Tuesday, April 28, 2009

Legislative Update...Get Ready For the Employee Free Choice Act

Have you heard about the Employee Free Choice Act ("EFCA")? In a nutshell, this legislation pending before Congress would amend the National Labor Relations Act to make it easier for employees to start unions. If passed it would:
  • Allow employees to start a union if a majority of the employees sign union authorization cards;
  • Require bargaining to begin within ten (10) days of union certification, with binding arbitration for negotiations unresolved after one hundred and twenty (120) days; and
  • Level higher financial penalties on employers who fire or discriminate against unionizing employees.
A lot of small business owners do not even know this is coming. With the Democrats in charge, passage of the EFCA seems fairly certain. The question is when. At this point, it is not at all clear where the new administration is going to place this in terms of its legislative priorities. As a business owner and employer, you should make learning about the EFCA a priority now.

To get more information, you can log onto www.americanrightsatwork.org/employee-free-choice-act.

Saturday, April 25, 2009

Don’t Sign Any Business Contract Without Having It Reviewed By A Qualified Business Attorney

Like most people, small business owners tend to shy away from signing anything. They avoid contracts like the plague. But this is a risky way to do business. In today’s business climate it is important to memorialize agreements in writing. I advise my clients not to sign anything without having me review it first.

When you are making a major product or service sale or purchase, you need to get the details of the transaction in writing. If you don’t, you will inevitably find yourself in the middle of a heated discussion over specific terms. Does the purchase include freight costs? Can sanctions be imposed if delivery is not met? What if the services rendered are considered unsatisfactory? In many cases a purchase order and/or a written estimate will provide the answers to these types of questions and serve, in effect, as a contract.

For small, routine purchases and sales, you may wish to have an attorney review the basic purchase order or sales documents that you will be using. For larger or unusual transactions, you may wish to have your attorney review the contract you intend to use, if not draft it. After you have been in business for a while and have learned a thing or two from your attorney, you will gain the ability and confidence to write many of your own contracts; however, it is still advisable to have your attorney at least review any new contracts.

For more important contracts, retain the original copy containing the original signatures from all parties. True, in many situations a photocopy or even an agreement without signatures offers adequate proof of a purchase or sale agreement, but nothing can beat an original copy as legal protection.

Any substantive changes to a contract should be noted in writing. If they are in the body of the contract, then each change should be initialed by all parties involved. If it is in the form of an addendum, it should be signed by all parties involved. A contract should specify that it represents the entire agreement between the parties and that any changes must be in writing.

To avoid court and the legal costs associated with lawsuits, contracts should, generally, have an Alternative Dispute Resolution clause specifying that disputes will be mediated and/or arbitrated. If arbitrated, the results of the arbitration should be held binding.

Form contracts available online or in stationary stores are good templates, but nothing replaces a customized contract specifically for your purpose. It does not take a good lawyer a lot of time to review and comment on a contract. It is well worth the investment, because a lot of litigation starts with bad contracts.

Thursday, April 23, 2009

How do the Changes to COBRA Benefits Affect You the Business Owner...

The Obama administrations' stimulus packages made some changes to COBRA to provide some relief to the millions of laid off employees in need of continued health care coverage. The Internal Revenue Service recently issued Notice 2009-27 to clarify the changes in COBRA benefits. Notice 2009-27 provides an in-depth clarification of the changes, but the bottom line is that the government decided to subsidize sixty-five percent (65%) of COBRA premiums for eligible employees who are involuntarily laid and seeking extended health care coverage through the employers COBRA plan. For small business owners it is important to note that the employer must advance the cost of the premiums and then receive reimbursement through a payroll tax credit. In other words, you are temporarily subsidizing the government’s subsidy. These are extremely tough economic times for all businesses, and this scenario could prove to be taxing on your already tight cash flow. This is something to keep in mind when contemplating terminating any eligible employees.

