice you need.
If you think one method will work better for you than another, don’t hesitate to bring it up with the attorney; many will offer flexible arrangements to meet your needs. When you hire an attorney, draw up an agreement (called an “engagement letter”) detailing the billing method. If more than one attorney works on your file, make sure you specify the hourly rate for each individual so you aren’t charged $200 an hour for legal work done by an associate who only charges $75. This agreement should also specify what expenses you’re expected to reimburse. Some attorneys expect to be reimbursed for meals, secretarial overtime, postage and photocopies, which many people consider the costs of doing business. If an unexpected charge comes up, will your attorney call you for authorization? Agree to reimburse only reasonable and necessary out-of-pocket expenses.
No matter what type of billing method your attorney uses, here are some steps you can take to control legal costs:
- Learn what increments of time the firm uses to calculate its bill. Attorneys keep track of their time in increments as short as six minutes or as long as half an hour. Will a five-minute phone call cost you $50?
- Request monthly, itemized bills. Some lawyers wait until a bill gets large before sending an invoice. Ask for monthly invoices instead, and review them. The most obvious red flag is excessive fees; this means too many people–or the wrong people–are working on your file. It’s also possible you may be mistakenly billed for work done for another client, so review your invoices carefully.
- Be prepared. Before you meet with or call your lawyer, have the necessary documents with you and know exactly what you want to discuss. Fax needed documents ahead of time so your attorney doesn’t have to read them during the conference and can instead get right down to business. And refrain from calling your attorney 100 times a day.
- Meet with your lawyer regularly. At first glance, this may not seem like a good way to keep costs down, but you’ll be amazed at how much it reduces the endless rounds of phone tag that plague busy entrepreneurs and attorneys. More important, a monthly five- or 10-minute meeting (even by phone) can save you substantial sums by nipping small legal problems in the bud before they have a chance to grow.
LAWYER FOR BUSINESS: WFB LEGAL CONSULTING, INC.—A BEST ASSET PROTECTION SERVICES GROUP
DO YOU NEED A REGISTERED AGENT FOR YOUR COMPANY AND, IF SO, WHY?
If you’re forming a corporation or a limited liability company, you’ll need to select a registered agent for your business and provide the agent’s name and address on the formation documents you file with the state.
Here’s what you need to know before you choose an agent.
What Is a Registered Agent?
When someone sues a business, they must notify the business of the lawsuit. In some states, a copy of the lawsuit must be delivered in person to a representative of the business. In other states, it must be mailed.
To make it easier to determine who should receive a lawsuit against a corporation or LLC, all states require business entities to keep the name and address of a registered agent on file.
The registered agent is a person or entity that has agreed to be available during business hours to accept lawsuits and other documents on behalf of a business.
Depending on what state you’re in, the registered agent may be called a “statutory agent.” The agent’s business address may be called a “registered office,” and the legal documents the agent accepts may be referred to as “process.” In addition to lawsuits, registered agents may receive subpoenas, tax notices and other official correspondence. They are responsible for passing these documents along to the appropriate person at the corporation or LLC.
Corporations and LLCs must have a registered agent in each state where they are registered to do business.
Who Can Act as Registered Agent?
Registered agent requirements vary slightly from state to state, but there are a few general rules:
- The agent must have a physical street address within the state – a P.O. box won’t do.
- The agent must be available at that address during normal business hours.
- In most states, the agent can be an individual who is at least 18 years old, or it can be a company that provides registered agent services.
- A corporation or LLC cannot act as its own agent, but in most states, one of its employees or owners can be the agent.
Should You Be Your Company’s Registered Agent?
Naming an employee or owner to act as registered agent for your business can save money on registered agent fees and can give you the comfort of knowing that legal documents will go directly to you.
However, acting as your own agent has numerous downsides, including:
- You can be personally served with a lawsuit at your place of business, in front of employees and customers.
- If you act as registered agent, your name and address will be part of your business’s public records on file with the state. This can be a particular concern if you have a home-based business or want to keep your information private.
- Registered agents commonly receive other documents, notices, solicitations and junk mail addressed to the business. If you don’t want to sift through this mail on an ongoing basis, you might prefer an outside agent.
- If your business changes locations or if your agent leaves the company, you need to remember to update your registered agent information with the state. In the midst of a move or reorganization, small business owners seldom remember to do this.
- If you travel frequently or spend a significant amount of time outside the office during the workday, you shouldn’t act as registered agent because you’re not available during normal business hours.
- If you do business in more than one state, you can only act as agent in the state where you’re physically located. Many businesses with a multi-state presence find it easier to hire a company that can provide registered agent services nationwide.
Tips for Selecting an Outside Registered Agent
Your registered agent’s responsibilities don’t end with accepting lawsuits and other documents on your behalf. The agent is also responsible for getting the documents into your hands promptly. If your agent neglects to do this, you can lose a lawsuit through default or you can be subject to court sanctions for ignoring a subpoena.
For this reason, it’s important to choose an agent that is reputable and has a track record for providing registered agent services. Don’t name your second cousin just because he’s agreed to do it for free. Many states’ business filing departments maintain a list of companies that provide registered agent services in that state.
If you are registering to do business in multiple states, consider hiring an agent that will be able to act as your agent in all those states.
Your registered agent plays an important role: ensuring that lawsuits, court documents and notices are brought to your attention promptly, so you can act on them and avoid default judgments, fines and penalties. For this reason, it’s worth taking the time to make sure you choose an agent that’s appropriate for your business needs.
11 MEDICARE MISTAKES TO AVOID
The rules of Medicare are complicated and laden with deadlines that are costly to miss.
Understanding the alphabet soup of Medicare is hard enough without getting lost in the details. But understanding the options – and what mistakes not to make – can help your clients age gracefully and is an essential part of any retiree’s financial plan that advisors should not ignore.
First, let’s generally define the Parts of Medicare. Part A, referred to as original Medicare, focuses on hospital coverage. Part B is medical coverage. Part C (also called Medicare Advantage) is a different way of putting Parts A and B into one plan, offered by private companies. Part D is prescription drug coverage.
The rules of Medicare are complicated and laden with deadlines that are costly to miss. Via Kiplinger, here are 11 common Medicare mistakes to avoid:
- Not reviewing your Part D Plan annually
Medicare Part D is a headache for many to keep on top of. But remember these key points:
- Open enrollment runs from Oct. 15 to Dec. 7 every year.
- During open enrollment it’s essential to review options because there might be changes to your current plan, meaning your cost and coverage would vary. Be leery of plans that increase premiums, increase your percentage of cost for drugs, or other requirements, like having to use a specific pharmacy, to be covered.
- Make sure you check if any drugs you’re on have gone generic, as you might get a nice price reduction.
- Medicare also helps you to compare plans. Check out the various links on Medicare.gov or AARP.org for more information, guidance and price comparison tools.
- Picking the same Part D plan as your spouse
Not all Part D plans are alike, and just because a plan works for you it might not be the same for your spouse, who may be taking different prescriptions. Use the Medicare Plan Finder to determine your out-of-pocket costs on each plan. Also keep in mind that some plans require the use of specific pharmacies.
- Going out of network on private Medicare Advantage plans
If using private Medicare Advantage plans, similar to PPOs or HMOs, you’ll need to utilize the network of doctors and hospitals within the plan to get the lowest co-payments. Be wary that if you go out of network, there may be no coverage at all.
- Not knowing how to switch Medicare Advantage plans anytime if needed
Even outside the annual open enrollment period, it’s possible to switch plans for life-changing events, like moving to a place that isn’t in your current plan’s geographical coverage. And if you’re in the five-star plan, you can make a switch any time during the year. Also, from Jan. 1 to Feb. 15, you may be able to switch from Medicare Advantage to traditional Medicare plus Part D prescription-drug plan.
- Not considering Medigap within 6 months
Once enrolling in Medicare Part B, you have six months to buy any Medicare supplement plan in your area even if you have pre-existing conditions (and at age 65, who doesn’t?). But after six months, insurers can reject you or charge more depending on your health. It depends on your state rules and insurer’s policies. Check at Medicare.gov for your options.
- Not opting for Medicare when you turn 65 (most of the time)
Forever young, so who needs Medicare? Well, you’re smart to take advantage of what the government is giving you, often for free. If you are getting Social Security already when you turn 65, you’ll automatically be enrolled in Medicare Part A and Part B. But if you aren’t receiving Social Security benefits, you’ll have to act on your own to sign up. There are reasons to delay: for example, you or your spouse have a full-time job and already get health care coverage as a part of that. Be aware that if you aren’t collecting Social Security benefits, there’s a seven-month period to sign up for Medicare, which runs from three months before the month you turn 65 to three months after.
- Not signing up for Part B if you have retiree or COBRA coverage
Again, there are many tricky steps in the Medicare signup game. Unless you or your spouse are receiving insurance through a current employer (who has 20 or more employees), Medicare is considered your main health insurance coverage. Retiree coverage, COBRA or severance benefits are NOT primary, and if you don’t sign up for Medicare, you might have gaps in coverage and be late on your Part B premium. So pay attention.
- Missing the Part B enrollment deadline after leaving your job
It’s an alphabet jungle out there, but this one is easy: if you still have insurance through a job when you turn 65, that’s fine. You don’t need to worry about Part B premiums. But within eight months of leaving your job, you need to sign up or you might have to wait for the next enrollment period, meaning a gap in coverage. Then there is also the possibility of a 10% lifetime late-enrollment penalty.
- Ignoring income thresholds
Most people pay the minimum of $140.90 a month for Part B premiums and $12.30 per month for Part D. This goes higher depending on your adjusted gross income. So if you are bringing in more than $85,000, that Part B premium could more than double per month, whereas Part D could jump fivefold. Be mindful when you are withdrawing from tax-deferred accounts that you don’t go over the income threshold if possible.
- Not fighting surcharge changes for the year you retire
The Social Security Administration uses your tax returns from the most recent two years to determine if you are subject to an income surcharge, that is you are making more than $85,000 a year. But you can protest it if you prove life-changing events, such as divorce, death of a spouse or retirement.
- Not minding your HSA contributions
You can’t contribute to HSAs if you are getting Medicare, but if you or your spouse have health insurance through a job (with 20 or more employees) and haven’t applied for Medicare or Social Security benefits, you still can continue to add to your HSA. That said, be careful about contributions in the year you leave your job and sign up for Medicare, as your HSA must be prorated by number of months on Medicare.
TAX MISTAKES BUSINESS OWNERS NEED TO AVOID
Here is a list of critical tax mistakes often made by small business owners—and ways you can save money by avoiding them.
- Doing it yourself. The federal tax code is tens of thousands of pages long, with hundreds of complicated industry-specific items. If you really want to maximize deductions, you need an expert. Besides, your focus should be on growing your business, not learning the minutia of the tax code.
- Using the wrong legal entity. If your small business has grown but you still have a sole proprietorship designation, it isn’t helping you. Sole proprietorships are one of the most audited business types. Different entity designations allow for more deductions in some scenarios, and also allow for greater legal protection.
- Mixing expenses. Too often small business owners do not correctly distinguish personal expenses from business expenses. It may not seem like a big deal to forget the odd expense here and there, but they add up quickly—costing you money and potentially triggering unnecessary audits.
- Not properly classifying employees. The rules for classifying employees and independent contractors aren’t as vague as you would think. You should ask yourself: n Do you dictate how, when and where the person works? Do you reimburse their expenses or provide supplies or tools at no cost to them? It’s important that you get the classification right and treat them appropriately from a tax stand point.
- Not properly deducting startup expenses. The IRS allows up to $5,000 of startup expenses in the first year of business, yet this is one of the most frequently missed deductions. You’re also allowed up to $5,000 for organizational expenses, such as having the proper legal entity for your business. That’s $10,000 in deductions in year one!
- Not properly planning for taxes. How often do you rush to finish your taxes just a week or two before the filing deadline? All business owners should practice “forward taxation” by looking at tax consequences throughout the year. This helps you stay on top of operations and get a better net effective tax rate.
- Not keeping accurate records. That shoebox full of receipts isn’t good enough. There are many effective digital tools available to simplify keeping track of your expenses and receipts without overwhelming you with scraps of paper.
- Not using carryover deductions. You may have had $10,000 in expenses one year but were only allowed to deduct $5,000. The remaining $5,000 can be used the following tax year.
- Not filing on time. Often small business owners end up filing extensions because they aren’t prepared to complete their returns on time. If you owe on taxes you will be paying a 5% penalty for every month your return is late, up to a maximum of 25%.
- Using the wrong tax professional. Too many small business owners are using a tax professional who has a general understanding of taxes but doesn’t truly understand their business. Or worse, they just use someone who is only a licensed tax preparer, not a small business expert. The IRS tax code is large and diverse, with many sections that cater to specific industries. Taxes are one of your greatest expenses—it pays to invest in the right people and tools to minimize that expense.
THE RANSOM-WARE PROBLEM AND HOW TO PREVENT IT
Being held for ransom might sound like something from a movie. But in the digital age, criminals have learned how to hold data for ransom—and their primary targets are businesses, hospitals and other enterprises.
This new threat is called ransomware. Ransomware is a malicious piece of software that sneaks onto your computer via a suspicious email attachment or an infected website link. Once it’s on your computer, a hacker has the power to lock up, even encrypt, the data stored on your device. Once the hacker has control, they show you a message prompting you to pay a large amount of money to get access to your own files again.
Ransomware isn’t new, but the threat is growing. The FBI’s Cyber Division reported an increase in ransomware attacks against businesses and organizations in 2015.
“The number of ransomware incidents—and the ensuing damage they cause—will grow even more in 2016 if individuals and organizations don’t prepare for these attacks in advance,” warned the FBI in a recent ransomware awareness campaign.
Unfortunately, there’s not much law enforcement can do to save your data once you’re hit with a ransomware attack. There are, however, steps you can take to protect your business from ransomware attacks.
- Backup Your Files As a business owner, you likely keep payroll and client account information on your computer. Though they are readily available to you there, the FBI recommends using an additional method of file storage. If you keep an extra copy of your most important data on a thumb drive, external hard drive or in a cloud service, you will be able to access these files even if your computer is infected with ransomware. Remember: Just because someone has the treasure chest doesn’t necessarily mean they have the treasure!
- Update Your Software Manufacturers release new versions of their software often. These almost always include improvements to your device’s security. In some cases, updates are released for the sole purpose of patching security holes. Technology is always advancing. Keep pace with what is current to fortify your digital weak points. The FBI recommends setting up your malware and antivirus software to automatically update and run scans on your business computers.
- Be Wary of Suspicious Emails Be cautious of opening emails you weren’t expecting from a friend or coworker, especially if it looks like spam. Files with an extension of “.exe” (executables) could be hiding in the email. Unless you recognize the sender as a trusted friend or brand, it’s best to ignore possible spam.
- Implement Good Digital Policies for Employees Well-trained employees are your first line of defense against cyberattacks. Warn them to follow the email guidelines. Ransomware is sophisticated, sometimes coming disguised as an attached invoice or scanned document, so urge your staff to be skeptical of anything they aren’t expecting to receive. You should also restrict administrative access to only those employees who need access to privileged accounts.
ALSO…..6 Reasons Why You Need to Verify Your Business Listings:
Buying local is more important than ever to consumers. As you strive to improve your business’ search engine rankings, ask yourself how much of your business is driven by out-of-state sales and how much is driven by sales closer to home. If reaching local customers is more important, there’s an easy way to improve your visibility: online business listings.
Your potential customers are using their smartphones, tablets and laptops right now to find nearby businesses, and most of those search results point them to listing sites like Yelp, Bing and Google Places. You simply won’t get that business if you’re not listed.
Here are six reasons why it’s essential to verify your small business information on the top listing sites:
- Improve search rankings: The top non-paid search results returned in broad searches (those with only a city name and a type of business) often include the business listings on sites like Manta, YP.com, MapQuest and Angie’s List.
- Search preference: Google, Bing and Yahoo are businesses, too. The benefit to claiming your business on their listing services is that you can earn more prominent placement on their maps and search pages. For example, Google My Business will walk you through the process of claiming your listing, which is relatively simple. Doing so will put your company on Google Maps, Google Search and Google+. Those results show up in all online searches, including those conducted on mobile devices.
- Mobile ranking: Consumers often search for businesses while they’re in transit. Verifying your company’s listing on MapQuest or Yelp will make you visible through the smartphone apps that are increasingly driving customer spending decisions.
- Accuracy is important: Few things frustrate customers more than visiting a business during the operating hours listed online only to find it closed. You can bet they won’t be returning. Avoid the risk by claiming your business profiles on listing sites and adding the correct contact info and operating hours. On the Internet, accurate information is the hallmark of professionalism. Inaccuracies will cost you customer trust.
- Join the professionals: Claiming your listing benefits your online reputation. This is especially true if you are in the process of building a website, have just opened or have acquired an existing business. Chances are, your competitors have already claimed their listings.
- Visibility on a budget: Most listing sites allow you to claim and update your business profile for no charge. This is a relatively easy way to begin marketing your company online.
