Making It Legal:

My husband and I don’t always see eye-to-eye. He’s an easygoing (albeit highly professional) personal trainer; I’m an uptight, brainy attorney. But in this season of Thanksgiving, I am supremely thankful for my husband . . . especially that he has not gotten himself into some of the harebrained schemes and ideas that some of the husbands mentioned below have been contemplating. Here are just a few ways that OPH (other people’s husbands) are getting themselves and their families into trouble by not getting sound legal advice:

Q.: Is it legal to take an existing invention, rebrand it and sell it to a different market? As in change its use?

A.: Would it be legal for me to break into your house, steal your wife’s diamond engagement ring, take the stone out of the setting, split it in two to make a pair of stud earrings and sell it to someone else? Of course not. That’s what you’re looking to do–even if you don’t have the criminal intent. It’s not for you to take someone else’s product and make your own buck off it–certainly not without having some arrangement with the product’s inventor. Get permission for what you want to do or make your own product for the different market and use you want to sell to.

Q.: My wife is an employee of a small firm that does not have office space, and all employees work in their own offices at their homes. My wife is responsible for the purchase and maintenance of her home office computer and electronic files. But I provide all of her technical support, upkeep and backups of her computer. Could she actually pay me for these services from her income, and could I then form a business out of this activity, either as a sole proprietor or incoporated?

A.: Having your wife pay you from her income makes no sense–all it does is decrease her individual income and provide you with income. Either way, the household income is the same. In addition, as an employee, she may not get the full benefit of tax deductions for paying for professional services. Also, if your wife is your only client, you won’t have much of a business . . . and could run the risk that you would be considered her employee. Which could jeopardize her standing with her company. If you’re that proficient as tech support, consider starting your own business and make a proposal to her company supervisors that you handle the tech support for the various home offices for the company. That way, the company pays you directly, you build a more substantial client base and you don’t siphon income from your wife.

Q.: I opened up a small business and signed a lease with a landlord. I may be closing my doors soon, as the economy worsens, and have discovered I have a 10-year personal guarantee for the lease. What can I do to protect my family?

A.: It’s all very well to start a business, but when you have a family, you have an obligation (moral, if not legal) to disclose what you’re doing and let them know how the risks may have an impact. You also have an obligation (again, moral, not legal) to seek the best advice you can form trained professionals–for it’s not just your well-being on the line.

A lease may provide a way to get off the hook personally if the business vacates the premises (sometimes called a “good guy clause”). In a good guy clause, the landlord won’t go after you personally but will continue to hold the company responsible. In this economic climate, however, landlords may be less inclined to let someone off the hook if the lease doesn’t give you that kind of “out.” If you didn’t get legal counsel before, it’s time to get it NOW. Speak to a local business attorney who knows bankruptcy law (or a bankruptcy attorney familiar with business issues) to review the lease and help determine whether you’d be eligible for personal bankruptcy given your current financial situation.

Last week, I froze in a moment of horror when I saw my very words show up (vitually unattributed, except for the teeny-tiny type at the bottom of the article) on someone else’s blog. After some schnuckling around, I learned that I was not the only person the “perpetrator” had done this to. Ultimately, there’s a happy ending.  I didn’t have to stomp and snort and raise Cain because (as I found out after more schnuckling) the “perpetrator” is a legimitate content partner, with prior permission to use the work.

But let’s say the “perp” didn’t have prior permission. Why isn’t is fair to just use the article and give me attribution?

Under the copyright laws, fair use allows for some degree of use of a portion of a work if it’s in connection with news, reporting, education, commentary and the like. But in my case, the website used virtually the entire “work” (article).  It was just scooped up–without prior permission–and plunked it onto the site. So the amount used isn’t strictly “fair use.”

In addition, many internet sites are not functioning out of the goodness of their hearts–they’re commercial enterprises, which means they’re trying to attract visitors (and ad revenue) to their site using the strength of someone else’s content.  If they are purely educational institutions, there’s leeway given for that. But they’re not (see note about ad revenue), so wholesale copying and pasting of OPIP (other people’s intellectual property) isn’t kosher.

One appropriate way to handle OPIP is to write an original introduction to the subject and then link to the article.  Or pick up a small snippet of the article and delve more deeply into a (original) discussion of the issue.  Or have a conversation with the author of the work (gee, isn’t that what all this social media stuff is about–building community?) and ask for permission.  Prior permission trumps all else.

There’s an old expression: No point closing the stable door after the horse has bolted. In short, you should have taken care of this beforehand, and now it’s too late.

Those kinds of situations arise often when entrepreneurs share their ideas. They’re so hot to trot for the concept they developed on a shoestring to hit the jackpot and catapult them into the financial stratosphere, they’re not thinking clearly about protecting themselves. As in this week’s question:

Q.: Someone has stolen one of my ideas after I sent the idea in an e-mail to them asking for their help. They later went on to make $138,000 from this idea. What can I do?

A.: In short, you’re SOL. The law doesn’t generally protect ideas–especially not those freely shared. Asking for help is not the same as securing someone’s agreement to keep the matter confidential and not profit from it themselves. Even if you could find a legal right, you then run into the practical challenges: paying for an attorney to fight the case for you in court. It could cost you easily half (if not more) of the amount they profited.

