Making It Legal:

This tragic story of insufficient planning is just another example from the Department of Not-Beginning-With-The-End-In-Mind. So many entrepreneurs get all “over the moon” about getting launched and off the ground that they ignore thoughts about their exit strategy. What do they want to get out of the business? How will they exit? Will they sell the business or will they want to bring in investors (as was the case here)? If that’s the case, what might be some of the obstacles to accomplishing that goal?

As Ryan Roberts reports about these “Shark Tank” losers (kudos for Ryan; I spend my spare time watching NCIS), they had intellectual property that was a vital part of the business.  But the owners of the company (and the company itself) didn’t own the IP outright. No IP, no meaningful business. No meaningful business, no investors. Back to the drawing board.

The only training going on today is the training for my stomach to expand past all reasonable girth.  I’m staring down not one, but two holiday meals–the blessing (and curse) of having parents and in-laws in close proximity. Close, but not close enough for the families to come together for one meal . . . and besides, with more than 20 in my husband’s family alone (his mother, sisters, their spouses/significant others and kids), there simply isn’t room. 

So on this holiday of thanksgiving, I give thanks to all of you Making It Legal readers and your quest for knowledge. I’m also giving thanks to the inventor of pants with elasticized waists. 

From north of the border (Canada) comes some really great advice to help get you jazzed for the upcoming holidays: Find things to celebrate!

Yes, you may already be looking back on 2009 as a real stinker, but I’m sure you can find some high points, too. Here are some of the morale-boosting tips that Tana Woodward has to share:

1. Create a “victory log” of all the contacts you’ve made, clients you’ve scored, hard decisions you’ve faced and recognition you’ve received (whatever the source)–and keep it on an ongoing basis.
2. Join a success team or mastermind group.
3. Get clients’ feedback on the work you’ve done for them.
4. Keep an “I’m great” folder of e-mails, and read all the positive comments about you.
5. Get out of the office and network with a buddy. The fresh air–and fresh perspective–will do wonders!

Today’s Basic Training question can be answered simply with a Sarah Palin-esque answer:  “You betcha!”

Q: Are you required to add state taxes to online business?

A: Even though online businesses don’t have the same physical “presence” as their bricks-and-mortar counterparts, they are still required to charge sales tax (and remit it to the local authorities) on all sales within their state. Generally, you’re not required to charge sales tax for sales made to out-of-state residents. But all that can change in a heartbeat, especially in a tough economy where legislatures are looking for ways to fill the public treasury (in other words, raise taxes). Because the rules and the tax rates can change, make sure to stay in touch with your accountant to get set up properly and stay apprised of new developments.

In my practice, I’m finding that the IRS and Department of Labor are getting more aggressive about enforcing the proper classification of workers. Essentially, they want to be sure that you’re not hiring a worker as an “independent contractor” (thus avoiding the payment of employment taxes), yet treating him/her as an employee by micromanaging every aspect of how the work gets done. 

There are subtle nuances between an independent contractor and a part-time employee, largely centering around the issue of “control.” How much control do you have over how the work gets done, when and by whom? Getting on the wrong side of that balance could cost thousands of dollars in unpaid employment taxes, plus interest and penalties.

Bill Bischoff’s article in the Wall Street Journal online sets out some handy distinctions, in addition to suggesting you look at IRS Form SS-8, which lets you know the factors the IRS considers in making its determination.  For more on the issue of control, check out my article, “Walking The Employee-Independent Contractor Tightrope,” available at GreatBusinessLawTips.com.

When leaving a business partnership, entrepreneurs often overlook the fact that untangling the details of the business can go on for months after the date of departure. Here’s one of the problems that can arise if you haven’t worked the appropriate safeguards into the exiting process:

Q: We separated from our former business partner in the 3rd quarter 2008, at which time he took over the entire company. Earlier this year he told us he would need to file an ‘08 tax extension for the company because he wasn’t able to pay any amount owed at filing time AND he still owed the CPA from the last year’s services. We also found out that he has not provided the CPA with any of the company’s tax documents from ‘08 and has missed the corporate extension deadlines. 