Tuesday, April 21, 2009

What An "Out-House" General Counsel Can Do For A CEO

In today’s economic times, CEO’s of emerging and mid-sized companies can ill-afford to incur unanticipated risks or see a badly structured transaction or contract erode hard-earned company profits. That is one of the many reasons that a CEO’s team should include an experienced General Counsel. The mission of the General Counsel is to facilitate the achievement of the company’s business goals and profitability by being a proactive, valued member of the management team. If the company is not in a financial position to take on an "in-house" General Counsel, it should consider retaining an "out-house" one.

A General Counsel, whether "in-house" or "out-house" tends to be far more knowledgeable about the company's industry, business operations, strategy and new product opportunities than typical outside law firm attorneys who are not accustomed to being on site or serve as hands on members of the business unit. While an "in-house" General Counsel is ideal, my approach to the duties as an "out-house" General Counsel is the same. I approach the "out-house" General Counsel function with the goal of providing business clients with critical corporate legal services replicating, as much as possible, the methods, approach, and style of an in-house law department. As a result, I am keenly attuned to the full range of legal and business issues embedded in the company’s business, understand the business priorities, and can add critical value by proactively translating legal risk into business reality. As an inside legal expert, I have the ability to devise action plans, engage in timely and decisive risk prevention strategies as well as to cost-effectively and creatively find solutions to legal problems.

As your businesses' "out-house" General Counsel I emphasize the importance of developing a working environment where I am integrated with the client and am a member of the management team. When business people perceive that an "out-house" General Counsel can provide creative legal solutions with a business perspective, they are drawn more deeply into business teams as high value-added contributors as well as trusted advisors. A savvy CEO is one who recognizes the business advantages and risk reduction that an "out-house" General Counsel can bring, and ensures that his or her executive management team always includes this valuable team member.

If you think your company could benefit from the services of an "out-house" General Counsel, please contact Daniel J. Alexander II at [email protected] or (714) 730-4040 ext. 2.

Monday, April 20, 2009

The Legal Audit

Companies face a bewildering array of law and regulations that impact various areas of operations. A properly conducted legal audit is a way for management to frame, prioritize and anticipate the most important issues and minimize costly surprises which distract management focus.

The Legal Audit Checklist is not a legal audit; it is a checklist of key areas of inquiry to complete with a qualified attorney retained to perform a legal audit. Analogous to a physical exam, the purpose of the legal audit is to understand your current condition, identify any problems, and enable you take appropriate actions to correct or arrest the worsening of current problems and to avoid/prevent future problems.


To learn more about the legal audit, please contact Daniel J. Alexander II at [email protected] You can download the complete check list at the link below.


Monday, April 13, 2009

Collecting Business Debts

Learn how to minimize late payments and communicate with clients who might be headed for collections.

Sometimes, the biggest challenge for a small business owner comes when it's time to get paid. Fortunately, with a little preparation, you can minimize late payments and develop the business radar that lets you know when an account is headed for collections. By communicating effectively and working with financially troubled clients as they make their way through a rough patch, you may end up with devoted customers for life.

Late-paying customers usually fall into three categories:

  • Customers who want to pay but, because of real financial problems, can't do it on time.
  • Customers who prefer to delay or juggle payments.
  • Customers who will do whatever possible to avoid any payment.

For the first two categories, there is hope. You may be able to manage these debts and convince the debtors to make partial or full payment. As for the last category, you need to recognize this type as quickly as possible and take serious action -- perhaps turning the account over to a collections agency, discussed below.

Whatever collections efforts you make, one rule always applies: Get busy as soon as possible and stay on the account until you're paid. Send bills promptly and re-bill monthly. There's no need to wait for the end of the month. Send past due notices promptly once an account is overdue.