Don’t wait any longer. Get online and start claiming your small business listings asap.
HATE MAKING COLLECTION CALLS? HERE’S HOW TO DO THEM CORRECTLY.
Let’s face it: No one likes making collection calls. So it makes sense to try to get the most out of each call.
Making collection calls is a skill you can develop. You have to be able to anticipate what the customer is going to say and be ready for anything, and you must remain in control of the call. For your collection call to be a success, it must always result in agreement as to what is to be done.
From a business owner’s standpoint, a collection call is “just one more thing” they have to do on a long list of things to do. Here are a few tips that will help you get your collection calls done quickly and efficiently.
- Schedule a regular time or day each week to make collection calls.
- Have all account information on hand?
- Leave messages, but do not reveal that the call is about an unpaid bill.
- Get the debtor to acknowledge the debt by asking if there was a question about the charge.
- Offer to take a credit card over the phone for payment.
- Ask when they will pay — and wait for an answer.
- Let them know you are documenting whatever commitment they make about a payment on their account.
You must ask questions that require specific answers when you are making collection calls. Speak with precision and make the transition from questions to a payment arrangement. Each question should be clear and to the point, with silence after each. An example:
Debtor: I can’t pay; I don’t have any money.
Collector: Are you working?
Debtor: Yes, but I just started a job and don’t get paid for two weeks.
Collector: What day will you get paid?
Collector: On Saturday, you can mail me a money order for $25.
This scenario can go in several directions, depending on how the debtor responds.
You have to be positive, confident and compel the debtor to agree to make a payment. Once you have come to an agreement, send a confirmation letter with a payment envelope. Then call on Friday to remind them to mail the payment the next day.
Keep in mind that the people from whom you are trying to get money will use a lot of excuses to avoid paying. I have had debtors tell me they did not receive the confirmation letter with the payment envelope and don’t have any envelopes themselves, so they can’t make the payment. You have to be ready for anything; you will never stop hearing new and different excuses. I told this particular customer that I could send her another payment envelope but I needed a new address so I could make sure she would receive it, and she could make two payments when she received it. The other option was taking a payment over the phone or Western Union that day.
It is essential to convey confidence when speaking to customers about a past-due bill or discrepancy. Does your body or phone language say you’re trustworthy, confident, and competent — or just the opposite? Here are four tips for a confident phone voice that will help you to collect more money:
- Your Greeting:People often make a judgment about you in the first two seconds of an interaction. It’s not what you say in that short time that matters most, but often how you present yourself. A dull, monotone will leave your listener with little confidence in you or your message. Smile when you speak on the phone; it will be noticeable in your voice.
- Your Voice: Sit up straight in your chair and picture the customer across the desk from you. Pay attention to how different your body language is. Do not slump in your chair, and notice how people react to you differently.
- Eye Contact: Since there is no eye contact when you’re on the phone, try to remain focused on the call and not on anything else going on around you. Think about how it feels when you are talking to someone who keeps looking around behind you to see what else is going on. Focus on your caller and be aware and alert.
- Confidence:Former California Governor Arnold Schwarzenegger is an example of someone who has an air of confidence about him. You won’t see him wringing his hands, or rubbing them repeatedly through his hair, shuffling from foot to foot or jiggling the change in his pocket. He comes across as someone who won’t cower or retreat, just as a bill collector should act.
Be ready for some emotional reactions when you make calls to past-due customers. They might be angry, embarrassed, sad, or frustrated. They might cry, swear, and yell. But keep in mind that the purpose of your call is to get the bill paid. You can listen, let them know that you understand, and — based on their situation — offer a solution such as a payment plan or another option that will benefit both of you.
HOW DANGEROUS IS COMMON SENSE TO MANAGERS?
by James Heskett
James L. Heskett is UPS Foundation Professor of Business Logistics, Emeritus at Harvard Business School.
Does Common Sense Impede Change?
Common sense is the decision-maker’s friend when the decision has to be made rapidly, with a minimum of research or formal theory, with no more than moderate risk or consequences, and by individuals who have accumulated experience and wisdom. If those conditions don’t prevail, watch out. At risk of oversimplification, that sums up the responses to this month’s column, in which most readers accepted to some degree author Duncan Watts’ description of how common sense fails us.
First things first. Several offered definitions of common sense. Tomy Tharian, for example, said “common sense is quite often related to … wisdom (from accumulated experience vs. the knowledge that the younger generation acquires so rapidly through social networks).” Noting that Webster’s Dictionary defines common sense as “sound and prudent judgment based on the simple perception of the situation or facts,” JR adds that “Common sense is not in the knowledge but in the application of the knowledge.” Others placed emphasis on the word “common.” S. A. Visotsky, for example, said that “Common sense is defined as beliefs or propositions that most people consider prudent …” Duncan Watts himself found it “surprisingly hard to pin down. Roughly speaking, it is the loosely organized set of facts, observations, experiences, insights, and pieces of received wisdom that each of us accumulates over a lifetime.…”
Common sense had its defenders. C. J. Cullinane commented that “Common sense and experience for all their faults are fast.” Phil Clark added that “how man reacts to a situation is driven by habit and choices gained through experience.” Atul Guglani cited the quotation, “In simplicity lies the ultimate sophistication.”
Many agreed with the author while placing common sense in a broader context. Herb Brotspies quoted Peter Drucker to make his point: “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” Rebecca Mott commented that “Managers who use only common sense to make decisions can fall prey to short-sighted thinking.” Ajay Kumar Gupta cautioned that “we tend to forget many things” and “tend to exclude external dynamics that were present” at the time previous decisions served or failed us.
Most felt that common sense had its place in combination with formal systems of knowledge, research, and planning. As Michael Aschenbach put it, “If you get lost in the woods, it is good to have survival experience. Having a map is nice, too.” Jamie Hsu said that “It is the combination of theory and common sense that makes a great leader and decision maker.” Jeremy Pooley asked, “Could it be that planning and testing helps us better understand the questions we need to be asking and answering before we try and architect solutions?”
Seena Sharp left us with the interesting question of whether, to the extent common sense reflects what has worked in the past, its overuse reduces our acceptance of change? Does common sense impede change? What do you think?
FROM ORIGINAL ARTICLE: Some of the more interesting writing that is relevant to management these days is found in out-of-the-way places in my local bookstore. In addition to the management and economics sections, you should check out neuroscience, psychology, and sociology–the research being reported there on how the mind and body work is thought provoking.
For example, in Everything is Obvious, Once You Know the Answer: How Common Sense Fails Us, sociologist Duncan Watts’ thesis is that, in predicting outcomes and acting accordingly, we give far too much credence to such things as our own experiences, our ability to determine what is important, and history itself—mainly because complex phenomena are based on events that never repeat themselves and can’t be examined scientifically. Once we know the outcome of a situation, we rationalize the reasons why it occurred and convince ourselves that we’ve learned something from it that we can use in making future decisions. As a result, we give unwarranted credit to such things as experience, intuition, and even common sense.
Watts challenges our ability to assess the validity of experiences on which common sense is based, thereby raising the question of whether common sense based on accumulated experience can be of any help to decision-makers forced to predict the future in complex situations. Watts questions much of the recent work that purports to identify causes and effects in complex, unique situations involving such things as tipping points and many of the phenomena examined by the Freakonomists. In fact, nearly all writing about management and behavioral economics that seeks to credit performance to one cause or another is suspect. Anything based on this faux knowledge, including our common sense, is challenged.
If this research were valid, Watts argues, why wouldn’t we be able to predict the success of a strategy, a new disruptive technology, a product, or an advertisement? The reasons he gives are that these phenomena are too complex, involving so many variables that they can’t be repeated or even tested effectively. (The Vanguard Group’s founder, John Bogle, has been arguing this for years, concluding that mutual funds are more successful when they are not managed.)
What are we to do? According to Watts, it may mean confining our use of common sense to everyday routine decisions for which recent experience can truly be helpful, such as the best route to take to work to avoid traffic. Newer technologies such as the Internet, social networks, and specialized hardware may come to the rescue by providing easy ways of surveying customers, testing product features, and conducting business experiments. Rapid-response systems may, in some cases, eliminate the need to predict the future by allowing managers to respond only to events that have just occurred. A variation on this was proposed years ago by Henry Mintzberg in his critique of strategic planning when he suggested that instead of long-term planning, managers should practice “emergent” strategy formulation in which long-term predictions are replaced by efforts to better understand what is going on at present.
According to Watts, leaders run the risk of injecting too much common sense into decisions, uninformed by experimentation that could be designed to identify cause and effect. Does Watts have something here? Are too few strategies based on testing before investing? Do we make too much use of our common sense under the wrong circumstances? Do we use it unreliably to emphasize some and ignore other information? Do we give common sense too much credit for success? What do you think?
Jim Heskett’s latest book,The Culture Cycle, will be published in September.
Reference: Duncan J. Watts, Everything is Obvious, Once You Know the Answer: How Common Sense Fails Us (New York: Crown Business, 2011)
4 KEY LEGAL ISSUES ONLINE MARKETERS NEED TO KNOW ABOUT
Marketing can be extremely beneficial for your business. It consolidates already-existing client relationships and builds new ones.
However, there are several key legal issues you need to be aware of before you start contacting customers or potential customers. The four main legal areas you need to consider are: privacy and data collection; intellectual property issues; rules and regulations of the FTC and other consumer protection bodies; and SPAM laws.
- Privacy and Data Collection
It may seem simplistic to point out that before you can send marketing emails or messages, you need to collect the contact information of your customers or potential customers. Yet, the actual process of collecting the information is far more complex than it seems, particularly if you’re trying to collect it in a legally compliant manner.
Most jurisdictions around the world have privacy legislation in place that requires you to notify people before you collect their personal information. This includes someone who is already a customer, although the UK has more permissive laws for people who have already purchased something from you.
In the US, there is no overarching privacy law that applies to the collection of data, but California has a piece of legislation that covers online privacy – the California Online Privacy Protection Act (OPPA). It requires that you need to disclose:
- The kinds of information your website or online marketing tactics collect
- How the information may be shared
- The process your customers can follow to review and change the information you have about them
- Your policy’s effective date and a description of any changes since then
If you have an online store or if you’re marketing to people online in the US, you’re likely to have customers or potential customers in California, so you should take care to comply with this law.
Security and Cloud Storage
It’s also important to reassure your customers that once you’ve collected their information, you will keep it secure. Your users need to feel they can trust you. You can show them you are trustworthy by informing them about how you will protect and store their information.
Take a look at this example from Google that lists the protection mechanisms they have in place:
One simple way to protect customer privacy when you collect information is to use security mechanisms such as SSL. This refers to the connection between your website and the user’s browser is secure when data is transmitted. Ensure that any websites you use with your customers have SSL enabled.
Another potential security issue is the storage of customer data. A popular way for many online businesses and marketing companies to store data is to use cloud storage providers. To reassure your customers that you are keeping their data safe, always choose a reputable provider. Preferably, choose a reputable provider within your own jurisdiction. This is because some jurisdictions have legal requirements that data should either not be transferred out (or must be accessible in some form) or should be transferred only to jurisdictions with similar legal protections for the data in place. If you overlook this fact and store data with a cloud storage provider in another jurisdiction that has inadequate protections, you may be in breach of your local laws.
You can see that the clause limits Amazon’s liability and includes no liability for loss to any files. You want to ensure that you are not liable if a third party (the cloud storage provider) has a data leak. To maintain customer trust, use only reputable providers and be transparent about whom your customer data is stored with.
How to Comply
- Require your customers or website users to agree to it when you collect information from them
- Once you’ve collected the data, keep it with a reputable cloud storage provider
- Protect yourself from liability in the case of data loss
- Intellectual Property Issues
The next legal issue to consider as a marketer is intellectual property. First, you want to protect your own intellectual property, such as trademarks and copyright. Second, you want to ensure that you don’t infringe on the intellectual property of others. Below are the main types of intellectual property protection you may need:
If you are sending out marketing emails or contacting people with flyers or advertisements, the first thing you will need to protect is your brand or logo.
Registering a trademark gives you the exclusive right to use a specific word or words, name, design, or logo in connection with specific goods or services. It is valid for 10 years and is renewable if certain requirements are met.
Before you register yours, check that you are not infringing on anyone else’s trademark and that your logo is not too similar to someone else’s. The easiest way to do this is to have your lawyer check whether your proposed mark is similar to any other marks. The lawyer will search an intellectual property register, namely the U.S. Trademark Database. They may also search international registers or registers in other jurisdictions, depending on how broadly you plan to market using your mark.
You can search the Database on your own, but an intellectual property lawyer will have a better idea of what you need to search for. Sometimes you need to search for the same trademark in multiple categories of goods; for example, a trademark that you want to register for marketing relating to a supermarket roadshow may come under categories relating to food, alcohol, other beverages, supermarkets and retail stores, marketing, and many more.
If you use original marketing language on your website or text in emails, you may want to copyright that text. Copyright relates to authorship of original works, including literary, dramatic, musical, artistic, architectural, and a broad range of other works.
If you work with any third parties who write your marketing copy or text for you, ensure that their work is checked for plagiarism. You don’t want to infringe on someone else’s copyrighted work when sending out your emails or newsletters.
Here’s an example from Ads Direct of what you might include in your Terms of Service to protect your intellectual property:
You can see that they list a number of different types of intellectual property (names, graphics, logos, etc.) and that they also claim they do not own any third-party names, trademarks, or service marks that may appear on their website. If you partner with any other organizations or use quality assurance marks on your marketing materials, this may also be worth covering in your clause.
How to Comply
- Check that your proposed branding is not infringing on anyone else’s
- Get your intellectual property registered
- Hire a lawyer if you need help
- Set out your intellectual property use expectations clearly in your Terms of Service
Rules and Regulations of the FTC and Other Consumer Protection Bodies
The Federal Trade Commission (FTC) has dominion over several key areas relevant to marketers: privacy, anti-spam legislation, and truth in advertising.
The FTC requires that advertisements and marketing messages must not mislead consumers or unfairly affect consumers’ behavior or decisions about the product or service. Unfair or deceptive advertising is prohibited, which means that any marketing must tell the truth and not leave out any relevant information that a consumer would be interested in.
Be careful with any comparative analysis or marketing. If you don’t compare products fairly and transparently, you may be breaching advertising standards. Check the wording of your marketing messages carefully and ensure that someone outside of your marketing team (such as someone from your legal team) has a quick look at what your message is saying. A fresh pair of eyes may notice claims that aren’t quite true or descriptions that overemphasize a product’s abilities.
4. Anti-Spam Law
The main anti-spam law in the US is called CAN-SPAM. The FTC enforces CAN-SPAM and has issued guidance on how to comply.
To recap, CAN-SPAM requires that you:
- Don’t use false or misleading header information
- Don’t use deceptive subject lines
- Identify the message as an ad
- Tell recipients where you’re located
- Tell recipients how to opt out of receiving future email from you
- Honor opt-out requests promptly
- Monitor what others are doing on your behalf
The FTC also has guidelines to help you make your business “consumer friendly” overall for international e-commerce. Before you begin marketing your business, be sure that you’ve incorporated some consumer friendly business tips so that you don’t run into trouble further down the line.
If you get into trouble with the FTC or any other consumer protection body, be prompt and clear in your communication with them. Aim to work together toward a solution right away, as it may help you avoid prosecution.
How to Comply
- Be aware of what regulations and laws the FTC and other regulators cover
- Educate yourself on what you need to do to comply
- If you get into hot water with any regulator, work with them to solve the problem
ARE UNDOCUMENTED WORKERS PROTECTED BY CALIFORNIA LABOR LAWS?
All California workers — whether or not they are legally authorized to work in the United States — are protected by state laws regulating wages and working conditions. All California workers have the right:
• To Receive a minimum wage of $9.00 per hour and $10.00 per hour beginning January 1, 2016
• To earn overtime pay — with some exceptions — after working more than eight hours per day or more than 40 hours in one week
• To file wage claims with the state labor commissioner if they believe their employer has violated state wage laws
• To file workplace safety and health complaints with Cal/OSHA, the state’s workplace safety and health program
• To work in an environment free from retaliation for exercising their rights.
The California Department of Industrial Relations – which enforces the state’s labor and workplace safety and health laws – will not question workers about their immigrant status. The department will:
• Process all wage claims without regard to a worker’s immigration status
• Hold hearings to recover unpaid wages and represent workers without regard to the worker’s immigration status
• Investigate retaliation complaints and file court actions to collect back pay owed to any worker who was the victim of retaliation for having complained about wages or workplace safety and health, without regard to the worker’s immigration status
• Vigorously enforce the state’s employment laws to protect all California workers.
WHAT IS “FOREIGN” QUALIFICATION REALLY, AND DO I NEED IT?
QUALIFIED TO DO BUSINESS IN OTHER STATES?
Doing business in other states—known as foreign qualification—can often be confusing. It may sound like an international concept, but “foreign” doesn’t mean something outside of the United States when it comes to U.S. corporations and Limited Liability Companies (LLC). It’s really about operating domestically in the U.S., but outside of the state in which you incorporated your business.