Here’s one that you can prevent–by not doing it:

Q. Can you use corporate funds for personal means? For example, using the copier and supplies for doing work for your own private business.

A.: If you’re an employee and using your employer’s supplies for your personal use, technically, you’re stealing from your employer, which could be grounds for immediate dismissal. If you own the company and you’re using supplies, well, that’s harder to track, but not the right way to be thinking. Why? Because it leads to bad habits. Such as, “if I can take a ream of copy paper and no one will notice, why not just pay my gardening bills or massage fees on my company credit card?” When you start to play fast and loose with your corporate bank account, you run a very serious risk that you could lose the limited liability protection your corporation (or LLC) is supposed to provide. The proper procedure is to write yourself a check (for your salary or draw), deposit that check into your personal account and pay your personal expenses from there. A little laziness can get you in a lot of hot water.

This week’s training is what I call “partner training” (sometimes not unlike potty training). What can we expect from our business partners (Reasonably, that is)?

Q.: Are there time and performance standards for entrepreneurs starting a business? How much of a time commitment would be expected for partners starting a business together?

A.: For many entrepreneurs, the answer is “whatever it takes.” If you intend to start a business and clock in and out like you’re the mailroom clerk, don’t go into business for yourself. You need to have a very open and candid conversation with your partner-to-be to discuss your expectations of each other. Are you both planning to work at the business full-time? Have you clearly determined what roles each of you plays for the business and how much time each day that takes? Do you have obligations outside of the business that you cannot change (e.g., child or family care responsibilities)? Can you work from home?There are no set standards, but if you’re both planning to work at the business full-time, you need to decide what “full-time” really means for each of you.

Q.: What would be the best thing we can do when our partners ignore us in the middle of business falling down? I am currently in the advertising business. We are eight partners but unfortunately two of them left us at a time that our business was in the survival stage. The president got 90 percent of her share without us knowing that she would take it; the other was not able to complete her share until now. We have survived and these two people are claiming that they are still part of us knowing that the business is operating again. Do they still have the right as members? Please enlighten me with legal actions about this.

A.: Not sure I understand all of the details, but in short, there’s a big mess. Which usually arises when there’s no partnership agreement among the owners to clearly indicate who has what share of the pie. Problem is, once someone’s an owner, you can’t fire her as if she were an employee. You have to buy her out (or push her out, depending on whether she’s harmed the business). Do so before the business starts to take off. If the other partners were merely passive investors, whose only expectation is that they would provide money (and not active involvement in the business), you can offer to buy them out, but they haven’t done anything wrong as long as they provided the money they promised. Sometimes it’s better to walk away and start all over again. If there’s no real money in the business and no agreement among the owners about the right to solicit clients and use the company’s intellectual property, you may want to dissolve the company and create a new one with the business partners you can truly rely on.

Cash (flow) is king, especially in a challenging economy. But there are ways you can ensure that you get paid in a timely manner.  Jamie Herzlich’s article in Newsday gives some handy pointers, including:

• Staying on top of unpaid invoices
• Developing a system for handling them
• Putting payment plans in place ASAP (if full payment is not forthcoming)

Another suggestion: Make sure you have your agreements with your clients and customers in writing. Whether it’s a full-blown contract or a purchase order, anything written that confirms the terms of your arrangement can help you. It sets the expectations up front and provides a basis for a lawsuit if you need to collect.  Same goes for any payment plan arrangement–make sure you document those agreements.

In light of this week’s national “activities,” here’s a question about presidents–of corporations, that is.

Q.: Can you change the president of a corporation? And if the president dies, who takes over?

A.: Sure you can change the president of a corporation. But, like our national government, you have to have an election. And if you’re changing the president because, well, you caught her hand in the company till and she’s being ousted, then you have more than just changing presidents to deal with–you have the corporate equivalent of an impeachment.

If a president dies in office, you have a different set of issues. In our national government there’s a “succession plan.” According to the Presidential Succession Act of 1792, if the president dies in office, he (or she, when our country becomes enlightened enough) will be succeeded by the vice president. If the vice president predeceases the president or dies in a common accident, the Speaker of the House gets the position, followed by the president pro tempore of the Senate, and about 15 other cabinet ministers in line.

In a corporation, you’ll also want to have a succession plan. Usually, the president is also an owner of the corporation. If he or she dies, the other owners will buy out the estate to continue with the business. The president’s heirs don’t necessarily take over the business. The remaining owners will then have their own election to determine who will be president going forward. Problems arise when the owners haven’t worked out their succession plan in their shareholders’ agreement, or when the president is the sole owner of the business.

From my colleague Stephen Furnari comes this intelligent article on how to make employment non-compete agreements “stick.”  Courts are generally loathe to enforce an agreement that would keep someone out of gainful employment; companies are loathe to employ people who will walk away with their customer base and trade secrets.

So a delicate balance needs to be struck.  Steve’s article provides eight tips to crafting well-honed non-compete provisions and six practical steps to take if you think your employee has violated the non-compete agreement.  At the end of the day, though, speak to a business attorney before putting any of this into place.