Here are some more tips:

  • Don't harass. Don't harass people who owe you money, but let them know that you follow these matters closely. Don't leave more than one phone message per day for a debtor, and never leave messages that threaten the debtor or contain statements that put the debtor in a bad light.
  • Be direct, listen, and don't get personal. Keep your calls short and be specific. Your goal, according to collections expert Carol Frischer, should be to prevent the debtor from taking the call personally -- that is, from associating the failure to pay as meaning a failure in life. Always stay calm but always maintain a sense of urgency about getting paid.
  • Get creative. If the customer has genuine financial problems, ask what amount they can realistically afford to pay. Consider extending the time for payment if the customer agrees in writing to a new payment schedule. Call the day before the next scheduled payment is due to be sure the customer plans to respect the agreement.
  • Write demand letters. Along with phone calls, send a series of letters that escalate in intensity. Save copies of all correspondence with the customer and keep notes of all telephone conversations. You may need these if you hand the matter over to a collections agency or take the customer to court.
  • Use your "Out-House" General counsel to write demand letters. Debtors often reply to demand letters by attorneys. If not, they will definitely not respond to correspondence from a collection agency. If the account is fairly large and remains unpaid for an extended period (say six months) and you're doubtful about ever collecting on the debt, consider having your counsel offer in writing a time-limited, deep discount to resolve the matter. Your counsel can finalize this with a mutual release and settlement, a legal document that terminates the debt.
If none of the above tips work, talk to your counsel about the pros and cons of filing a legal collection action.

The LinkedIn Lawyer: This Week's LinkedIn Lawyer "Top Tweets"

The LinkedIn Lawyer: This Week's LinkedIn Lawyer "Top Tweets"

Thursday, April 9, 2009

LegalZoom vs. A Real Lawyer.....

I applaud Robert Shapiro and the other lawyers who developed LegalZoom. It is a great business model. It is a great tool if you know what your are doing. However, do not think you can call up LegalZoom to get legal advice. LegalZoom is nothing more then a document preparer and filer. They cannot and do not offer Legal Advice regarding your specific business needs. Using LegalZoom for your business legal needs is akin to a non-physician going onto WebMD.com and treating themselves based upon what WebMD.com says.

I always advise my clients to read everything before they sign it or agree to it. The beauty about LegalZoom is that their disclaimer has tucked away in a tiny link at the bottom of their website. I have reprinted it here for you.


LegalZoom is not a law firm, and the employees of LegalZoom are not acting as your attorney. LegalZoom's legal document service is not a substitute for the advice of an attorney.

LegalZoom.com, Inc. ("LegalZoom") is a registered and bonded legal document assistant, #0104, Los Angeles County (exp. 12/09). LegalZoom cannot provide legal advice and can only provide self-help services at your specific direction.

LegalZoom is not permitted to engage in the practice of law. LegalZoom is prohibited from providing any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options, selection of forms or strategies.

This site is not intended to create an attorney-client relationship, and by using LegalZoom, no attorney-client relationship will be created with LegalZoom. Instead, you are representing yourself in any legal matter you undertake through LegalZoom's legal document service.

LegalZoom provides an online legal portal to give visitors a general understanding of the law, as well as to provide an automated software solution to individuals who choose to prepare their own legal documents. To that extent, the site publishes general information on legal issues commonly encountered.

LegalZoom's document service also includes a review of your answers for completeness, spelling and grammar, as well as internal consistency of names, addresses and the like. At no time do we review your answers for legal sufficiency, draw legal conclusions, provide legal advice or apply the law to the facts of your particular situation. LegalZoom and its services are not a substitute for the advice of an attorney.

Although LegalZoom takes every reasonable effort to ensure that the information on our website and documents are up-to-date and legally sufficient, the legal information on this site is not legal advice and is not guaranteed to be correct, complete or up-to-date. Because the law changes rapidly, is different from jurisdiction to jurisdiction, and is also subject to varying interpretations by different courts and certain government and administrative bodies, LegalZoom cannot guarantee that all the information on the site is completely current. The law is a personal matter, and no general information or legal tool like the kind LegalZoom provides can fit every circumstance.

Therefore, if you need legal advice for your specific problem, or if your specific problem is too complex to be addressed by our tools, you should consult a licensed attorney in your area. Visitors to our site may obtain information regarding free or low cost representation through your state bar association or local legal aid office.

