Making It Legal:

“Can I talk to you personally?” asked Linda. She seemed a little hesitant, so after we ran into each other at a networking event recently, we sat down over coffee. Linda had given some marketing work to a mutual colleague, Ingrid, whom I’ve known for many years.

“I have to tell you that, categorically, I will never refer another piece of business to Ingrid ever again,” Linda stated. “The work she did was terrible, she totally overcharged me, and I know enough about what needed to be done — but it didn’t make sense for me to do it myself.” Turns out that Linda is in a field that Ingrid doesn’t usually work with . . . so there may well have been nuances Ingrid wasn’t aware of.  Ingrid was lucky: Linda chose to complain to me (and probably a number of others). She could have chosen to sue Ingrid and complain to other people.

Whether or not Linda is right is irrelevant. She saw me and wanted to vent. But there’s a lesson here for Ingrid (whose name has been changed to protect her business) — and for all of us.

Having known Ingrid for a long time, I see, sadly, that this is a pattern of hers. As I discuss in my program, “How to Train Your Clients to Pay You,” one of the primary reasons that clients don’t pay — or don’t give you any future work — is that they weren’t happy with what you did. And Ingrid has run afoul of this many times. She routinely complains about how difficult it is to get business. But she makes it more difficult for herself by taking on clients where:

• She doesn’t know the industry
• She hasn’t had experience with the potential client’s needs
• The client’s budget is incompatible with what she wants to charge.

As a result, Ingrid is plagued with clients who show up for one project and never return for another. So she is constantly on a “hamster wheel,” seeking new clients. And while Linda, as the customer, was not wrong, that didn’t make her right — that is, the right fit for Ingrid.

Does that sound familiar?

Today’s basic training involves a sad story. A woman gave her heart to another . . . and to his business. What thanks does she get? She gets jilted, in more ways than one. Yet another reason to have a business prenup if your personal relationship sours.  Read on . . .

Q.:  I was working with my fiancé on a business idea we both developed. We are co-founders of this business. However, while I was working around the clock on this business, he went behind my back and put it in his name. He did this because, he says, he had the intentions of marrying me and thought it would be “cleaner” to just get married and split half (I have e-mail records of all of this). I also have e-mail records of our correspondence of our business, as well as my booking of a social conference for us to attend, plane tickets, etc. I created this entire website with him, and have even been a ghost writer on his account as well.

Sadly, a month before we got married, he decided to leave me. Is there some legal way to keep some of the business, or at least get a stake in it? 

A.:  Unfortunately, in these kinds of situations, your only recourse is to sue him and hope that the e-mail trail that you have — and the intellectual property you have created — is sufficient to support your claims. This can be an expensive prospect, so I’d recommend that you speak to an attorney in your area who focuses on business litigation to evaluate the strength of your position and the evidence you have, and to estimate the fees and costs. You may find from that consultation that you would be better off putting your time, money and energy into developing a competing business that outdoes your ex-fiance’s. As they say, “Living well is the best revenge.”

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.

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.

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.

With so much stuff on the internet available and ripoff-able, what steps can we take to fight back?

Q: I have several blogs, and I wrote several articles that I have published to article directories. Doing research on my topics I found my article posted on another website and another author put his name to it. I e-mailed the author and he said he didn’t put that there, he never saw the article, and I asked him to take it down. Well, it’s still there.  What should I do?

A: If the article is still there, it could be for a couple of reasons: 1. Either the “author” is telling fibs, thinking you won’t do anything or 2. there’s a technological glitch somewhere that the “author” doesn’t have access to correct.

Under Section 512 of the Digital Millennium Copyright Act, you can write to the website/blog service provider to alert the provider to the situation.  Be sure to include the following information:

1. Your name, address and electronic signature.
2. The infringing materials and their internet location or, if the service provider is an “information location tool” such as a search engine, the reference or link to the infringing materials
3. Sufficient information to identify the copyrighted works (e.g., the title and link to the article)
4. A statement by the copyright owner (you) that you have a good-faith belief that there is no legal basis for the use of the materials complained about, and
5. A statement that the notice you’re sending is accurate and, under penalty of perjury, that the complaining party is authorized to act on the behalf of the owner (e.g., the “owner” may be your company and you’re the president; or if you’re one and the same, say that you are bringing the complaint individually and you are the individual owner).

Once you send the notice, the service provider is required to remove, or disable access to, the material.

I first met David Greer, angel investor and entrepreneur, when he weighed in on my Business Partnership Central blog on the importance of having a written shareholders’ agreement–and how that freed him up (when he sold out his interest) to sail the Mediterranean for two years (drool).

Now he offers some handy insights to follow up on my post, ”How to Speed-Read an NDA,” which I’m delighted to share with you.  David writes:

Thanks so much for the article on NDAs. As an angel investor and entrepreneur, I see those all the time, and I am often required to sign them.

Under the “Confidential Information” section, I also look for who is disclosing to whom. I have seen “one way” NDAs. That is, the information disclosed to me is confidential, but the information that I disclose is not. As I see so many technologies and companies, I am very careful about information I disclose and to whom, making sure that I do mark confidential information as confidential. That doesn’t help if I’ve signed an NDA where the other party isn’t going to keep my information confidential. One of those little “gotchas” that you can pick up in a quick reading of an NDA.