WHAT IS FOREIGN QUALIFICATION?
Foreign qualifying is simply registering to do business in a state other than the one in which you incorporated. That’s because corporations and LLCs are considered domestic only in their state of incorporation. For example, if you form an LLC in Delaware, it is only domestic in Delaware and considered a foreign LLC in other states.
FOREIGN QUALIFICATION PROCESS AND REQUIREMENTS
When you foreign qualify a business, you register for a Certificate of Authority in the state(s) where your company will do business and pay required state fees. This notifies the state that your company is conducting business within its borders. Remember: your business will be subject to ongoing reporting requirements, fees and taxes in both your state of incorporation and state of qualification. If your business expands into new states and you need to foreign qualify, these initial and ongoing fees should be considered a necessary part of doing business.
DO YOU NEED TO FOREIGN QUALIFY?
If you are currently evaluating whether to incorporate in a state other than one where you are located (your home state) such as Delaware or Nevada, you should consider whether you may need to foreign qualify in your home state. There are many factors used in determining the need to foreign qualify. While different states have different criteria for transacting business, consider the following:
• Does your company have a physical presence in the state?
• Does your company have employees in the state?
• Does your company accept orders in the state?
• Does your company have a bank account in the state?
If you answered yes to any of these statements, you will likely need to foreign qualify your business in the state.
If you’re still not sure if you need to foreign qualify, you may want to get the advice of an attorney.
CONSEQUENCES OF NOT FOREIGN QUALIFYING
Since there are additional costs—including initial and ongoing fees from both your state of incorporation and state of qualification—you may wonder if the process is really necessary. But state laws require foreign corporations and LLCs doing business within their borders to foreign qualify, and the consequences of not doing so outweigh the costs:
• You may lose access to that state’s court system. For example, if an employee or customer within a state in which you do business sues your company, you can’t defend the lawsuit in that state, because your company is not recognized as a business there.
• You may face fines, penalties and back taxes for the time in which your company did business within a state without being foreign qualified there.
FOREIGN QUALIFY OR INCORPORATE IN EVERY STATE?
An alternative to foreign qualifying is to incorporate your business or form your LLC in the other state(s) in which you plan to do business. The primary difference is that when you incorporate or form your LLC in multiple states, your company becomes domestic in each of those states, thereby creating separate entities. Consider the following in making your decision:
• Increased corporate formalities. For corporations, the increase in corporate formalities is a big disadvantage. Corporate formalities include drafting and maintaining bylaws; issuing stock and recording all stock transfers; holding initial and then annual meetings of directors and shareholders; and keeping minutes of all director and shareholder meetings with the corporate records. LLCs do not face the extensive formalities imposed on corporations.
• Separate owners and management. When you create a separate corporation in each state, each has its own stock, shareholders, directors, and officers. Even if they are the same people for each, the formalities apply for each domestic corporation, greatly increasing the annual record-keeping requirements.
• One company versus separate companies. When you foreign qualify, only one corporation or LLC exists. For corporations, regardless of the number of states in which it foreign qualifies; it needs only one set of bylaws, stock, shareholders, directors, and officers. Record keeping for initial and annual meetings of directors and shareholders happens only once.
• Separation of liability between businesses. Forming a new corporation or LLC in each state provides liability separation. For example, if one of your companies is forced into bankruptcy in one state, company assets in the other states typically are not used to pay for the bankrupt business. If you have foreign qualified in each state, only one corporation or LLC exists, so there is no separation of liabilities.
WHEN COULD A NEVADA LLC CHARGING ORDER MAKE SENSE FOR CALIFORNIANS?
In Nevada, the general rule is that the money or property of a Nevada limited liability company (“LLC”) cannot be taken by creditors to pay off the personal debts or liabilities of the LLC’s owners.
Example: John, Oliver, and Miranda form a Nevada LLC to operate their small hotel. John, a big spender, owes $38,000 on his personal credit cards. When he doesn’t pay, the accounts are turned over to a collection agency which obtains a $38,000 court judgment against him. While the collection agency can attempt to collect on the debt from John’s personal assets, it cannot take money or property owned by the LLC. For example, it cannot get any of the money held in the LLC’s bank account.
Even though creditors can’t collect directly from an LLC for an owner’s personal debts, there are other ways creditors might try to go after the LLC for the owner’s personal debt. These include:
1) Obtaining a charging order requiring that the LLC pay the creditor all the money distributed to the debtor-owner
2) Foreclosing on the debtor-owner’s LLC ownership interest, or
3) Getting a court to order the LLC to be dissolved and all its assets sold.
The laws on what creditors are allowed to do vary state by state. This article will look at what type of actions creditors of LLC owners are allowed to take against an LLC in Nevada.
Charging Order – Exclusive Remedy
Nevada law was changed in 2011 to specify that a charging order is the exclusive remedy available to personal creditors of a Nevada LLC member. A charging order is an order issued by a court directing an LLC’s manager to pay to the owner’s personal creditor any distributions of income or profits that would otherwise be distributed to the member. Creditors with a charging order only obtain the owner-debtor’s “financial rights” and cannot participate in the management of the LLC. Thus, the creditor cannot order the LLC to make a distribution or otherwise foreclose on the LLC owner’s interest.
Example: A collection agency obtains a charging order from a Nevada court ordering the Nevada LLC to pay to it any distributions of money or property the LLC would ordinarily make to John until the entire $38,000 judgment is paid. However, if there are no distributions, there will be no payments.
Nevada’s law states that foreclosure and other equitable remedies are not available to creditors of an LLC owner. However, an LLC member and creditor can agree in writing that other remedies will be available to the creditor and that agreement will be upheld provided it does not conflict with the LLC’s articles of incorporation or operating agreement.
Single-Member LLCs Get Charging Order Protection Too
The reason personal creditors of individual LLC owners are limited to a charging order is to protect the other members (owners) of the LLC. It doesn’t seem fair that they should suffer because a member incurred personal debts that had nothing to do with their LLC. Thus, personal creditors are not permitted to take over the debtor-member’s LLC interest and join in the management of the LLC, or have the LLC dissolved and its assets sold without the other members’ consent.
This rationale disappears when the LLC has only one member (owner). As a result, the LLC laws and court decisions in some states make a distinction between multi-member and single-member LLCs (“SMLLCs”) and don’t limit personal creditors of owners of SMLLCs to the same remedies as multi-member LLCs.
However, unlike some states that have chosen to allow creditors to go after a SMLLC’s assets, Nevada’s LLC law specifically provides that a charging order is the exclusive remedy available to personal creditors of LLC owners “whether the limited-liability company has one member or more than one member.” Thus, Nevada law makes clear that both multi-member LLCs and SMLLCs are entitled to the charging order protection. This makes Nevada one of the most favorable states for forming an LLC for liability protection.
However, just because you form your SMLLC in Nevada doesn’t necessarily mean that Nevada’s LLC laws will always apply to it. It’s possible that in some cases the LLC laws of other, less debtor- friendly, states would apply–for example, where a Nevada LLC does business or owns property in another state. In addition, the protections Nevada and other state LLC laws provide to SMLLCs may be ignored by the federal bankruptcy courts if the SMLLC owner files for bankruptcy.
JOINT TENANCY TIPS
A joint tenancy is a form of joint possession of real property. Joint tenancy is similar to tenancy in common in that certain rights and duties come with joint tenancy, but joint tenancy includes a right of survivorship. A right of survivorship means that if a joint tenant dies, their interest in the land passes to the other joint tenant(s). The surviving joint tenant(s) have a right to the whole estate. Thus, when a joint tenant dies, they may not pass their share on to their heirs. Joint tenants are entitled to possess and use the entire property, even though they only own a share of it.
In order for a joint tenancy to exist, four conditions, or unities, must be met:
• All tenants acquired the property at the same time
• All tenants have an equal interest in the property
• All tenants acquired title by the same deed or will
• All tenants have an equal right to possession
If any one of the four unities has not been met, or if it is unclear whether a joint tenancy has been formed, most courts will presume that the more favored tenancy in common has been formed.
In order to terminate a joint tenancy, one of the four unities must be destroyed. You may do this by conveying your joint tenancy interest to any third person. This can be done through gift or sale. Upon termination, a tenancy in common is formed between the third person and the remaining co-tenant(s). A joint tenant may transfer their interest unilaterally and without the knowledge or consent of the co-tenant(s).
If you want to terminate your joint tenancy, and still retain an interest in the property, you have a few options.
• First, you and your co-tenants can agree to convert the joint tenancy into a tenancy in common.
• Second, you may unilaterally, and without the knowledge or consent of your co-tenant(s), transfer your share to a third person who is acting as a straw-man. This straw-man will then transfer your share back to you. However, because the four unities no longer exist, you now own a share as a tenant in common. The modern trend among states is to allow unilateral conversion of a joint tenancy to a tenancy in common without the use of a straw-man. Many states now allow a joint tenant to simply transfer their own interest to themselves, thus eliminating the need for a third person as a straw-man. It is important to note that some states, like California, require the severance to be recorded for it to be valid. An unrecorded severance may reserve a right of survivorship for the non-severing tenant.
• Third, you can seek judicial partition. There are two kinds of partition:
Partition in kind is physical division of the land. The court decides how to split up the land between co-tenants so each receives a portion equal to their share. If the court is unable to equitably split up the land, then partition by sale will be used. In partition by sale, the court forces the sale of the property and each co-tenant receives their share of the profits.
“ACTION ITEMS” TO PROMOTE THE GROWTH OF YOUR BUSINESS–DO YOU APPLY THEM?
The “ACTION” items below are critical to the continued success and growth of any business.
Protect Your Business Name and Trademarks: Building a powerful and meaningful brand is a top priority for most small business owners. Unfortunately, protecting that brand from infringing, unscrupulous competitors often takes a back seat when we are overwhelmed with the other daily activities of running a business. By taking a few simple steps today, however, you can protect your brand from unscrupulous competitors and “cyber-squatters” who literally “steal” your customers and potential clients by registering a trademark with the United States Patent and Trademark office (USPTO).
ACTION ITEM: Register My Trademarks and Brands with the USPTO
Ensure My Corporate Records are Current : The corporation or LLC is the smartest and most preferred business structure. With a protective business structure, however, comes certain responsibilities and required state and county filings. If not timely filed, you could face penalties, the loss of my personal asset protection, or even a state initiated business dissolution (i.e. the state can actually dissolve your business).
ACTION ITEM: Hold your annual meeting, record any minutes needed to reflect actions taken during the year, speak with a corporate compliance filings expert to determine whether we need to make any state or county filings, review current licenses and any changes in state or county licensing requirements. Confirm “Good” Corporate Standing : The benefits of the corporation or LLC are only incurred where a corporation or LLC remains in “Good Standing” with the state office. There are a number of reasons by a business may fall into “Bad Standing.”
ACTION ITEM: Check with the state office to ensure “Good Standing”
Dissolve an Inactive Business : It’s rarely pleasant. However, when a business fails or winds down for some reason, a state filing is usually required. If you fail to comply with the state filing requirements associated with dissolving or winding up my business, you could PERSONALLY be held liable for taxes, penalties, and other fines.
ACTION ITEM: Prepare and submit state filing needed to dissolve any inactive businesses.
Contribution By Mark Wilson, Esq.
You’ve heard the horror stories before. Businesses getting offensive with bad reviews on Yelp have been requiring customers to sign non-disparagement agreements. (A Non-Disparagement clause restricts individuals from taking any action that negatively impacts an organization, its reputation, products, services, management or employees. They are found in virtually all settlement agreements and about a quarter of executive employment agreements.) Those customers purportedly can’t write negative reviews (though they’re more than free to write stellar reviews).
The Rundown on AB 2365
Governor Jerry Brown signed AB 2365 into law on September 9. Dubbed by some as the “Yelp bill,” it adds a new section to the Civil Code preventing contracts from containing clauses that limit a customer’s right to make statements about the business.
The bill also makes it unlawful to threaten to enforce such provisions, makes waivers of this provision void, and allows for civil penalties ranging from $2,500 to $10,000. It also allows review websites to remove reviews that are otherwise unlawful.
Cracking Down on Waivers
Businesses have been trying a variety of tactics to get rid of negative reviews, from stopping them at their inception through waivers to filing defamation lawsuits after the fact. The defamation suits usually don’t go anywhere and result in the business getting hit by California’s anti-SLAPP statute. (In short, a procedure to address a cause of action against a person arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue. The statute allows a special motion to strike such a cause of action, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim).
Recently, the online retailer KlearGear levied a $3,500 “penalty” on Utah resident John Palmer for leaving a negative review in violation of KlearGear’s terms of service, which prohibited disparagement. Palmer refused to pay the penalty, which was then sent to collections, damaging his credit. In May, a federal judge in Utah awarded Palmer and his wife over $300,000.00 in compensatory and punitive damages, plus attorneys’ fees.
Consequently, there is a case to be made that businesses have no recourse against consumers leaving bad reviews. In truth, consumers — or anyone else (like a competitor) — could leave bad reviews for any number of reasons. For example, how many reviews have you read where unsophisticated diners complained that the waiters at a European-style restaurant didn’t check on them often enough? A simple five-star metric doesn’t tell you whether the reviewers know what they’re talking about.
To make matters worse, the Ninth Circuit recently held that it was perfectly fine for Yelp to demand that businesses pay for Yelp-provided marketing, or else Yelp would hide positive reviews. Some people might call this “extortion,” but the Ninth Circuit didn’t. Some businesses are attempting to fight back. To prove a point about the unreliability of Yelp reviews, Botto Bistro in Richmond (in Contra Costa County) is proving a point about Yelp’s unreliability by offering discounts to customers who do post negative reviews of the place on Yelp.
Truthfully, both sides have little more than anecdotes to prove either that businesses are restricting a consumer’s right to write bad reviews or that businesses have no way to fight back. Unfortunately, the silent partner in both transactions is Yelp, which makes money no matter who wins.
PROTECT YOUR ATTORNEY-CLIENT PRIVILEGE!
Not all information with your lawyer needs to be attorney-client privileged, but keep these tips in mind when communicating highly-sensitive information to your attorney and let your attorney know before you provide the confidential information that you intend it to be privileged, so that they can ensure that your information is properly handled and so that non-lawyer third-parties are only involved when the privilege can be maintained.
When planning your business and tax structure with your lawyer, it is important to understand what is privileged and what is not. Often times, clients divulge information to their lawyer and wonder whether that information is “attorney-client privileged” or not. Attorney-client privilege is an important legal protection offered to persons, companies, and organizations who provide confidential information and who seek counsel from their lawyer or law firm. Under law, an attorney cannot be required to provide attorney-client privileged information to a plaintiff in a law suit (e.g. creditor) or to a government agency (e.g. the IRS) except under limited situations. Here are a couple of common situations where you may lose attorney-client privileged information and some tips to make sure your confidential information provided to your lawyers doesn’t run into the exceptions.
EXCEPTIONS TO THE ATTORNEY CLIENT PRIVILEGE RULE
1. THIRD PARTY NON-LAWYER PRESENT- Was a third party present with your lawyer when the information you want to be privileged was discussed. For example, was your accountant or financial adviser present when discussing information you want to remain confidential and to remain privileged. Keep in mind that if a third party is present in a meeting or on a conference call then that third party may be required to provide information or documents from the meeting and that your accountant, consultant or adviser can’t raise the attorney-client privileged defense for you unless they are actually your attorney. If an third party professional does need to be hired (e.g. an accountant or CPA), that third party can be hired or brought into the matter by the attorney and the privileged may remain in tact. This is known as a “Kovel” hiring of the accountant and stems from a case where a lawyer engaged an accountant for the client and the accountants work therefore was covered under the lawyer’s attorney-client privilege.
TIP: For sensitive matters where you want information to remain confidential and privileged, do not involve outside parties as those outside parties or non-attorney advisers as those parties cannot raise the attorney-client privileged defense.
2. ONLY LEGAL ADVICE IS ATTORNEY-CLIENT PRIVILEGED – Only information exchanged when seeking legal advice is attorney-client privileged. This is especially tricky for companies who have their own “in-house” legal counsel who also offers business advice. Only the information exchanged that pertains to legal advice would be privileged. For example, was an organization chart of the companies holdings “privileged” when provided to the company lawyer also manages those assets for the business? Also, what if that lawyer disseminated that organization chart to accountants, property managers, or other non-lawyers? If they did, then that information is no longer attorney-client privileged.
TIP: If you have sensitive documents or information you want to keep in communication only with your lawyer, ask your attorney to identify the document as “Attorney-Client Privileged” and do not provide it to non-lawyers.
Say you’re currently living in Asia, and plan to start a new business out here with some local partners. However, there’s an outstanding civil judgment against you in the U.S. The new business entity is formed in Vietnam, let’s say, and all of its assets are located in California when a judgment is obtained against the business. What can be done, if anything, to protect those assets?