This site and some of the articles on this site contain links to other resources and businesses on the Internet. Those links are provided as citations and aids to help you identify and locate other Internet resources that may be of interest, and are not intended to state or imply that LegalZoom sponsors, is affiliated or associated with, guarantees, or is legally authorized to use any trade name, registered trademark, logo, legal or official seal, or copyrighted symbol that may be reflected in the links.

LegalZoom is not responsible for any loss, injury, claim, liability, or damage related to your use of this site or any site linked to this site, whether from errors or omissions in the content of our site or any other linked sites, from the site being down or from any other use of the site. In short, your use of the site is at your own risk.

LegalZoom is nothing more than a re-packaged "We The People" on the internet. They are Legal Document Assistants. There are a lot of things that non-lawyers can do. You can set up your own corporation or LLC, you can draft your own contracts, you can draft your own employee policies and procedures, etc. However, nothing takes the place of establishing a relationship with a lawyer who can perform all those tasks with expertise and "counsel" you on your legal decisions. There are a lot of good business lawyers that are willing to take the time to help you from making mistakes on your own. I am one of them....

Wednesday, April 8, 2009

LLC vs. S Corporation..Which is the right fit for your new business?

Determining the type of legal structure for a new business can be daunting for entrepreneurs and small business owners. Corporations and limited liability companies (“LLCs”) are preferred business structures because, unlike sole proprietorships and partnerships, both offer liability protection. This means that the owner of a company cannot be held personally responsible for the company’s debts. The personal assets of an owner are shielded from company liabilities.

In researching the various business structures, one inevitably comes across the S corporation. S corps and LLCs are similar in that they are both “pass-through” entities for tax purposes; the income of these companies are passed through to their owners and reported on the owners’ personal income tax returns, thereby eliminating the double taxation incurred by owners of a standard corporation, or C corporation. (With a C corporation, the net business income is subject to corporate income tax, and the monies remaining after the corporate income tax are taxed a second time when they are distributed as dividends to its owners who must then pay personal income tax.)

So what is the difference between an S corporation and an LLC? And which structure is right for you? The answer depends on your own unique situation. If operational ease and flexibility are important to you, an LLC is a good choice. If you are looking to save on employment tax and your situation warrants it, an S corporation could work for you.

Business Ownership & Operation

There are restrictions on who can be owners (called “shareholders”) of an S corporation. An S corporation can have no more than 75 shareholders. None of the shareholders can be nonresident aliens. And shareholders cannot be other corporations or LLCs.

An S corporation is operated in the same way as a traditional C corp. An S corp. must follow the same formalities and record keeping procedures. The directors or officers of an S corp. manage the company. And an S corp has no flexibility in how profits are split up amongst its owners. The profits must be distributed according to the ratio of stock ownership, even if the owners may otherwise feel it is more equitable to distribute the profits differently.

LLCs offer greater flexibility in ownership and ease of operation. There are no restrictions on the ownership of an LLC. An LLC is simpler to operate because it is not subject to the formalities by which S corps must abide. An LLC can be member-managed, meaning that the owners run the company; or it can be manager-managed, with responsibility delegated to managers who may or may not be owners in the LLC.

And the owners of an LLC can distribute profits in the manner they see fit.

Let’s say, for example, you and a partner own an LLC. Your partner contributed $40,000 for capital. You only contributed $10,000 but you perform 90% of the work. The two of you decide that, in the interest of fairness, you will each share the profits 50/50. As an LLC you could do that; with an S corporation, however, you could only take 20% of the profits while your partner would take the other 80%.

Employment Tax: Savings vs. Paperwork

A major factor that differentiates an S corporation from an LLC is the employment tax that is paid on earnings. The owner of an LLC is considered to be self-employed and, as such, must pay a “self-employment tax” of 15.3% which goes toward social security and Medicare. The entire net income of the business is subject to self-employment tax.*

In an S corporation, only the salary paid to the employee-owner is subject to employment tax. The remaining income that is paid as a distribution is not subject to employment tax under IRS rules. Therefore, there is the potential to realize substantial employment tax savings. Case in point:

Mary owns a print shop. In keeping with the industry standard, Mary decides that a reasonable salary for a print shop manager is $35,000 and pays herself accordingly. Mary’s total earnings for the year are $60,000: $35,000 paid in salary and the remaining $25,000 paid as a distribution from the S corp. Mary’s total employment tax is $5,355 (15.3% of $35,000).