“Can I? Can I?” I hear you asking. Well, you’re asking the wrong question. The issue is not whether you can download your client contracts from the internet, it’s whether you should.  And once you do (because you know you’re going to do it, right?), how can you get the best use out of doing so?

Downloading agreements from the internet is good for starting to educate yourself about the kinds of terms you might want to include in agreements with your clients. But here are two significant things the online agreements (even the ones you pay for) can’t tell you:

• They can’t tell you whether there are any provisions in the contract that could hurt you.
• They can’t tell you whether there are any provisions that are missing that could help you.

Poke around the internet all you like; but in the end, only you can decide which business terms are best for you. What specific products or services will you provide to your clients? Within what time frame do you want to be paid? What happens if you’re not paid in a timely manner? Have a look at my program, How to Train Your Clients to Pay You, to get the lowdown on the important decisions you’ll need to make. And once you’ve made those decisions, have your attorney wrap them up in a nice, neat legal bow to protect you properly.

Non-disclosure agreements (NDAs) have many uses. You may have a fabulous idea and want to protect it as you share it with potential investors. Or you may be on the receiving end of one, as this article, “How to Speed Read an NDA,” anticipates.  Written by my colleague, IP attorney Terence Church, Esq., the article gives you a brief rundown of the top six issues you’ll want to see in any NDA you sign. 

Of course, this leaves aside the issue of whether you really should be doing business with someone who shoves an NDA under your nose 2 minutes before you’re about to begin a meeting with him or her and expects you to sign it without the benefit of discussing it with your legal counsel. If he or she won’t give you the time to review it carefully (assuming you’re an entrepreneur who takes her contract obligations seriously), you may want to take your business elsewhere. If you’re in a line–or at a stage–of business where NDAs are common, speak to your attorney to get guidance in advance about how best to handle these kinds of situations if they arise.

I was recently contacted by a business owner who felt that he was being cheated by his business partner.  He had nothing specific to go on . . . just a gut feeling . . . and there was no paperwork.  What could he do to protect his investment?

Whether or not he was actually being cheated, there are important steps that business owners can take to monitor what’s going on in their company.

1. Have an open conversation:  It may be tough to do if you’re already concerned about being lied to.  Depending on the size of your investment and your commitment to the company, you may want to bring in a mediator or someone experienced with coaching people through partnership issues.
2. Watch your numbers – -regularly:  Engage a qualified accountant to review the financial books and records–the P&L, income statements and cash-flow journals (as well as bank statements, canceled checks, credit card statements, etc.)  These should give you an idea of how money is actually being spent in the business.  As a business owner, you should be familiar with these financial documents (especially the reports) and review them regularly as a matter of good business “hygiene.”
3. Get copies of documents:  Obtain a copy of the formation documents for the company that were filed with the secretary of state of your state.  Realize, though, that some states don’t require the identities of the owners to be listed on them . . . so don’t get upset if you don’t see your name there.
4. Hire counsel to patch up the gaping holes: Engage an attorney who has experience with business owner relations to review the “paperwork” you’re supposed to be provided and to create the shareholder’s (or operating) agreement for the company.
5. Consider whether to stay the course.  Suspicion breeds mistrust . . . which leads to a contentious and fractured business relationship.  If you can’t trust, why would you want to stay in business with this person?  If there’s no paperwork yet, and before enmeshing yourself further with an untrustworthy partner, you may want to pull out of the venture altogether, recoup what you can of the investment and take your money elsewhere.  This is a thorny area, so let your attorney help you do so as cleanly as possible.

Well, friends, I almost fell for it–and I want to prevent you from doing the same.

I received an e-mail from (what seemed to be) PayPal, saying that my account had been placed on hold because of a “reason to beleive that your account was accessed by a third party.” See the clever language, below. It looks like PayPal, seems to show the company’s concern for me (thanks, PayPal!) and ties right into a concern people have about online transactions–that somehow, my account was hacked and will be misused.

Guess what–IT’S NOT FROM PAYPAL!

Somehow, I had the presence of mind to call PayPal instead of clicking through the links . . . only to learn that, yes, the e-mail was a spoof. Had it been a real e-mail, it would have been personalized and addressed specifically to me (and not just through my e-mail address).

In any event, save yourself the trouble–should you receive e-mails that ask for account verification, always call the company or institution to find out if it’s legit and, if so, how best to handle it.

Remember the days when real estate seemed invincible, defying the laws of gravity? Well, the joke’s on us, and now many real estate investors are scrambling to dump their properties so that they don’t go down the valuation toilet with them.

Q: I bought some property and put 25 percent down; the owner financed the balance. After three years, the mortgage is down to $190,000, but the property may be only worth $190,000. The property is sort of break-even with tenants in, but if I lose them or can’t fill it in the future, it could start to drain me. Can I simply give the property back to the owner?

A.: The extent of your exposure depends on the wording of the mortgage note and other documents that sealed your deal when you bought the property. If you bought it in your name individually, it’s possible that the former owner/current mortgagor could come after your other assets (namely, your other real estate investments) depending on whether you own those individually as well. In these times, the former owner may not want the property back–after all, if you’ve found it enough of an albatross, the former owner might prefer the regular (cash) mortgage payments to owning property on which there will be maintenance obligations and expenses (not to mention taxes). Depending on the interest rate of your owner financing, you might want to explore other mortgage (bank) options–just to get a sense of the going rate that’s being offered. Review the documents with a real estate attorney to get a clear (and realistic) sense of your options–and what they’ll cost you.