A creditor would realistically have to begin a new suit in the foreign country or countries in order to collect on the assets, assuming a jurisdictional basis for doing so. For example, foreign-country money judgments can be enforced in California. This right is becoming increasingly important given the ever-growing internationalization of commerce and banking, and the movement of people. It is not uncommon for debtors on unsatisfied foreign-country money judgments to own high-value assets located in California. For instance, significant California real estate is owned by foreign nationals and vice versa, and presumably such assets can be reached to satisfy judgments rendered abroad.
Reasons for sitting down with an attorney to draft a trust include getting married or buying a house, but the most common reason is the arrival of children. But once you’ve done your trust, when should it be updated?
If nothing sudden or interesting has happened such as the birth of a child, death of a family member or sudden change in your balance sheet, then a good benchmark for reviewing your estate plan is every 3 years.
By “reviewing your estate plan,” I refer to sitting down with your attorney and reviewing your goals and objectives in light of your current situation. Analyze whether your current documents are the right plan to achieve those goals. Depending on who you are and what your objectives were the last time you drafted your trust and related documents, you may be looking for things like changing personnel – updating the executor, the guardians, or changing the order of the trustees.
Alternatively, if your plan is focused more on disposition of your assets, it may be that you change your balance sheet around.
— You might have bought or sold a house, so the description in your trust is no longer current.
— Maybe you have different jewelry or collectibles.
— Or perhaps you’ve changed the structure of your balance sheet away from, for instance, real estate and toward stocks and securities.
Makes perfect common sense to review your estate plan just as you would your insurance needs or stock investments, right?
While termination is never a pleasurable experience for anyone involved, that doesn’t mean respect goes out the window. Employers should always remember to provide a clear explanation of employee deficiencies as well as any explanations about the details surrounding the termination. Tell the employee exactly when the termination is effective, what the severance pay will be if any, when they can expect their last check, and what services might be available to them, if any, to help make the transition. Be cognizant of these steps:
- Have the help of another person during the actual termination interview. They should be present to be a witness and to take notes. Their primary purpose for being there is to observe and document the proceedings, but they may also be there to lend support, if necessary, in the appropriate manner decided upon in advance.
- Try to hold the termination meeting at a time and location that will not parade the employee through the job site at a peak period—say late afternoon.
- Meeting should only last between 5 and 10 minutes. The purpose of this meeting is to inform the employee of the decision, not to debate it or review it. If the employee wants to debate the decision ask them to use the grievance procedure or to write you a letter after they have thought it over for a day or so. No in-person debates, but a letter lets them have their “last word” if that will help them get through the process.
- Try to make sure that you can exit the interview gracefully and at the time of your own choosing. You don’t want to be stuck in a situation where the employee won’t leave when you want them to, or where you have to walk out of a situation where things have not been resolved and you have to “escape”. Tell the employee up front that you have another appointment in about 15 minutes. Inform them that you wanted them to be treated with respect by a prompt notification of the decision.
- From the moment you contact the employee for the interview until the moment you depart your goal should be to control the interview. Decide what “tone” will you set and stick to it. It is usually advisable to set a positive tone if possible. A firm but courteous tone is often the most effective under the circumstances. Do not be distracted from your “script” of how the meeting must progress.
- Provide clear explanation of deficiencies. Any explanations about the details surrounding the termination, such as exactly when the termination is effective, what the severance pay will be if any, when they can expect their last check, what services are available to them to make the transition, etc. should be stated clearly, definitively and in easily understandable language.
Always tell the employee that a confirming letter will follow regarding any benefits since major “he said – she said” misunderstandings can occur at stressful meetings such as one for termination of employment. A Severance package can accompany this letter as well.
Being prepared and keeping a controlled and respectful tone will likely be the most important elements in conducting yourself professionally in a termination meeting. Always remember to:
- Look the employee in the eye.
- Watch your tone of voice when speaking.
- Take time to listen to what they say and pause before you speak in response.
STATE INCORPORATION FEES
For the new small business owner, a common question is “Where should I incorporate my business?” Some entrepreneurs choose to form an LLC or incorporate where they live, while others opt for a business friendly state like Delaware or the state with the lowest fees.
As you’ll see below, states vary when it comes to formation and annual report fees. It’s tempting to choose the lowest costs available, but keep in mind that the cheapest state to form an LLC or a corporation won’t necessarily save you money. Why? When you incorporate in one state and then are physically located/do business in another state, you’ll need to register in the other state as well. And that means paying those state filing fees and taxes.
While most small businesses will benefit from incorporating/forming an LLC in the state where they’re located, it’s always good to see the prices differences across the 50 states. To that end, here’s a compilation of the formation and annual maintenance fees for each state. Keep in mind this data is current as of March 2015 and is subject to change.
Alabama: LLC filing fees: $165; LLC Annual Report; $0, Incorporation filing fees: $165; Corporation Annual Report: $0
Alaska: LLC filing fees: $250; LLC Initial Report: $0; LLC Annual Report: $100; Incorporation filing fees: $250; Corporation Initial Report: $0; Corporation Annual Report: $100
Arizona: LLC filing fees: $50; LLC Publication fee: $299 (required); LLC Annual Report: $0; Incorporation filing fees: $60; Corporation Publication fee: $299 (required); Corporation Annual Report: $45
Arkansas: LLC filing fees: $50; LLC Annual Report: $150; Incorporation filing fees: $50; Corporation Annual Report: $150
California: LLC filing fees: $75; LLC Initial Report $20; LLC Annual Report: $20; Incorporation filing fees: $105; Corporation Initial Report: $25; Corporation Annual Report: $25
Colorado: LLC filing fees: $50; LLC Annual Report: $10; Incorporation filing fees: $50; Corporation Annual Report: $10
Connecticut: LLC filing fees: $175; LLC Annual Report: $20; Incorporation filing fees: $455; Corporation Annual Report: $100
District of Columbia: LLC filing fees: $220; LLC Annual Report: $300; Incorporation filing fees: $220; Corporation Annual Report: $300
Delaware: LLC filing fees: $140; LLC Annual Report: $300; Incorporation filing fees: $140; Corporation Annual Report: $225 (based on min number of authorized shares)
Florida: LLC filing fees: $155; LLC Annual Report: $138.75; Incorporation filing fees: $78.75; Corporation Annual Report: $150
Georgia: LLC filing fees: $100; LLC Annual Report: $50; Incorporation filing fees: $100 Corporation Publication fees: $150 (required for Corps); Corporation Initial Report: $50; Corporation Annual Report: $50
Hawaii: LLC filing fees: $50; LLC Annual Report: $15; Incorporation filing fees: $50; Corporation Annual Report: $15
Idaho: LLC filing fees: $100; LLC Annual Report: $0; Incorporation filing fees: $101; Corporation Annual Report: $0
Illinois: LLC filing fees: $500; LLC Annual Report: $305; Incorporation filing fees: $175; Corporation Annual Report: $155
Indiana: LLC filing fees: $90; LLC Annual Report: $30; Incorporation filing fees: $90; Corporation Annual Report: $30
Iowa: LLC filing fees: $50; LLC Annual Report: $45; Incorporation filing fees: $50; Corporation Annual Report: $45
Kansas: LLC filing fees: $160; LLC Annual Report: $55; Incorporation filing fees: $90; Corporation Annual Report: $55
Kentucky: LLC filing fees: $55; LLC Annual Report: $15; Incorporation filing fees: $55; Corporation Annual Report: $15
Louisiana: LLC filing fees: $100; LLC Annual Report: $30; Incorporation filing fees: $100; Corporation Annual Report: $30
Maine: LLC filing fees: $175; LLC Annual Report: $85; Incorporation filing fees: $145; Corporation Annual Report: $85
Maryland: LLC filing fees: $155; LLC Annual Report: depends on revenue (min fee $300); Incorporation filing fees: $155; Corporation Annual Report: depends on revenue (min fee $300)
Massachusetts: LLC filing fees: $520; LLC Annual Report: $520; Incorporation filing fees: $295; Corporation Annual Report: $135
Michigan: LLC filing fees: $50; LLC Annual Report: $25; Incorporation filing fees: $60; Corporation Annual Report: $25
Minnesota: LLC filing fees: $160; LLC Annual Report: $0; Incorporation filing fees: $160; Corporation Annual Report: $0
Mississippi: LLC filing fees: $50; LLC Annual Report: $25; Incorporation filing fees: $50; Corporation Annual Report: $25
Missouri: LLC filing fees: $50; LLC Annual Report: $0; Incorporation filing fees: $58; Corporation Initial Report: $45; Corporation Annual Report: $45
Montana: LLC filing fees: $70; LLC Annual Report: $15; Incorporation filing fees: $70; Corporation Annual Report: $15
Nebraska: LLC filing fees: $120; LLC Publication fees: $150; LLC Annual Report: $26; Incorporation filing fees: $65; Corporation Publication fees: $150; Corporation Annual Report: $26
Nevada: LLC filing fees: $75; LLC Initial Report: $325; LLC Annual Report: $325; Incorporation filing fees: $75; Corporation Initial Report: $325; Corporation Annual Report: $325
New Hampshire: LLC filing fees: $100; LLC Annual Report: $100; Incorporation filing fees: $100; Corporation Annual Report: $100
New Jersey: LLC filing fees: $125; LLC Annual Report: $50; Incorporation filing fees: $125; Corporation Annual Report: $50
New Mexico: LLC filing fees: $50; LLC Annual Report: $0; Incorporation filing fees: $100; Corporation Initial Report: $25; Corporation Annual Report: $25
New York: LLC filing fees: $210; LLC Annual Report: $9; LLC Publication fees: Starting from $425-$1200; Incorporation filing fees: $145; Corporation Annual Report: $9
North Carolina: LLC filing fees: $125; LLC Annual Report: $202; Incorporation filing fees: $125; Corporation Annual Report: $20
North Dakota: LLC filing fees: $135; LLC Annual Report: $50; Incorporation filing fees: $100; Corporation Annual Report: $25
Ohio: LLC filing fees: $125; LLC Annual Report: $0; Incorporation filing fees: $125; Corporation Annual Report: $0
Oklahoma: LLC filing fees: $104; LLC Annual Report: $25; Incorporation filing fees: $52; Corporation Annual Report: $0
Oregon: LLC filing fees: $100; LLC Annual Report: $100; Incorporation filing fees: $100; Corporation Annual Report: $100
Pennsylvania: LLC filing fees: $125; LLC Annual Report: $0; Incorporation filing fees: $125; Corporation Annual Report: $0 Incorporation Publication fees: $299
Rhode Island: LLC filing fees: $150; LLC Annual Report: $50; Incorporation filing fees: $230; Corporation Annual Report: $50
South Carolina: LLC filing fees: $110; LLC Annual Report: $0; Incorporation filing fees: $135; Corporation Annual Report: $0; Incorporation Attorney Signature fees: $100
South Dakota: LLC filing fees: $150; LLC Annual Report: $50; Incorporation filing fees: $150; Corporation Annual Report: $50
Tennessee: LLC filing fees: $325; LLC Annual Report: $310; Incorporation filing fees: $125; Corporation Annual Report: $20
Texas: LLC filing fees: $310; LLC Annual Report: (depends on gross annual revenue); Incorporation filing fees: $310; Corporation Annual Report: (depends on gross annual revenue)
Utah: LLC filing fees: $72; LLC Annual Report: $15; Incorporation filing fees: $72; Corporation Annual Report: $15
Vermont: LLC filing fees: $125; LLC Annual Report: $25; Incorporation filing fees: $125; Corporation Annual Report: $35
Virginia: LLC filing fees: $104; LLC Annual Report: $50; Incorporation filing fees: $79; Corporation Annual Report: $100
Washington: LLC filing fees: $200; LLC Initial Report: $10; LLC Annual Report: $73; Incorporation filing fees: $200; Corporation Initial Report: $10; Corporation Annual Report: $73
West Virginia: LLC filing fees: $132; LLC Annual Report: $25; Incorporation filing fees: $82; Corporation Annual Report: $25
Wisconsin: LLC filing fees: $130; LLC Annual Report: $25; Incorporation filing fees: $100; Corporation Annual Report: $40
Wyoming: LLC filing fees: $103; LLC Annual Report: $52; Incorporation filing fees: $103; Corporation Annual Report: $52
IMPORTANT QUESTIONS TO ASK BEFORE HIRING A SMALL-BUSINESS ATTORNEY
When you hire an attorney, that professional will be handling some of your company’s most sensitive issues so it’s important to hire someone you feel comfortable working with. “A good attorney is also a counselor at law,” says Ed Leach, a small-business attorney in Charlotte, N.C., and former district office attorney for the Small Business Administration. “When you have a relationship like that with somebody, it’s got to be a trust relationship.”
Here are key questions to help you find an attorney who is just the right fit for your business:
How much experience do you have with my industry?
Such issues as intellectual property, franchise agreements and service contracts require special knowledge and skills, says Leach. Find out if the attorneys you’re screening have worked with a company similar to yours and if you can speak with any previous clients. While some attorneys might be offended by this request, “they shouldn’t be put off if you ask them to give a couple of names,” Leach says.
What is your approach to conflict resolution?
Find out how much of an attorney’s time is spent battling it out in court and how much is devoted to mediating disputes. Then, decide which approach you’re more comfortable with. “Sometimes attorneys who are highly litigious are hard to mold when you want to settle a case,” says Deborah Sweeney, CEO of Calabasas, Calif.-based MyCorporation, a document-filing services firm that helps small businesses incorporate.
Will there be anyone else handling my work?
Most lawyers assign work to paralegals, but Sweeney cautions against attorneys who delegate an extensive amount. Taking the time to explain something to your lawyer, then having it re-explained to a paralegal could cost you more money and might muddle the message, she says. While some work can certainly be delegated, be sure that you’re clear on who will be handling which tasks.
Do you have any clients who could create conflicts?
Find out if your prospective attorney is working for other clients such as competitors or former business partners, who could pose a conflict of interest. If so, problems could arise, and you may not feel comfortable sharing competitive information with the attorney.
How long do you typically take to get back to people?
If you want your attorney to be prompt and easily accessible, be sure to ask how long he or she takes to get back to you when you call, Leach says. Sometimes, you have to go through a paralegal first and may not connect with the lawyer for several days.
How do you typically communicate with your clients?
Some attorneys prefer to correspond primarily via email or phone; others don’t communicate much beyond scheduled office meetings. You’re likely going to want to work with someone who is available to answer your questions as they come up, so be sure to find out what their communication style is and whether it works for you.
How do you bill?
To avoid surprises when your attorney’s bill arrives for the first time, find out exactly how lawyer’s bill, Leach recommends. Some may bill for minimum increments of 10 minutes, while others might not bill for less than an hour. Also, ask about other expenses such as research and paralegal fees.
Are there ways to reduce the cost of your services?
Don’t be discouraged by what seem to be high fees. Ask if there are ways to cut down on costs. For example, you might be able to save money by rounding up documents or writing a summary of events for a legal case yourself. There are things clients can do that are often helpful. If the lawyer is not willing to explore some of those options, it might raise a red flag.
Do you belong to any specialized bar associations?
You want an attorney who keeps up with the latest legal and business matters. Be sure to ask whether he or she belongs to such groups as the local bar association, chamber of commerce or a small-business advisory board.
Do you make referrals to other attorneys?
You need to know whether your attorney would be willing to put you in touch with their colleagues on a specialized issue he or she lacks experience in. For fear of losing business, some lawyers are wary of referring clients to other attorneys, even if they have expertise in a particular area, such as tax law.
TALKING TO YOUR LAWYER, WHAT IS ATTORNEY CLIENT PRIVILEGED?
by Matt Sorensen
When planning your business and tax structure with your lawyer, it is important to understand what is privileged and what is not. Often times, clients divulge information to their lawyer and wonder whether that information is “attorney-client privileged” or not. Attorney-client privilege is an important legal protection offered to persons, companies, and organizations who provide confidential information and who seek counsel from their lawyer or law firm. Under law, an attorney cannot be required to provide attorney-client privileged information to a plaintiff in a law suit (e.g. creditor) or to a government agency (e.g. the IRS) except under limited situations. Here are a couple of common situations where you may lose attorney-client privileged information and some tips to make sure your confidential information provided to your lawyers doesn’t run into the exceptions.
EXCEPTIONS TO THE ATTORNEY CLIENT PRIVILEGE RULE
1. THIRD PARTY NON-LAWYER PRESENT– Was a third party present with your lawyer when the information you want to be privileged was discussed. For example, was your accountant or financial adviser present when discussing information you want to remain confidential and to remain privileged. Keep in mind that if a third party is present in a meeting or on a conference call then that third party may be required to provide information or documents from the meeting and that your accountant, consultant or adviser can’t raise the attorney-client privileged defense for you unless they are actually your attorney. If a third party professional does need to be hired (e.g. an accountant or CPA), that third party can be hired or brought into the matter by the attorney and the privileged may remain intact. This is known as a “Kovel” hiring of the accountant and stems from a case where a lawyer engaged an accountant for the client and the accountants work therefore was covered under the lawyer’s attorney-client privilege.