If Mary were the owner of an LLC, she would have to pay employment tax on the entire $60,000, equaling $9,180. But as an S corporation, she realizes savings of $3,825 in employment tax.

One might assume that these savings could be further manipulated by reducing the salary to an extremely low amount and attributing the rest of one’s earnings to distributions—but this would be an incorrect assumption. In practice, the IRS is careful to notice whether a salary is reasonable by industry standards. If it determines a salary to be unreasonable, the IRS will not hesitate to reclassify distributions as salary.

Still, while the potential employment tax savings may make the S corporation an attractive structure for your business, bear in mind that you would then have to deal with all the paperwork associated with payroll tax. The payroll tax is a pay-as-you-go tax that must be paid to the IRS regularly throughout the year--on time, or you will incur interest and penalties. The paperwork alone can be an overwhelming task for someone who is not familiar with this; and if you expect to incur losses or otherwise experience a cash flow crunch during the year that would hinder you from paying the payroll tax when due, this could present a problem.

Owners of LLCs pay their self-employment tax once a year on April 15 when income taxes are normally due. Income tax filings are also relatively easy for the owners of an LLC: A single-member LLC files the same 1040 tax return and Schedule C as a sole proprietor; partners in an LLC file the same 1065 partnership tax return as do owners of traditional partnerships.

There is no one, magical entity that works for everyone. A CPA or a specialized tax/business attorney can assist you in choosing the right structure for your business. The important thing is to consider the operational, legal and tax aspects of each structure as they apply to your unique situation.

Tuesday, April 7, 2009

Is Your Business Idea Protected?


Why does your company need an out-house general counsel?

Corporate "In-House" counsel are an invaluable resource for companies. They deal with the day-to-day legal issues of running the company and serve as the line of prevention when it comes to making business decisions that may have legal effects against the company. Small and medium sized businesses that don't have "in-house" counsel have to deal with these same issues. As a business owner, you need a lawyer you can call on to handle these issues. That is why my partner and I developed our "Out-House" General Counsel practice. We provide "in-house" counsel services to those companies that do not have an "in-house" counsel on staff.

Graves & Alexander LLP ("GA") was established by Daniel James Alexander II, Esq. and Geoffrey A. Graves, Esq., seasoned business attorneys, to provide services to small and mid-size businesses such as those that are provided by an "in-house" attorney at a large corporation. GA provides its clients access to a wealth of information and experience gained as a result of over a combined twenty-five years of litigation/transactional practice.

As your General Counsel, you will have experienced business attorneys address all of your legal concerns, from the proper legal structure for your business (such as a corporation, LLC, or partnership), to the numerous issues that impact the operation of your business (such as drafting agreements, labor law and compliance issues). We also offer a unique service called a legal audit.

Companies face a bewildering array of laws and regulations that impact various areas of operations. A properly conducted legal audit is a way for management to frame, prioritize and anticipate the most important issues and minimize costly surprises which distract management focus.

The Legal Audit Checklist is a checklist of twelve key areas of inquiry that a GA lawyer will audit (see presentation below.) Analogous to a medical physical exam, the purpose of the legal audit is to understand your current condition, identify any problems, and enable you to take appropriate actions to correct or arrest the worsening of current problems and to avoid/prevent future problems. It is more cost effective to catch these issues earlier than later to avoid costly litigation. However, if you are forced to face litigation GA has the litigation experience to see you through to the end.

As a GA client, I become an integral part of your team. Not only do I perform the "General Counsel" function, but I do it with your bottom line in mind. I Offer More Than Sound Legal Advice....... I Offer A Partner To Share Your Entrepreneurial Vision.