Even though we filed for an extension, paid an estimated amount and have submitted all our personal tax documents to the CPA (we all use the same guy), our personal tax filing is in limbo pending information from the company’s filings.

How can we move forward and what can we do to force our ex-partner to get the paperwork in?

A: Assuming you have the right provisions in your business separation agreement, your former partner is in breach of contract. The next step is to send a lawyer’s letter demanding copies of the company’s financial statements and possibly threatening a lawsuit to compel him to turn over the documents. There’s no reason he can’t run basic P&Ls, balance sheets, etc., to at least give you a baseline (unless, of course, he hasn’t done any bookkeeping since you left him). That said, you may have the ability to amend your tax returns once you get this information, so all is not lost–but it is inconvenient. It might be worth exploring with your accountants whether you can “extrapolate” the company’s earnings (bearing in mind that you were only present for three quarters of the year) from what you knew of the company’s financial situation as of the date you parted company. Ideally, the ex-partner should be held liable for any costs and fees you may have to incur if he didn’t meet his contractual obligations.

You may also want to reach out to an independent accountant for guidance, just to be sure that your CPA is giving you fair and unbiased advice, and isn’t tainted by any conflict of interest.

My colleague Rush Nigut recently posted a piece in his blog about a little-known provision of Iowa law that could invalidate shareholder agreements after 10 years.

Think about it: You’re humming merrily along with your business partner, thinking you’re covered (because of COURSE, you hired an attorney and worked out an agreement), and your partner gets hit by a bus and dies. Your partner’s spouse (whom you’ve never really gotten along well with) looks at the agreement, and sees that it’s invalid because you signed it 12 years ago. Brings a lawsuit to get hold of the “dearly departed’s” share of the business. All of the careful buyout formulas and procedures you’ve thought through go down the toilet.

Your state might not have this law on the books . . . but maybe it does. Have you checked?  Have you dusted off that agreement to make sure that it still meets your needs after time has passed? Are the same owners involved in the business? Does the valuation formula make sense in light of changes to your business? These are issues you should revisit periodically with counsel.

And there are a number of other legal issues that may be due for a checkup.  To have a good sense of what they are, get your copy of my Legal Health Checklist, available at GreatBusinessLawResources.com–and make sure that your business records and practices are fortified against potential claims and lawsuits.

Q: Is there is a way for one to tell whether or not one is personally liable for a business credit card?

A: If the card is in your name along with a company name and the credit card statements are addressed to the company, that c-o-u-l-d be an indication that the account is in the company name alone. But that still wouldn’t answer the question of whether there’s a personal guaranty underlying it.

The best way to check is just to call the credit card company and ask. And see if it will provide you with a copy of the initial credit agreement that you signed. In the future, make sure you keep a copy of all credit card applications so that you know for sure.

Here’s an encouraging story about how someone fought back against a Twitter-jacker–and won!  StartUp Nation founder Rich Sloan outlines how he found out that someone had co-opted StartUp Nation’s identity on Twitter and the steps he took to resolve the situation . . . and without incurring huge legal fees.  Read through the comments, too, as they provide sound advice about the need to monitor your company name and trademarks on a regular basis.

Inspirational, thought-provoking and handy is this list of 101 Tips from 50 Small Business Bloggers, compiled by Gregory Go.  I particularly liked fellow attorney Anthony Cerminaro’s comment:  “If you don’t like what you’re doing, try something else.”  Kinda reminds me of the comedian Henny Youngman’s comments:  “If at first you don’t succeed … so much for skydiving.”

“She Takes on the World” is not just a glowing compliment my husband gives about me (and, frankly, could pertain to many of you)–it’s the name of the award-winning blog by Natalie MacNeil, media producer, entrepreneur, former ambassador and Stevie Award finalist. Listen in as we cover why she felt a code of ethics was necessary for her growing business, and how she made the choice to take on a business partner for her new venture after years of solopreneurship.