TIP: For sensitive matters where you want information to remain confidential and privileged, do not involve outside parties as those outside parties or non-attorney advisers as those parties cannot raise the attorney-client privileged defense.
2. ONLY LEGAL ADVICE IS ATTORNEY-CLIENT PRIVILEGED – Only information exchanged when seeking legal advice is attorney-client privileged. This is especially tricky for companies who have their own “in-house” legal counsel who also offers business advice. Only the information exchanged that pertains to legal advice would be privileged. For example, was an organization chart of the companies holdings “privileged” when provided to the company lawyer also manages those assets for the business? Also, what if that lawyer disseminated that organization chart to accountants, property managers, or other non-lawyers? If they did, then that information is no longer attorney-client privileged.
TIP: If you have sensitive documents or information you want to keep in communication only with your lawyer, ask your attorney to identify the document as “Attorney-Client Privileged” and do not provide it to non-lawyers.
Not all information with your lawyer needs to be attorney-client privileged but keep these tips in mind when communicating highly-sensitive information to your attorney and let your attorney know before you provide the confidential information that you intend it to be privileged so that they can ensure that your information is properly handled and so that non-lawyer third-parties are only involved when the privilege can be maintained.
When Does an Employer Need an Employment Lawyer?
Even the most conscientious employer occasionally needs help from a lawyer. Although you can handle many employment matters on your own, some issues are particularly tricky and will require some legal expertise.
Employment law can change rapidly. Courts and government agencies issue new opinions interpreting these laws every day, sometimes completely overturning what everyone thought the law meant. When you also factor in that lawsuits brought by former employees can end in huge damages awards against the employer, it’s easy to see why you should seek legal advice when you get in over your head.
On the other hand, you don’t need to talk to a lawyer every time you evaluate, discipline, or even fire a worker. After all, lawyers don’t come cheap. If you run to a lawyer every time you have to make an employment-related decision, you will quickly go broke.
The trick is to figure out which situations require some expert help and which you can handle on your own. Here are a few tasks and issues that you should consider bringing to a lawyer.
Advice on Employment Decisions
A lawyer can help you make difficult decisions about your employees.
Particularly if you are worried that an employee might sue, you should consider getting legal advice before firing an employee for misconduct, performance problems, or other bad behavior. A lawyer can tell you not only whether terminating the worker will be legal, but also what steps you can take to minimize the risk of a lawsuit.
Here are some critical situations when you should consider asking a lawyer to review your decision to fire:
- The worker has a written or oral employment contract that limits your right to fire him/her.
- The employee may believe that he or she has an implied employment contract limiting your right to fire.
- The employee has benefits, stock options, or retirement money that are due to vest shortly.
- The employee recently filed a complaint or claim with a government agency, or complained to you of illegal or unethical activity in the workplace.
- The employee recently filed a complaint of discrimination or harassment.
- Firing the employee would dramatically change your workplace demographics.
- The employee recently revealed that he or she is in a protected class — for example, the employee is pregnant, has a disability, or practices a particular religion.
- You are concerned about the worker’s potential for violence, vandalism, or sabotage.
- The worker has access to your company’s high-level trade secrets or competitive information.
- You are firing the worker for excessive absences, if you are concerned that the absences may be covered by the Family and Medical Leave Act or the Americans with Disabilities Act.
- The employee denies committing the acts for which you are firing him or her, even after an investigation.
Employee Classifications. Classification issues can affect a large portion of your workforce and create a potential for increased liability. Before classifying a certain position as exempt or nonexempt, or labeling a group of individuals independent contractors rather than employees, you should consider seeking guidance from a lawyer. Misclassification often comes with a hefty price tag, which can include years of unpaid overtime and penalties for multiple employees.
Other decisions. You may also wish to have a lawyer review any employment decision that will affect a large number of employees. For example, if you are planning to lay off some workers, change your pension plan, or discontinue an employee benefit, it would be smart to run your plans by a lawyer before you take action. The lawyer can tell you about any potential legal pitfalls you might be facing — and give you advice on avoiding them.
2. REPRESENTATION IN LEGAL OR ADMINISTRATIVE PROCEEDINGS
Lawsuits. If a current or former employee sues you, speak to a lawyer right away. Employment lawsuits can be very complex. You have to take certain actions immediately to make sure that your rights are protected — and to preserve evidence that might be used in court. The time limits for taking action are very short — many courts require you to file a formal, legal response to a lawsuit within just a few weeks. As soon as your receive notice of a lawsuit against you, begin looking for a lawyer.
Claims and complaints. Sometimes, a current or former employee initiates some kind of adversarial process short of a lawsuit. For example, an employee might file an administrative charge of discrimination, retaliation, or harassment with the U.S. Equal Employment Opportunity Commission or a similar state agency. Or, a former employee might appeal the denial of unemployment benefits, which in many states allows the employee to request a hearing.
In these situations, you should at least consult a lawyer, if not hire one in order to ascertain legal advice on the strength of the employee’s claim, how to prepare a response to the charge, how to handle an agency investigation, and how to present evidence at the hearing.
It would also be worth hiring a lawyer to represent you if any of the following occur:
- The employee raises serious claims that could result in a large award of damages against you.
- Other employees or former employees have made similar allegations, either to the agency or within the workplace.
- The employee has indicated that he or she intends to file a lawsuit (in this situation, the employee may just be using the administrative proceeding to gather evidence to use against you in court).
- The employee has hired a lawyer.
3. REVIEWING DOCUMENTS
Contracts and agreements. A lawyer can quickly review and troubleshoot employment-related agreements you routinely use with your workers, such as employment contracts, severance agreements, or releases. A lawyer can check your contracts to make sure that they contain all the necessary legal terms and will be enforced by a court. If you have included any language that might cause problems later, or if you have gone beyond what the law requires of you, a lawyer can draw these issues to your attention. And a lawyer can give you advice about when to use these contracts — for example, you may not want to give severance to every departing employee or enter into an employment contract with every new worker.
Policies and handbooks. You can also ask a lawyer to give your employee handbook or personnel policies a thorough legal review. First and foremost, a lawyer can make sure that your policies don’t violate laws regarding overtime pay, family leave, final paychecks, or occupational safety and health, to name a few. A lawyer can also check for language that might create unintended obligations towards your employees. And a lawyer might advise you to consider additional policies.
CROSS-EXAMINE YOUR OPTIONS
Although they’re often the punchline of jokes, having the right attorney is a reassuring safety net for any small business owner. As you head out in search of some professional legal advice ask questions. Do your due diligence, and don’t hire the first person in a gray suit. Fully evaluate and understand your business’s needs and budget, and their background and billing practices. Once you have a little knowledge in your pocket, you’ll be prepared to make a commitment and won’t ever have to scramble when legal questions or issues crop up. It would do everyone justice to remember that prudent choices should be based on clearly-reasoned objective thinking. Oh, and by all means, if you need to “do-it-yourself” before you decide to take the plunge, there are plenty of sites out there that will allow you the opportunity to test your intelligence. Now—ask yourself this question:
WHAT KIND OF LEGAL EXPERIENCE DOES YOUR BUSINESS REQUIRE?
Make sure that the lawyer’s experience matches your needs. If you want a contract written, don’t hire a lawyer who focuses on criminal defense work.
Moreover, although a big law firm might be impressive, it’s not always the best fit for a small business or startup. A small business typically doesn’t generate the amount of revenue needed to designate it as a top client, so larger firms might not provide the necessary level of personal attention. That doesn’t mean you can’t get good service, but don’t you want to be the most important client for your lawyer? Don’t you want VALUE for the dollar spent by your business? Don’t you want the lawyer looking out for YOUR needs first, rather than his own?
Who will be doing the actual work? In a bigger firm, you might meet with the partner, but the work could be handed off to a junior lawyer who only checks in with the partner occasionally for feedback and correction. This can result in projects taking more time than they should, and cost you more money as a result, even if the billing rate is less than what the partner would have charged. YOU have the right to specify who actually handles the work for your business and THAT should be your lawyer’s primary concern=YOUR NEEDS.
Keep in mind that prices for legal fees vary widely, and higher rates don’t necessarily mean better qualifications. Infrastructure, such as a prestigious address, expensive office furniture and additional administrative staff, can bring costs up. When it comes to legal fees, it’s critical to fully understand exactly how you’ll be charged for services. Hourly billing sometimes can’t be avoided. Ask if fixed fees or some other alternative billing arrangement is feasible. This is where YOU come in—do your homework and engage in the vetting process. Ask for references and seek out personal reviews concerning the lawyer’s attention span as it involved his or her past clients’ needs.
DEBT AND MARRIAGE: WHEN DO I OWE MY SPOUSE’S DEBTS?
Whether you are liable for your spouse’s debts depends on whether you live in a Community Property (i.e. California) or Equitable Distribution State.
Whether you and your spouse are liable for each other’s debts depends on where you live. In the handful of states with “community property” rules, most debts incurred by one spouse during the marriage are owed by both spouses. But in states that follow “common law” property rules, debts incurred by one spouse are usually that spouse’s debts alone, unless the debt was for a family necessity, such as food or shelter for the family or tuition for the kids. (These are general rules; some states have subtle variations)
These rules also apply to same-sex marriages in the states that allow them and to same-sex domestic partnerships and civil unions in states where those relationships are the equivalent of marriage, but not in states where the relationship does not confer all the rights of marriage.
Community Property States
Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. (In Alaska, spouses can sign an agreement making their assets community property.)
Debts. In community property states, most debts incurred by either spouse during the marriage are owed by the “community” (the couple), even if only one spouse signed the paperwork for a debt. The key here is during the marriage. So if you incur a debt, such as a student loan, while you’re single, and then get married, it won’t automatically become a joint debt. An exception is where a spouse signs on to an account as a joint account holder after getting married.
After a legal separation or divorce, a debt is generally owed only by the spouse who incurred the debt, unless the debt was incurred for family necessities, to maintain jointly owned assets, or if the spouses keep a joint account.
Income and property. In community property states, a couple’s income is shared as well. All income earned by either spouse during marriage, as well as property bought with that income, is community property, owned equally by husband and wife. Gifts and inheritances received by one spouse, as well as separate property owned before marriage that’s kept separate, are the separate property of one spouse. All income or property acquired before or after a divorce or permanent separation is also separate.
What property can be taken to pay debts? In a community property state, creditors of one spouse can go after the assets and income of the married couple to make good on joint debts.
Creditors can also go after joint assets in a community property state no matter whose name is on the title document to the asset. For example, a business owner’s name may not be on the title to her spouse’s boat, but in most community property states, that won’t stop a creditor from suing in court to take the boat to pay off the business owner’s debts–assuming of course the boat was purchased with community funds, and not separate funds.
As to one spouse’s separate debt, such as one spouse’s child support obligation from a prior relationship, or a debt in one spouse’s name only where the spouse hid the fact that he or she was married, a creditor can go after only that spouse’s half of the community property to repay the debt.
Removing a spouse’s liability. Couples in community property states can sign an agreement with each other to have their debts and income treated separately. Signing a pre or postnuptial agreement like this can make sense for a couple before one spouse goes into business. However, if you’re already in business, signing an agreement now won’t protect your spouse from liability for business debts that you already owe, only from liability for future business debts.
You can also sign an agreement with a particular store, lender, or supplier, stating that the creditor will look solely to your separate property for repayment of any debt, essentially removing your spouse’s liability for any obligation or debt from the contract.
Bankruptcy. Even if only one spouse files for Chapter 7 bankruptcyin a community property state, all of the eligible community debts of both spouses will be discharged.
Equitable Distribution States
In a “common law” property state, which is any state not listed above as a community property state, debts incurred by one spouse are that spouse’s debts alone, and income earned by one spouse does not automatically become jointly owned.
Debts. Debts are owed by both spouses only if the debt benefits the marriage. For example, the debt was for food, clothing, child care, shelter, or necessary household items or the debt was jointly undertaken — for example, if both spouses signed a contract requiring them to make payments on the debt, if both spouses’ names were on an account or title to property, or if a creditor considered both spouse’s credit information before making the sale or loan. The same rules hold true after permanent separation but before divorce. All other debts, such as a business debt from one spouse’s business or a car loan for a car whose title is in one spouse’s name, are considered a spouse’s separate debts.
Income and property. Generally, in most common law states, income earned by one spouse during the marriage belongs to that spouse alone, if it is kept separate. And any property bought with separate income or funds during the marriage is also separate property unless the title to the property is put under both spouses’ names. In addition, gifts and inheritances received by one spouse, as well as property owned by one spouse before marriage and kept separate, are also the separate property of that spouse.
However, if income earned by one spouse is put into a joint bank account, that income or property becomes joint property. If joint funds are used to buy property, the property is also owned jointly unless title is taken in the name of one spouse only. Jointly owned property can include equity in a jointly owned house, household goods, jointly owned vehicles, and jointly owned bank accounts, retirement plans, and stocks or mutual funds. Very simply, whose name is on the title, indicates who owns the property in common law property states.
What property can be taken to pay debts? In a common law property state, creditors of one spouse can go after the income or property of the other spouse — or joint property — only if the debt was incurred for joint purchases or for purchases that were made for family necessities. In some common law states, a creditor can also go after joint property to pay the separate debts of one spouse even if the debt was not family-related, but in most states a creditor can take only half of the money in a joint account.
Bankruptcy. In a common law property state, if only one spouse files for Chapter 7 bankruptcy, only that’s spouse’s joint and separate debts would be discharged; the other spouse’s separate debts would not be discharged.
THERE’S MORE THAN ONE WAY TO PROTECT YOUR HOME: IS YOURS PROTECTED?
6 Ways to Protect Your Home from a Lawsuit
by Mark Kohler
For most of us, our home is one of our most valuable assets. It truly is our “castle,” but can also be one of our most vulnerable assets. Although we need to protect it at all costs, we face several dilemmas that create significant hurdles to protecting the complete value of our home.
Sale of Home Tax Exemption and asset protection
First, there are IRS guidelines and rules regarding the ownership of your home if you want to take advantage of the Sale of Home Exemption under Internal Revenue Code Section 121. This is critical to understand because many people will place their personal residence into an LLC, thinking they have automatically created better asset protection. In reality, they have just shot themselves in the foot for the sale of home exemption. Thus, if you go to sell your home in an LLC, the IRS is clear about the fact that you can’t take the exemption on the gain for 500k if married or 250k if single.
The moving target of Equity
The second dilemma is that our property is continually increasing in value. Therefore, we are forced to protect a level of equity that is consistently changing (and hopefully increasing). As such, it is important to realize that any plan to protect your home requires constant updating and revisiting of your strategy on a regular basis.
To pay off or not to pay off my home
Most of us have been taught for years that it is a wise long-term policy to pay down our mortgage (pay off our home) and thus contribute to increasing the equity in our home. Many people view paying off their home as the pinnacle of their lifetime’s work. Regrettably, a creditor or plaintiff will view this as the “golden egg” in his or her efforts to collect a payment from you in a lawsuit. Please be open to protecting your equity in creative ways. I’m not saying that it’s bad to pay off your mortgage and own your home free and clear; however, it is just plain naïve to pay off your home without realizing that you are also seriously exposing yourself to a loss in the event of a lawsuit.
There are 6 ways to protect our home from a potential lawsuit, and they will vary based on where we live in the country, our marital status and the amount of equity involved.
1. Homestead Exemption
This is a statutory exemption available in most states to protect a certain amount of the value of a person’s home from a creditor or bankruptcy. The amount varies from state to state as do the laws on how to avail oneself of this protection. Essentially if a creditor comes after you in a law suit and forces the sale of your home, they only get the residue after selling costs, the mortgage and your ‘homestead exemption’ amount.
In states like Florida and Texas, citizens enjoy an unlimited homestead exemption and it’s very difficult for creditors to ever get a debtors home. O.J. Simpson exploited this law and since then they modified the law to prevent new residents such as O.J. to pull the same trick. However, it can be a powerful tool for citizens in several States.
This tool is generally available in 44 states and is a law specifically designed to protect a certain amount of equity in a person’s residence from a variety of creditors. Not only do the amounts of the homestead exemption vary from state to state, there are also different rules on how to qualify for and satisfy the particular requirements of the homestead exemption based on the jurisdiction. Approximately, twenty-one states even require that a home owner file appropriate paperwork to qualify for the exemption.
If homeowners want to take advantage of this exemption it is essential that they have a general understanding of their state’s law and consult with their asset protection professional.
2. Tenancy by the Entirety
If your State allows it, you can title your personal residence as “Tenants by the Entirety,” thus protecting your home in a very unique way. In a nutshell, the benefit of this protection is that if one spouse is sued, the property cannot be attached or bifurcated with a lawsuit. For example, if a husband gets into a terrible lawsuit, it’s not fair that the wife lose the house when the lawsuit had nothing to do with her. There are approximately 15-20 States that have this law on the books, including Hawaii (as if you needed another reason to move to the Aloha state).
3. Equity Stripping
Equity stripping is simply the strategy of placing a lien on your home with a mortgage and ‘removing’ the equity in a sense by replacing it with a loan. This makes your home much less attractive to a potential creditor that wants to take your home to satisfy a judgment.
The trick is in the implementation of the loan. Ideally, a traditional HELOC or even 1st Mortgage lien (wherein you utilize the loan proceeds to invest and create additional wealth), is a perfect fit. It’s legitimate and difficult for a creditor to challenge in court and ‘step in front’ of a valid lien holder on the title to your primary residence.
Some home owners will choose to implement a ‘smoke and mirrors’ strategy by creating a shell company, with some degree of secrecy, and liening their own home. The procedure essentially clouds the title and give the public perception (anyone doing a title or asset search), that your home is liened to the hilt and there isn’t any equity to be had in a lawsuit. This strategy can be successful in dissuading a lawsuit, but in a court battle a judge or plaintiff would slice right through the structure once they discover the scheme that was created.
4. Domestic Asset Protection Company (DAPT)
One asset protection structure that is gaining more and more popularity and acceptance among practitioners is the Domestic Asset Protection Trust (DAPT). This is a special type of trust that can give you significant asset protection in any type of lawsuit and is one of the best ways to protect your personal residence, particularly in a situation where you have a great deal of equity in your home, or where your state’s Homestead Exemption (the amount of equity in your residence protected by state law) is so low it is essentially useless.
As a nation, we are becoming more and more comfortable with this type of trust. Over 15 States in the Country have these laws on their books and, under Federal law, they would be generally recognized and upheld in a lawsuit in any state. Typically, you would place any personal residence, cabin, beach house or farm you plan on keeping for life (or at least making very minor moves/changes if necessary) in this type of trusts, and the longer you keep them there the better protection they afford.
In general, the law says that a person cannot shield assets from creditor’s claims by placing those assets in a trust in which the person who created the trust is also the beneficiary of the trust (known as a “self-settled trust”).
In order to avoid this general rule, several foreign jurisdictions originated the concept of a self-settled trust in which an independent trustee controls and/or distributes trust assets to the beneficiaries. This allows the person who created the trust (i.e. the “settler” or “trustor”), to reap the dual benefits of: (1) asset protection from outside creditors; and (2) the beneficial use of the assets of the trust. This sort of trust is known as a Foreign Asset Protection Trust (“FAPT”).
While FAPT’s were, and still are very useful, one significant drawback to moving offshore is that the costs to set up and maintain offshore structures are generally very high. There are also difficulties and expenses in maintaining compliance with IRS regulations.
The early adopters of the DAPT (Alaska, South Dakota, etc.), enacted their statutes in an attempt to compete with the offshore options, by allowing similar asset protection benefits and beneficial use of trust assets at a cheaper price, and without ownership of the assets leaving the country. In the states with DAPT statutes, an irrevocable trust can be created, which names an independent trustee that administers the trust’s assets for the benefit of the settlor (subject to those states’ requirements).
Creditors seeking enforcement of judgments in states with a strong DAPT statute could face a significant “barrier” during the litigation process in their attempts to unwind the DAPT structure and collect DAPT assets.
The DAPT can be a perfect “extra barrier” and is currently recognized in 15 states (Alaska, Delaware, Hawaii, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, and Wyoming). However, a DAPT is not limited to owning assets located in the state where the trust is set up.
Traditionally, the states regarded as having the strongest DAPT statutes have been Nevada, South Dakota, Alaska, and Delaware. In fact, our law firm has in the past used a Nevada DAPT for clients interested in this sort of asset protection.
TIP: However, Utah enacted a new, and much more robust, DAPT statute in March 2013, and KKOS is now using DAPT’s created under the Utah statute.
When drafted carefully and executed correctly, the Utah DAPT provides the following benefits:
- Assets placed in the trust are protected against future creditors immediately. Nevada’s statute doesn’t begin protecting assets against future creditors until the assets have been in the trust for two years.
- Assets placed in the trust are protected against existing creditors after two years, which is similar to Nevada. However, that statute of limitations is reduced to 120 by sending notice of the DAPT to creditors you are aware of, and by publishing notice of the DAPT for creditors you are not aware of.
- There are no exceptions for child support, alimony, or preexisting torts.
- Placing your personal residence in the DAPT does not hinder your use of the “sale of home exemption” to avoid paying taxes on any gain when you sell that residence, as long as the trust is drafted as a “grantor” trust.
- Even in the courts of states that do not currently have a DAPT statute, a would-be litigant will likely still have to expend considerable resources in order to unwind and reverse the transfer of assets into a DAPT.
5. Put the Title to the home in the “low-risk” Spouse’s Name
In some situations, one spouse may have a “risk issue” with their lifestyle or business and removing their name from title of the home could help protect it. This effectiveness of this strategy varies dramatically from state to state; it’s critical to get a consult with a lawyer that understands the law in your particular state or can at least research it to confirm your current standing.
If one spouse has a more risky occupation or lifestyle, it can be extremely strategic to place assets in the other spouse’s name. In general, the creditors of one spouse cannot reach the “separate” assets of the other spouse. Therefore, asset protection in the context of marriage requires a strategy whereby valuable assets are held as the “separate” property of the spouse with the least exposure to risk. This is where a marital property agreement (i.e. a prenuptial or postnuptial agreement) can be beneficial if the spouses can agree that certain assets will be the separate property of the spouse with less exposure to lawsuits.
For example, in most states, if the husband is a business owner who incurs liabilities, the couple can enter into an agreement that certain valuable assets will be the wife’s separate property, thereby shielding those assets from the husband’s creditors. Obviously, if both spouses agree to be co-debtors on a debt, such as when spouses both sign a mortgage on the family house, then spouses will be jointly liable.
Of course, a word of caution with this planning strategy: Divorce. Thus, think carefully before placing assets in your spouse’s name and the impact of a post-nuptial or separate property agreement. You may protect your assets from a creditor, but throw your assets into harm’s way with a divorce.
6. Umbrella Insurance
Umbrella insurance is just that. It’s an “umbrella” of insurance that covers a variety of situations that could possibly create a claim. This type of insurance can be personal or business in nature and functions as an “umbrella” over any other type of insurance you may carry. It will cost an average of $300-$500 a year for $1M to $2M of coverage. With that said, don’t assume it will protect you in every instance and you can otherwise throw caution to the wind. As a rule, umbrella insurance isn’t going to cover fraudulent, criminal, reckless or even negligent action.
COMMON DOCUMENTS EVERY BUSINESS SHOULD CONSIDER:
Over the course of a company’s lifetime, a number of documents play an essential role in protecting the interests of the business and business owners. Here are some common legal documents to help you determine what your business might require.
1. Company Bylaws (Corporations)
Most states require Corporations to keep a written record of bylaws, although you don’t need to file the document with a state office. Bylaws define how the company will govern itself.
2. Meeting Minutes (Corporations)
Most states also require Corporations to document what happens at major meetings. They keep an official account of what was done or talked about at formal meetings, including any decisions made or actions taken. They can help settle a dispute about what happened or didn’t happen in a past meeting.
3. Operating Agreement (LLCs)
Although not required in most states, an Operating Agreement is recommended for any LLC, particularly when there are multiple members involved. This document outlines an LLC’s financial and functional decisions. If there is more than one member, it becomes all the more important to define how key business decisions will be made, how profits and losses will be distributed, what are the rights and obligations of members, and what happens when someone wants out of the business. Once members sign the document, it becomes an official, binding contract.
4. Non-Disclosure Agreement (NDA)
Whether you realize it or not, your business has information that should remain private, such as customer list, financial records, or ideas for a new pricing plan. An NDA is your first line of defense to protecting this information. This legal document creates a confidential relationship between your business and any contractors, employees, and other business partners who might get a behind-the-scenes look at your operations.
5. Employment Agreement
This contract sets the obligations and expectations of the company and employee in order to minimize future disputes. Not every hire requires an employment agreement, but the document can be a useful if you want to dissuade certain new hires from leaving your company too soon, disclosing confidential information about your business, or going to work at a competitor.
6. Business Plan
A business plan is typically not a legal document, but it’s required should you ever decide to seek financing or sell your business. Your business plan can be one page or a hundred pages, as long as it provides clarity on your business’ opportunity and your roadmap to get there.
7. Memorandum of Understanding
MOUs are great ways to lay out the terms of a project or relationship in writing, but do not rely on the document to be legally binding.
Businesses involved in international trade with other Hague Convention countries may need a certificate (Apostille) that authenticates the origin of a public document (like Articles of Incorporation) so they can be recognized in another country. Apostilles are only valid in countries that are members of the Hague Convention.
DISCLAMER: The information provided by WFB Legal Consulting, Inc. in this newsletter is disseminated for educational purposes only, and is not to be construed as legal advice. Do not take any action, postpone any action, or decline to take any proposed action based on this information without first engaging the representation of a licensed attorney at law in your State of residence.
3 Major reasons for an LLC
I truly believe it boils down to 3 reasons why an LLC make sense in certain situations for a new small business owner.
1. Protection from and ownership of Rental Property. The #1 reason LLCs are utilized and created every day around the Country and by the thousands every year, is to hold rental property. The LLC protects the owner and manager of the property from operations of the business/rental. Yes, in order to have this ‘protection’ the manager and owner or (referred to as the Members) of the LLC need to act responsibly, without negligence and within the scope of their duties and responsibilities. See “Piercing The Corporate Veil – What You NEED to Know that could save Your Business”
Now this protection is extremely valuable and an important reason to form and LLC, but everyone doesn’t need an LLC the moment you start operating a business. Your business may not have ‘assets’ or create liability (for example selling jeans on e-bay). However, if you even own one rental property, an LLC should be a serious and important consideration
2. Ability to convert to an S-Corp later. Sometimes an LLC can be a great stepping stone for a new business owner when they have an operational business. If the owner sees a potential for growth and the need to save on Self-Employment tax, or the owner has some liability exposure from the operations and needs a formal entity to legitimize the business.
In this situation an LLC can be a great starting place and even help keep costs down. This type of structure typically involves a Single-Member LLC. A SMLLC is a 100% owned LLC by a one individual (or entity) and offers a unique cost saving benefit. The owner gets asset protection, yet no extra tax return. The owner can report the operations of the LLC on the owner’s tax return. Typically a Schedule C if an individual or on a consolidated tax return of the owner is an entity. Also, if the owner is an individual, the owner can choose to make an S-Election retroactively to the beginning of any tax year without a timing problem. See “Maintaining Your S-Corporation in 2014“.
As an aside, it’s important to note that filing an LLC isn’t simply filing a single piece of paper with the State. It’s important that the owner treat the formation and maintenance of an LLC similar to that of a corporation to receive the same type of protection.
3. Partnership Purposes. Bottom line, an LLC is excellent for partnerships. It protects a partner from the actions of the other partner and allows for more efficient tax planning. Most importantly, the LLC creates a mechanism to document all of the agreements and terms for their partnership. Far too many business owners partner with others on a hand shake, email or some scribbles on a napkin from Dennys.
An LLC can be used on the ‘operations side’ with the partners each having their individual ownership held by an S-Corp. This allows each partner to take additional tax write-offs, utilize the S-Corp for other sources of revenue, and most importantly establish their own payroll levels to save on Self-Employment taxes, or even create a 401k or health plan. The possibilities are almost endless…ok that was a little strong.
On the ‘passive side’ the ownership of the LLC would typically be in the name of the trust of each partner. I discuss this further in Chapter X, where the I emphasize the importance of estate planning. Just because a partner has stepped up to the plate with asset protection and the benefits of an LLC in this respect, has the partner thought of their family, loved ones, or charity and who would inherit their share of the LLC upon their passing.
Again, one can see that simply clicking a button on an incorporation website can do more harm than good without some comprehensive planning. The possibilities of an LLC can be extremely powerful and helpful in a well-designed tax and asset protection plan. However, without any coordinated planning the LLC may not even be worth the paper it’s printed on and actual create unseen costs.
RUSSIAN HACKERS AMASS OVER A BILLION INTERNET PASSWORDS
By NICOLE PERLROTH and DAVID GELLESAUG. 5, 2014
A Russian crime ring has amassed the largest known collection of stolen Internet credentials, including 1.2 billion user name and password combinations and more than 500 million email addresses, security researchers say.The records, discovered by Hold Security, a firm in Milwaukee, include confidential material gathered from 420,000 websites, including household names, and small Internet sites. Hold Security has a history of uncovering significant hacks, including the theft last year of tens of millions of records from Adobe Systems.
Hold Security would not name the victims, citing nondisclosure agreements and a reluctance to name companies whose sites remained vulnerable. At the request of The New York Times, a security expert not affiliated with Hold Security analyzed the database of stolen credentials and confirmed it was authentic. Another computer crime expert who had reviewed the data, but was not allowed to discuss it publicly, said some big companies were aware that their records were among the stolen information.
Alex Holden of Hold Security said most of the targeted websites were still vulnerable. Credit Darren Hauck for The New York Times
“Hackers did not just target U.S. companies, they targeted any website they could get, ranging from Fortune 500 companies to very small websites,” said Alex Holden, the founder and chief information security officer of Hold Security. “And most of these sites are still vulnerable.”
Mr. Holden, who is paid to consult on the security of corporate websites, decided to make details of the attack public this week to coincide with discussions at an industry conference and to let the many small sites he will not be able to contact know that they should look into the problem.
There is worry among some in the security community that keeping personal information out of the hands of thieves is increasingly a losing battle. In December, 40 million credit card numbers and 70 million addresses, phone numbers and additional pieces of personal information were stolen from the retail giant Target by hackers in Eastern Europe.
And in October, federal prosecutors said an identity theft service in Vietnam managed to obtain as many as 200 million personal records, including Social Security numbers, credit card data and bank account information from Court Ventures, a company now owned by the data brokerage firm Experian. But the discovery by Hold Security dwarfs those incidents, and the size of the latest discovery has prompted security experts to call for improved identity protection on the web.
“Companies that rely on user names and passwords have to develop a sense of urgency about changing this,” said Avivah Litan, a security analyst at the research firm Gartner. “Until they do, criminals will just keep stockpiling people’s credentials.”
Websites inside Russia had been hacked, too, and Mr. Holden said he saw no connection between the hackers and the Russian government. He said he planned to alert law enforcement after making the research public, though the Russian government has not historically pursuedaccused hackers. So far, the criminals have not sold many of the records online. Instead, they appear to be using the stolen information to send spam on social networks like Twitter at the behest of other groups, collecting fees for their work.
But selling more of the records on the black market would be lucrative. While a credit card can be easily canceled, personal credentials like an email address, Social Security number or password can be used for identity theft. Because people tend to use the same passwords for different sites, criminals test stolen credentials on websites where valuable information can be gleaned, like those of banks and brokerage firms.
Like other computer security consulting firms, Hold Security has contacts in the criminal hacking community and has been monitoring and even communicating with this particular group for some time. The hacking ring is based in a small city in south central Russia, the region flanked by Kazakhstan and Mongolia. The group includes fewer than a dozen men in their 20s who know one another personally — not just virtually. Their computer servers are thought to be in Russia.
“There is a division of labor within the gang,” Mr. Holden said. “Some are writing the programming, some are stealing the data. It’s like you would imagine a small company; everyone is trying to make a living.”
They began as amateur spammers in 2011, buying stolen databases of personal information on the black market. But in April, the group accelerated its activity. Mr. Holden surmised they partnered with another entity, whom he has not identified, that may have shared hacking techniques and tools. Since then, the Russian hackers have been able to capture credentials on a mass scale using botnets — networks of zombie computers that have been infected with a computer virus — to do their bidding. Any time an infected user visits a website, criminals command the botnet to test that website to see if it is vulnerable to a well-known hacking technique known as an SQL injection, in which a hacker enters commands that cause a database to produce its contents. If the website proves vulnerable, criminals flag the site and return later to extract the full contents of the database.
“They audited the Internet,” Mr. Holden said. It was not clear, however, how computers were infected with the botnet in the first place.
By July, criminals were able to collect 4.5 billion records — each a user name and password — though many overlapped. After sorting through the data, Hold Security found that 1.2 billion of those records were unique. Because people tend to use multiple emails, they filtered further and found that the criminals’ database included about 542 million unique email addresses.
“Most of these sites are still vulnerable,” said Mr. Holden, emphasizing that the hackers continue to exploit the vulnerability and collect data. Mr. Holden said his team had begun alerting victimized companies to the breaches, but had been unable to reach every website. He said his firm was also trying to come up with an online tool that would allow individuals to securely test for their information in the database.
The disclosure comes as hackers and security companies gathered in Las Vegas for the annual Black Hat security conference this week. The event, which began as a small hacker convention in 1997, now attracts thousands of security vendors peddling the latest and greatest in security technologies. At the conference, security firms often release research — to land new business, discuss with colleagues or simply for bragging rights.
Yet for all the new security mousetraps, data security breaches have only gotten larger, more frequent and more costly. The average total cost of a data breach to a company increased 15 percent this year from last year, to $3.5 million per breach, from $3.1 million, according to a joint study last May, published by the Ponemon Institute, an independent research group, and IBM.
Last February, Mr. Holden also uncovered a database of 360 million records for sale, which were collected from multiple companies. “The ability to attack is certainly outpacing the ability to defend,” said Lillian Ablon, a security researcher at the RAND Corporation. “We’re constantly playing this cat and mouse game, but ultimately companies just patch and pray.”
Nicole Perlroth reported from San Francisco and David Gelles from New York City.
SUCCESSFUL PRACTICES USED BY TODAY’S ENTREPRENEURS
It’s not everyday that we come across a straightforward method of incorporating practical advice into our everyday routine. I came across the following sensible article and thought it might be helpful to both struggling and even moderately prosperous entrepreneurs. I hope you find it both useful and insightful, or even just a reminder of what we can and should do to keep the creative juices flowing. See article below at: https://www.entrepreneur.com/article/232087
5 WAYS TO MONETIZE RENTAL PROPERTIES
I wanted to address the skeptics in real estate investing who no longer feel that rental properties are the best way to make money. While I do think that note buying and private money lending is the better way to go generally, there are certain basic principles to vigorously apply in certain markets where it is indeed better to “buy and hold” for the present. See full text directly at the link below.
KEEPING YOUR WORD: WHAT ARE THE PARAMETERS?
Are there are times in this life when you must keep your word? Don’t get me wrong, I don’t believe that there are exceptions to the notion that you should always be honest. But are there situations where your word represents something bigger, something greater, then what it generally does in the typical individual one-on-one conversation? Sometimes your word is representative of a greater principle that affects a wider range of people– sometimes even a particular state or even a country.
The article link that I have provided below is representative of a political party’s specific platform on a particular issue. While the article is not intended to state the specific position of my company or of this newsletter with respect to the material it contains, it is necessarily representative of the option we all have to be truthful about what we purport to believe it. In this instance, the political party in question states they believe in immigration reform. Nevertheless, individuals in this party, who have provided their word concerning their intention to proceed with immigration reform, are now going to move in the exact opposite direction in an election year.
The message this sends is for you, the reader, to determine. The message this sends has nothing specifically to do with the issue of immigration reform. Rather, immigration reform is the vehicle in which the word is being driven in this particular instance. Perhaps this is where we have learned to accept the notion that actions speak louder than words. Have we reached the point where someone’s word, by itself, is no longer valuable?
Precisely because of the actions of our political parties, as well as others in the public light, we have multiple shining examples of why every person’s individual integrity should be measured by the way he/she acts, and not by the way his/her father, group affiliation or even their church acts. If an individual chooses to support a group or party of a collective of others, who then act in opposition to their word, than that individual ought to disassociate himself or herself from that group or party. It is only in this way that we will come to believe that when an individual speaks, he or she will necessarily keep their word.
DON’T LET THESE ADS TRAP YOU!
I thought I might address the below issues in my sensibility options portion of this month’s newsletter even though some of us may already be familiar with these popular consumer traps. I found this article in the March 2014 edition of Consumer Reports and I presume it can also be found at http://www.consumerreports.org.
Want to save 50%, get a product free, or have a manufacturer’s warranty cover an expensive purchase for life? Of course you do, and advertisers know it. Federal and State laws generally ban the use of misleading or deceptive advertising, but regulators can’t monitor everything and seductive half-truths and outright deceptions are common. So it’s up to you to figure out what’s true, what’s false, and what’s pushing the envelope. Read the fine print to find out about limitations. Here are some advertising terms you shouldn’t take at face value:
1. “Satisfaction Guaranteed”
Federal Trade Commission guidelines say that companies should use satisfaction guaranteed or money back guarantee only if they’re willing to give full refunds to unhappy customers. The guidelines say that companies must disclose any conditions or limitations, such as a time limit.
Some companies’ satisfaction guarantees are friendly. The website might say you can return any product you’re not happy with any time for a full refund or exchange. But others are less so. A 30 day satisfaction guarantee, for example, might say that if you’re not 100% satisfied with your new tires you can return them– but for an exchange, not a refund. And if you’re not 100% satisfied with the replacement tires, forget it. The policy applies only to the first set. Return certain items under a 30 day satisfaction guarantee from other sites might, in fact, cause you to be charged a 20% restocking fee.
2. “Going Out Of Business”
New York City consumer officials recently found a shop that sells rugs, antique furniture, and other items, accusing it of running a going out of business sale without a license. The company, operating under a slightly different name, had held a going out of business sale at the same location nine months earlier. But even at a legitimate going out of business sale, don’t assume everything is a deal. While checking out a liquidation sale, for example, a copy of weekly sales circulars were found that would have been in effect had the company not belly-up. A 50 inch plasma television being liquidated for $1799 would’ve been on sale for $1500. Also, a better price at a retailer that was not going out of business was found even though lines of bargain store chasing customers were snaking around the store that was presumably going out of business.
3. “Lifetime Warranty”
The term lifetime has no legal meaning by itself. It can refer to a product’s lifetime, not yours, and that could mean the period of time a retailer carries the item, the manufacturer still makes it, parts are available, or you still own it. So if you’re hoping to use that full lifetime warranty as a selling point when you market your home, you might be disappointed. In some cases, lifetime means as long as you own your home. Sell it and the warranty for the new owners converts to 10 years from the date the original warranty went into effect. Still other companies require consumers to register a product and pay a shipping and handling fee for a replacement.
4. “We Will Not Be Undersold”
Many stores guarantee that they have the lowest prices, promising to match or beat a competitor’s price before or after you buy. But those promises often come with lots of restrictions in the fine print. Wal-Mart stores, for example, won’t match online prices and Sears won’t price match internet only retailers. Home Depot and Lowe’s guarantee that they will beat competitor’s prices by 10%, but online retailers are excluded.
The word free is like a powerful aphrodisiac, so it’s a favorite among retailers. FTC guidelines say that if you must buy an item to get something free, the price can’t be inflated to offset the cost of the free item. And all conditions must be disclosed. But think about it: the regular price must be pretty steep for companies to give away stuff and still make a profit. Another catch is being asked to pay something to get a free item, such as additional shipping and handling that many equal or exceed the item’s cost. Then there are free trials that aren’t free at all when the company winds up charging your credit card for a monthly service without telling you that it will, such as the delivery of weight loss pills if you don’t cancel in time.
Be aware of these traps and always read store policies carefully before making a purchase as well is online policies. Don’t blindly accept promises of low prices and check out any retailer that you are not familiar with. Moreover, use a credit card when shopping. That way if there’s a misrepresentation or an unauthorized charge or similar problem, you can file a dispute with your credit card company.
THE WHISTLEBLOWER EFFECTS OF ENRON
After the Enron debacle, Congress passed the Sarbanes-Oxley Act which, in part, protects whistleblowers from retaliation for reporting fraud by public companies. As it turns out, mutual funds are public companies that have no employees. Now what? SEE full article here: http://shawvalenza.blogspot.com/2014/03/us-supreme-court-sarbanes-oxley-acts.html
United States Presidents issue executive orders to help officers and agencies of the executive branch manage the operations within the federal government itself. Executive orders have the full force of law when they take authority from a power granted directly to the Executive by the Constitution, or are made in pursuance of certain Acts of Congress that explicitly delegate to the President some degree of discretionary power (delegated legislation). Like statutes or regulations promulgated by government agencies, executive orders are subject to judicial review, and may be struck down if deemed by the courts to be unsupported by statute or the Constitution. Major policy initiatives usually require approval by the legislative branch, but executive orders have significant influence over the internal affairs of government, deciding how and to what degree laws will be enforced, dealing with emergencies, waging war, and in general fine policy choices in the implementation of broad statutes. Basis in United States Constitution There is no constitutional provision nor statute that explicitly permits executive orders. The term “executive power” Article II, Section 1, Clause 1 of the Constitution, refers to the title of President as the executive. He is instructed therein by the declaration “take Care that the Laws be faithfully executed” made in Article II, Section 3, Clause 5, else he faces impeachment. Most executive orders use these Constitutional reasonings as the authorization allowing for their issuance to be justified as part of the President’s sworn duties, the intent being to help direct officers of the U.S. Executive carry out their delegated duties as well as the normal operations of the federal government: the consequence of failing to comply possibly being the removal from office. An executive order of the President must find support in the Constitution, either in a clause granting the President specific power, or by a delegation of power by Congress to the President. 343 U.S. 579, 585. Antieau, Modern Constitutional Law,§13:24 (1969) All presidents beginning with George Washington in 1789 have issued orders that in general terms can be described as executive orders. During the early period of the Republic, there was no set form with which such orders were required to comply, and consequently, such orders varied widely as to form and substance. Until the early 1900s, executive orders went mostly unannounced and undocumented, seen only by the agencies to which they were directed. However, the Department of State instituted a numbering scheme for executive orders in 1907, starting retroactively with an order issued on October 20, 1862, by President Abraham Lincoln. The documents that later came to be known as “Executive Orders” probably gained their name from this document, captioned “Executive Order Establishing a Provisional Court in Louisiana.” Until 1952, there were no rules or guidelines outlining what the president could or could not do through an executive order. However, the Supreme Court ruled in Youngstown Sheet & Tube Co. v. Sawyer, 343 US 579 (1952) that Executive Order 10340 from President Harry S. Truman placing all steel mills in the country under federal control was invalid because it attempted to make law, rather than clarify or act to further a law put forth by the Congress or the Constitution. Presidents since this decision have generally been careful to cite which specific laws they are acting under when issuing new executive orders. Wars have been fought upon executive order, including the 1999 Kosovo War during Bill Clinton’s second term in office. However, all such wars have had authorizing resolutions from Congress. The extent to which the president may exercise military power independently of Congress and the scope of the War Powers Resolution remain unresolved constitutional issues, although all presidents since its passage have complied with the terms of the Resolution while maintaining that they are not constitutionally required to do so. Criticisms Critics have accused presidents of abusing executive orders, of using them to make laws without Congressional approval, and of moving existing laws away from their original mandates. Large policy changes with wide-ranging effects have been effected through executive order, including the integration of the armed forces under Harry Truman and the desegregation of public schools under Dwight D. Eisenhower. One extreme example of an executive order is Executive Order 9066, where Franklin D. Roosevelt delegated military authority to remove any or all people (used to target specifically Japanese Americans and German Americans) in a military zone. The authority delegated to General John L. DeWitt subsequently paved the way for all Japanese-Americans on the West Coast to be sent to internment camps for the duration of World War II. Executive Order 13233, issued by President George W. Bush in 2001, which restricted public access to the papers of former presidents, was criticized by the Society of American Archivists and other groups, stating that it “violates both the spirit and letter of existing U.S. law on access to presidential papers as clearly laid down in 44 USC. 2201–07,” and adding that the order “potentially threatens to undermine one of the very foundations of our nation”. President Obama revoked Executive Order 13233 in January 2009. Legal conflicts As of 1999, U.S. courts have overturned only two executive orders: the aforementioned Truman order and a 1995 order issued by President Clinton that attempted to prevent the federal government from contracting with organizations that had strike-breakers on the payroll. Congress was able to overturn an executive order by passing legislation in conflict with it during the period of 1939 to 1983 until the Supreme Court ruled in Immigration and Naturalization Service v. Chadha that Congress may not promulgate a statute granting to itself a legislative veto over actions of the executive branch inconsistent with the bicameralism principle and Presentment Clause of the United States Constitution. The loss of the legislative veto has caused Congress to look for alternative measures to override executive orders such as refusing to approve funding necessary to carry out certain policy measures contained with the order or to legitimize policy mechanisms. In the former, the president retains the power to veto such a decision; however, the Congress may override a veto with a two-thirds majority to end an executive order. It has been argued that a Congressional override of an executive order is a nearly impossible event due to the supermajority vote required and the fact that such a vote leaves individual lawmakers very vulnerable to political criticism.
CONSTITUTION CHECK: ARE THERE NO LIMITS ON SECOND AMENDMENT RIGHTS?
“The fact is, all constitutional rights are regulated, always have been, and need to be.” – Dick Metcalf, in an article titled “Let’s Talk Limits,” published last October by Guns & Ammo magazine, leading to his firing as a columnist for that publication, as recounted in a story January 5 in The New York Times. “We are locked in a struggle with powerful forces in this country who will do anything to destroy the Second Amendment. The time for ceding some rational points is gone.” THIS ARTICLE AT THE LINK BELOW DOES NOT EXPRESS THE OPINIIONS OF WFB LEGAL CONSULTING, Inc., PRO OR CON. http://news.yahoo.com/constitution-check-no-limits-second-amendment-rights-110207314.html
A SUMMARY OF KANT’S CRITIQUE OF PURE REASON
The following article is not meant to express the specific opinions of WFBLC, Inc., but rather is a recent article concerning a subject of which I have long been compelled to write. It is about the human mind and it’s challenge to wrestle daily with the concept of morality and what is morally correct–not “right”, but universally correct. I would urge you to read this 12 page summary of Kant’s critique during a quiet time, and with reflection. I think you will find it both a great exercise of the mind, as well as profoundly compelling. See the full article here….. http://www.academia.edu/211483/Summary_of_Kants_Critiques http://www.wfblegalconsulting.com
CONSTITUTION CHECK: IS DEVOTION AND INTERPRETATION OF THE CONSTITUTION LITERALLY BASED?
I came across this interesting article in the last several days which references the application of constitutional principles to today’s ever-changing world. For example, regardless of your position on gun ownership in this country, the question that begs an answer is: “can one rationally explain a scenario where the founding fathers would agree that the necessity for gun ownership is the same in 2013 as it was in the 1770s?” Moreover, if one reads the Second Amendment intuitively, may it reasonably be interpreted by some today to suggest that only a well-organized militia has the right to bear arms, rather than the general populace? Again, regardless of your position on any constitutional issue, one is charged with employing an objective thought process in deciding whether the Constitution should be an ever-changing document charged with a duty to proportionately adapt to current society; or whether it should remain stationary and interpreted literally, regardless of the age in which we are living. The article in its full flavor can be found below. http://news.yahoo.com/constitution-check-devotion-constitution-destroying-democracy-110108926.html
OBJECTIVE REPORTER’S ANALYSIS OF GOVERNMENT SHUTDOWN
WASHINGTON (AP) — Republicans insisted they wanted to shut down the nation’s 3-year-old health care overhaul, not the government. They got the opposite, and now struggle to convince the public that responsibility for partial closure of the federal establishment lies with President Barack Obama and the Democrats. There’s ample evidence otherwise, beginning with Speaker John Boehner’s refusal to permit the House to vote on Senate-passed legislation devoted solely to reopening the government. In the days leading to the impasse, Sen. Ted Cruz of Texas said he would do “everything and anything possible to defund Obamacare,” including a filibuster against legislation to prevent a partial closure of the federal government. In the House, Rep. Jack Kingston told reporters his Georgia constituents would rather have a shutdown than Obamacare, and Rep. Tim Huelskamp added recently that in his Kansas district, “If you say government is going to shut down, they say, ‘OK, which part can we shut down?'” Ironically, Republican leaders urged the rank and file not to link a defunding of Obamacare to federal spending for fear the unavoidable outcome would be a shutdown that would harm the party politically. Yet Boehner, who survived a conservative-led attempt on his tenure in January, and Senate Republican leader Mitch McConnell, who faces a primary challenge from a tea party-backed rival in Kentucky, were unable to prevail. Instead, they were steamrolled by Cruz, his allies in Congress and Heritage Action, Club for Growth, the Tea Party Express and other groups that have used the issue to raise funds. The strategy in effect, Republicans negotiated exclusively with themselves in the days leading to the shutdown as they sought the demise of “Obamacare.” First, they passed legislation demanding the health care law be defunded in exchange for a bill providing essential government funding. When the Senate rejected that, they scaled back. Instead, they sought a one-year delay in the law, combined with the permanent repeal of a tax on medical devices and creation of new barriers to contraceptive coverage for women purchasing insurance. That, too, was torpedoed in the Senate. The next GOP demand was for a one-year delay in the requirement for individuals to purchase coverage, along with a provision that would oblige the president, vice president and members of Congress and their aides to purchase insurance under the same system as the rest of the country without receiving the customary employer contribution from the government, for which they work. The principal impact of that is to raise the cost of insurance dramatically for thousands of congressional aides and political appointees of the administration. That, too, fell in the Senate. There have been ideological retrenchments, as well. Despite their long-held positions against government mandates, House Republicans agreed beginning last week to leave in effect requirements in the health care law they have refused to embrace in the past. Among them is a requirement for insurers to cover individuals with pre-existing conditions and another to allow children up to age 26 to remain on their parents’ plans. All are politically popular, although rarely mentioned by Republican lawmakers who say the country clamors for a total repeal of the law. Despite pledging in the 2010 campaign to “repeal and replace” the law known as Obamacare, Republicans have yet to offer a comprehensive alternative. Efforts to create one have been hampered by opposition from conservatives to some of the mandates they tacitly agreed last week to leave in effect. Conceding as much, Rep. Trent Franks, R-Ariz., said that as a conservative, he had often found during Obama’s presidency that his choice was “between something bad or (something) horrible.” Republican unity, so valuable in pushing to reduce spending in the past three years, shows signs of fraying. Even before the shutdown began, some moderates said it was time to shift the fight against Obamacare to another arena and allow the government to remain open. A handful of conservatives, backed by outside groups, rebelled when GOP demands for changes in the law were scaled back. “I feel like we’re retreating,” said Rep. Phil Gingrey, R-Ga., while the conservative group Heritage Action said it opposed the last in a series of GOP maneuvers because it fell short of “fully defunding the president’s failed law.” Restlessness grows. In the Senate, Sen. Bob Corker, R-Tenn., says routinely, “We’re in a box canyon,” and Sen. John McCain of Arizona observed, “We can’t win” when it comes to using a federal spending measure to squeeze out concessions on health care. Ironically, Obama and Senate Democratic leaders have said repeatedly in recent days they are willing to negotiate changes in the health care law — on another day and another bill. Even Democrats privately concede that a tax on medical devices isn’t likely to survive long, given that 79 members of the Senate backed its repeal on a nonbinding test vote last spring. What survives is the expansion of the health care law that was passed in 2010, the opportunity for uninsured Americans to obtain private insurance at a cost oftentimes subsidized by the government. ___ EDITOR’S NOTE — David Espo is chief congressional correspondent for The Associated Press. An AP News Analysis Provided as a courtesy by: BEST ASSET PROTECTION LAWYER FOR BUSINESS: WFB Legal Consulting, Inc.
“TO BEESNESS, OR NOT TO BEESNESS”
You know, having respect for your customers will ensure their faith and loyalty to you and your business over the long run. Candidly, many studies have shown that is up to nine times more difficult to attract a new customer than it is to retain an existing one. Accordingly, it is critical to keep your customers happy—a matter that would appear at first blush to be common sense. But do we keep this in the forefront of our minds as we go through our everyday business? Obviously, if you don’t, you should. Numerous surveys and questionnaires are among ways to measure your customers’ perceptions of you and determine how to improve both your business acumen and your marketing skills. For example, if you discover that a customer is dissatisfied, take action immediately to win back their confidence in the services or products you provide. People like to know that their opinions count. Therefore, if they feel like you care about what they think, they in turn, will think positive thoughts about your business and about you personally. Should you run into a problem with a client are customer or supplier however, here are what I hope to be some helpful tips to resolve the situation:
- State calm: listen carefully to the complaints being provided by the customer without interruption. Graciously acknowledge that there is a problem and empathize with your client. Let clients know exactly what you can do for them and more importantly, make them aware of all of their options. Always ensure that you treat your customers with respect. Customers and clients should sense that you have resolve while simultaneously realizing that you are indeed concerned about their welfare. Accordingly, your attitude when dealing with upset clients or customers should always be professional, unemotional, and pleasant in nature, as well as reasonable.
- One of the foremost reasons that customers stop dealing with a business is because they were treated poorly from their perspective. It should seem clear that it is indeed cost effective to retain loyal customers rather than to merely concentrate on getting new ones on a consistent basis. However, in order to establish loyalty, you have to have an ability to calm down upset clients and customers and ensure them that you will find a solution that they deem acceptable. In fact, you must ensure that they believe you will work extremely hard to find that solution. Let them know that their relationship with you and your business is first and foremost—that it is indeed important to you. Their patience and cooperation should be expressed to them by you personally, rather than an employee for example.
- Be aware that nonverbal communication is just that—communication to your clients and customers. Body language and tone of voice should always be tactful and polite. Make sure your facial expressions, gestures, tone and even posture, are in line with what you’re verbally expressing to your client or customer.
- Ultimately, there may be individuals who will always pose a problem–they will always find something to complain about no matter how exceptional your products or services may be. Simply, there are some people who you can never make happy. Always remember that after exerting reasonable efforts in an attempt to resolve a client or customer issue without success, you and your business will be much for the better without such clients or customers. In fact, I would go one step further: I wouldn’t refer them to anyone else either. If in your professional judgment, you have deemed them to be unreasonable in the context we are discussing here, then why put your professionalism on the line by making a referral to another business owner in the community? Remember: you just simply can’t predict what you might get when you deal with people. Human behavior, unless you’re professionally trained, is indeed an anomaly that must be dealt with devoid of emotion and enveloped with clear logical thinking.
- Don’t forget that once you have resolved the problem brought to your attention by your client or customer, you must take steps to ensure that it does not happen in the future. In fact, being educated about a problem might indeed help improve your business if you make sure the problem is avoided in the future. In other words, make sure you don’t make the same mistake twice.
- Finally, please do not take criticism personally. Most often discourteous customers act the way they do because they, in fact, made a mistake and they want to blame someone else. Moreover, we don’t know what’s going on in their personal lives or business. They could’ve gotten up in the morning and just had an argument with their husband or wife; been involved in a fender bender before they got to the office; or simply had a disagreement with someone else that they work within their business, which they are now taking out on you. Don’t let customers or clients control you by responding emotionally or giving in to ludicrous demands. Anger and sarcasm are inappropriate reactions. Don’t let anyone ever rob you of your joy.
LAW AND MORALITY
•By: Michael Bauman This article first appeared in the Volume 21 / Number 3 issue of the Christian Research Journal. For further information or to subscribe to the Christian Research Journal go to: www.equip.org SUMMARY Because every law springs from a system of values and beliefs, every law is an instance of legislating Morality. Further, because a nation’s laws always exercise a pedagogical or teaching influence, law inescapably exerts a shaping effect over the beliefs, character, and actions of the nation’s citizens, whether for good or ill. Those who seek to separate morality from law, therefore, are in pursuit both of the impossible and the destructive. The question before us is never whether or not to legislate morality, but which moral system ought to be made legally binding. The constant or determined repetition of an error does not make it true. Errors are errors regardless of their prevalence or the persistence of those who advance them. Indeed, given the egregious foolishness of some of our most widespread beliefs in the recent past, the great popularity or predominance of a notion sometimes is enough to raise suspicions about its truthfulness. We moderns too eagerly and too often live our lives on the basis of insupportable, indefensible, half-true “truisms” that cannot stand up to close analysis. The assertion that you cannot legislate morality is just such a notion. No matter how often one hears that you cannot legislate morality, the truth is that you can legislate nothing else. All laws, whether prescriptive or prohibitive, legislate morality. All laws, regardless of their content or their intent, arise from a system of values, from a belief that some things are right and others wrong, that some things are good and others bad, that some things are better and others worse. In the formulation and enforcement of law, the question is never whether or not morality will be legislated, but which one. That question is fundamentally important because not all systems of morality are equal. Some are wise, others foolish. Few are still in their first incarnation, nearly all having been enshrined as law at some time or place, often with predictable results. For better or worse, every piece of legislation touches directly or indirectly on moral issues, or is based on moral judgments and evaluations concerning what it is we want or believe ought to be, what it is we want or believe we ought to produce and preserve. LAW, MORALITY, AND THE FOUNDING OF AMERICA When the Founding Fathers drafted our original Constitution, they did so on the basis of competing belief systems, competing assertions of right and wrong, which they endeavored to build into the Constitution. One or more of those belief systems permitted slavery, others did not. No side in the slavery debate at the Constitutional convention argued that you could not legislate morality. They all recognized that notion as balderdash. They knew that indeed you could legislate morality, and they intended for that legislated morality to be theirs. Nor did any side in the struggle to legislate morality at our nation’s founding say to its opponents that trying to legislate morality was a breach of the wall of separation between church and state. Morality, after all, is not a church. They would have laughed at the confusion of mind revealed in one who thought that separating church from state meant separating morality from law. They wanted the nation to be moral. They wanted its laws to be just. But they did not want to give any one church a national legal advantage over the others. They did not want the nation to be Presbyterian, Baptist, or Roman Catholic, which is a far different issue from whether or not to have ethics-driven law.1 Under the Constitution the Founders enshrined freedom of religion, not freedom from religion. In seeking to avoid a state-established church, they were not thereby establishing secularism or separating law from morality. The very fact that the Founders were creating a new Constitution for their fledgling nation arose because they understood the actions of King George to be morally evil, and politically unjust. They all knew quite well that morality belonged in politics, in fact that politics was simply morality applied to the public square, to the public’s business. The Founders sought to establish what they called an “ordered liberty.” The order they sought was provided in part by the morality they intended to enshrine in law. By seeking ordered liberty, the Founders were not seeking anything new or unprecedented in political thought or in political history. They well knew from reading the ancient words of Aristotle, for example, that morality encoded in civil law helped to provide order, since law inescapably has a teaching function, or pedagogical effect. Law teaches the citizens what is right and good, and it punishes those who cannot or will not learn that lesson. To make the point from a different angle, when we pass laws that require drivers to drive their vehicles at 20 mph or less in school zones, we do so because we have a value system that rightly puts greater worth in human life than in vehicular speed. That valuation is a moral judgment. That moral valuation we properly and wisely seek to translate into binding and enforceable law. We propose and pass such laws because we think it wrong for drivers recklessly to endanger the lives of defenseless children, who lack the experience, foresight, and physical dexterity to keep themselves out of harm’s way on the streets. We punish drivers who do not do as the law requires. No one, in the face of such proposed legislation, says to the local authorities that those authorities have no right to impose their morality on others, even though that is precisely what such laws do. Much less does anyone seriously argue that to propose such values-laden laws is an effort to tear down the wall of separation between church and state. Those objections are not raised in the case of low speed limits in school zones because all serious-minded citizens are in agreement with such laws. That these laws are morals-based, or values-driven, creates no problem when people find the laws agreeable. Rather, people tend to complain that laws are morals-based only when the law in question is based upon a moral valuation with which they disagree. To be consistent, those who object to morals-based laws would have to raise the same objection to all laws whatsoever, including the laws they themselves support. But they do not. They never do. When their own morals are encoded in law, they raise not even the faintest whimper of protest. Yet when laws are passed that they dislike, they say almost nothing else. They seem to want a sword that will cut only others, never themselves. But any sword of objection sharp enough to cut Jack is sharp enough to cut John as well, even though John might not like it. Legislating morality, in other words, is not an option; it is a necessity, an inevitability. Justice, equity, fairness — characteristics that all thoughtful citizens want from their government and on which they think government and its laws ought to be predicated — these are all moral categories. We outlawed slavery, theft, murder, fraud, rape, and so forth precisely because they are immoral and we wanted them stopped, or at least radically curtailed. We proposed, passed, and enforced these morals-based laws specifically toward that end, and in so doing we were right. Let me make the point still more explicitly. When it comes to prohibiting sexual harassment or sexual discrimination in the marketplace, feminists do not complain that the proposed legislation attempts to enshrine morality in the civil or penal code, even though it most definitely does. No serious feminist has ever sought to undo or to oppose such legislation because it was based upon a system of morals. On the other hand, they complain about legislating morality when it comes to outlawing abortion. They object to legislating morality only when the morality in question is one from which they dissent. When the law in question encodes a morality they support, their objection to morals-driven law disappears. By the same token, when a civil rights leader supports affirmative action laws and opposes the Jim Crow legislation of the old South, both that leader’s support and opposition are based on the moral judgment that all persons are created equal and ought therefore to be treated equally under the law. That civil rights leader cannot then turn around and say to someone else, pro-life advocates for instance, that they are imposing their morality on others because the pro-life advocates are doing exactly what the civil rights advocate is doing, and on precisely the same basis, namely upholding the dignity and worth of every human being. Like the civil rights advocate, the pro-life advocates are affirming the obligation of a just nation to insure that all persons enjoy equal protection under the law. LEGALITY v. MORALITY: A PLATONIC OVERVIEW I noticed the following on line and thought it was worth sharing: it fits right in to “sensibility options” and a rational objective approach to all things worthy of insightful thought–given to us as far back as the time of Plato. At first there seems to be no distinction between law and morality. There are passages in ancient Greek writers, for example, which seem to suggest that the good person is the one who will do what is lawful. It is the lawgivers, in these early societies, who determine what is right and wrong. But it is not long before thoughtful people recognize the difference between what is actually legal or legally right according to the political authorities and what should be legal. What should be legal roughly corresponds to what is really right or just, that is, what we would call morally right. We find, for instance, the distinction between what is legally or conventionally right and what is naturally (or as we would say today morally) right. Sometimes this is expressed as an opposition between what the gods command (i.e., what is morally right) and what the political authorities command (i.e., what is legally right). This is dramatically illustrated in Sophocles’ tragedy Antigone, in which the heroine defies the decree of the king (the source of “legal right” in the circumstances) and buries her brothers (an act the audience would assume was morally right). The contrast between what the state demands and what the gods demand is not the only way that this legal v. moral distinction is expressed. We find it also in the important Greek philosophers, who frequently discuss the distinction in terms of appearance and reality, or between what superficially seem or appears to be the case and what a thorough rational investigation reveals. Plato, for example, holds that knowledge of what is just or moral, and the ability to distinguish true justice or morality from what is merely apparently just depends on the full development and use of human reason. According to Plato, there is a very close connection between true justice or morality and human well-being or flourishing. Legal and political arrangements that depart too far from true justice should, if possible, be replaced by arrangements that better promote justice and thus well-being. Ethics, therefore, has claimed a right to criticize legal arrangements and recommend changes to them. Many debates about the law, when they are not merely debates about how legal precedent mechanically applies in a particular situation, are also ethical debates. Let’s summarize the relationship between morality and law. (1) The existence of unjust laws (such as those enforcing slavery) proves that morality and law are not identical and do not coincide. (2) The existence of laws that serve to defend basic values–such as laws against murder, rape, malicious defamation of character, fraud, bribery, etc. –prove that the two can work together. (3) Laws can state what overt offenses count as wrong and therefore punishable. Although law courts do not always ignore a person’s intention or state of mind, the law cannot normally govern, at least not in a direct way, what is in your heart (your desires). Because often morality passes judgment on a person’s intentions and character, it has a different scope than the law. (4) Laws govern conduct at least partly through fear of punishment. Morality, when it is internalized, when it has become habit-like or second nature, governs conduct without compulsion. The virtuous person does the appropriate thing because it is the fine or noble thing to do. *Please be advised that this communication is for general public informational use only and does not establish an attorney-client relationship. For more information, please contact WFB Legal Consulting, Inc.—A BEST ASSET PROTECTION Services Group at (949) 413-6535. SENSIBILITY TOPIC: MORALITY v. LEGALITY…..A DILEMMA? Not Always: Often times we tend to equate that which is morally wrong to that which is legally impermissible. In many cases, they do coincide: such as in the case of murder, where no one would doubt that the killing of another human being unlawfully is also morally unacceptable. However, other cases are not quite as clear. Heated debates have occurred over the years concerning issues such as abortion and the sanctity of marriage, both grounded in religious principles. How does one tend to judge a fellow human being who believes that abortion is not murder, with another fellow human being who just as passionately believes that abortion is, in fact, the killing of another? Likewise, is same sex marriage immoral, and thus illegal, merely because the definition of marriage has up until now, been defined by religious underpinnings rather than by way of objective legislation? These questions are brought to bear to a legitimate degree only when one employs totally objective and dispassionate analysis, rather than emotional pride, politics and tradition. If one pursues the former rather than the latter, there does not appear to be a dilemma between morality and legality after all. For example, take the question of abortion. Rather than arguing whether morality plays in favor of the unborn child or the mother, who’s life may be threatened in some circumstances, and then labeling one or the other illegal, why not approach it from a dispassionate point of view? Since those who oppose abortion generally believe it is immoral from a religious standpoint, why not allow the potential mother to make the choice and ultimately have to face her creator for punishment, should punishment be forthcoming? This would be consistent with upholding a woman’s right to choose as well as gender equality. It would accordingly also provide the basis, in theory, for an individual to be opposed to abortion while simultaneously supporting a woman’s right to choose–all consistent with the religious principle of “free will.” Similarly, problems involving same-sex marriage, which permeate the news in today’s ever-changing world, could perhaps be solved by eliminating religion from the equation. Religion could retain the concept known as the “sanctity of marriage”, should states decide to adopt the principle of a civil union, whereby one can be joined civilly in law with all the attendant rights usually associated with a theologically joined married couple. A couple that is joined civilly may then practice their religious beliefs in accordance with their religious principles, unhampered by political intrusion, media sensationalism, and accused moral absenteeism. Granted, such analysis requires practice at setting aside the emotional prejudices we all harbor as human beings. However, whether we overcome these prejudices is not the fault of an inherent incongruence between morality and legality. Rather, it is the fault of our own insecurities and unwillingness to apply objective unemotional cognizance. This author advocates no particular position over another with respect to the personal values discussed in this short essay. However, should this information spurn a reader to reevaluate his or her own decision-making process, it will have accomplished its purpose well beyond any perceived discrepancy between morality and legality. *Please be advised that this communication is for general public informational use only and does not establish an attorney-client relationship. For more information, please contact WFB Legal Consulting, Inc.—A BEST ASSET PROTECTION Services Group at (949) 413-6535.