Archive for the Business Law Category

Nov 20 2014

7 Things To Bring To Your Lawyer

Part of what makes consultations so messy, is that people are relatively unprepared. The truth is that lawyers do a poor job of telling clients what they need to bring to a consultation. If you want work done quickly, efficiently, and error-free, you need to come to your consultation with certain items in hand.

Unlike other industries, law services are not a “set it and forget it” venture. Legal services are collaborative in nature. Working with a lawyer means that some of your time and energy will be spent helping to prepare the factual parts of your case so that your lawyer can best help you. Doing a little bit of legwork in the beginning will decrease frustration, delay, and cost. It will ultimately also translate into increased chances of a better outcome. As with all things, preparation is the mother of success.


1. Make a Timeline

One of the most important things that a client can do is write out a timeline of events for their case. Dates and times matter. Whether certain modifications to agreements are even valid, or whether the case is even viable can depend heavily on when they occurred.

Almost every case has a tight statute of limitation. A statute a limitation is a time during which a lawsuit can be brought. In California the statutes of limitations are as follows:

  • Personal injury: Two years from the injury. If the injury was not discovered right away, then it is 1 year from the date the injury was discovered.
  • Breach of a written contract:  Four years from the date the contract was broken.
  • Breach of an oral contract: Two years from the date the contract was broken.
  • Property damage: Three years from the date the damage occurred.
  • Claims against government agencies: You must file a claim with the agency within 6 months (for some cases, 1 year) of the incident. If the claim is denied, you can then file your lawsuit in court but there are strict limits to when, your lawyer will know the details.


2. Any Written Agreement or a Written Description of an Oral Agreement.

The next most important thing is to bring your paperwork. If your case revolves around a contract, your lawyer will need a copy of that contract. Under California law, the terms of the contract must be either placed in the complaint or the contract itself must be attached to the complaint as an exhibit. This applies to oral contracts as well as written contracts. This means that if you have an oral contract, you will need to write down a description of the terms for your lawyer to review.


3. Any Papers You have Exchanged with the Other Side.

Whether you are defending or suing, you’ve likely exchanged some paperwork with other side. Whether you’ve received a cease and desist letter or sent a demand letter, you need to bring any exchange of paperwork to your lawyer. This gives your lawyer a complete sense of where your case is at, and whether it can be resolved with pre-litigation negotiations. If there was a misunderstanding, your lawyer will be able to identify it right away.


4. Your Story – Preferably in writing.

Errors in communication happen all the time. Communication between lawyers and clients are no exception to this rule. The best way to make sure that you leave nothing out is to write it down. This will give you time to think and remember other facts that might otherwise have gotten left out in your oral recount.


5. A Copy of Your Financial Condition

The truth is that not all courses of action are equally good for all people. Whether or not you should engage in litigation will depend heavily on your financial condition. This will inform what you should accept as settlement as well as whether you should even engage in litigation.

Even on the cheap side, a lawsuit will cost 40-60 thousand dollars before trial. Many suits, like intellectual property suits, can cost 2 million and up. Lawsuits are expensive, and they’re often a tool of last resort. Let’s make sure that it’s the best thing for you before proceeding.


6. A Checkbook or Other Method of Payment

If you want to proceed immediately, you’ll have to sign a retainer agreement and pay the initial retainer. An initial retainer is usually around $5000, depending on the case. So you should expect to pay that into the lawyer’s trust account on the date of your consultation if you want any work done.


7. Your Insurance Policy.

If you’re a business, you likely have an insurance policy. It’s best to bring a copy of your insurance policy so that your lawyer can contact your insurer. Your insurer may cover you in the event that you are being sued.

Even if you’re the one suing, there may be potential counterclaims that will be covered by your insurance policy. Bring your insurance policy along with you. It may help you offload the cost of suit onto your insurer. You bought insurance, you might as well use it.


Last Thoughts.

Don’t wait until the last moment. If even think you have a suit, you need to see someone immediately. A delay in action can be fatal to a good outcome.

Nov 20 2014

Exclusive Distribution Agreements

I write a fair number of distribution agreements. Distribution agreements are agreements between a supplier of goods, and a distributor or reseller of those goods. The agreements usually give the distributor the right to sell the supplier’s goods over some kind of geographic territory. Time may be limited or unlimited. And most importantly, the distributor may have either exclusive or non-exclusive rights.

Dealing with non-exclusive rights is relatively easy. There is no need for the supplier to ensure that the distributor does anything at all. If the distributor sells the goods, great! If the distributor fails to sell the goods, then the supplier will just sign a new agreement with a new distributor. After all, the contract does not grant exclusivity. The situation becomes hairier when the supplier wishes to grant exclusive rights.

I often put in provisions that force the distributor to do onerous things. Provisions like annual minimum advertising expenditures, annual business plan submissions, mandatory show room, and provisions that force the distributor to use contractors and subcontractors that conform to certain human rights standards. Clients always ask “what are these provisions for?” They look at these provisions and say “The Distributor will never sign that!”

And I always retort, “Then you shouldn’t either!”

I always tell the same story. The case of Wood v. Lady Duff Gordon. The case is a classic law school case about the “sufficiency of consideration,” which is just fancy lawyer speak for a “promises that are good enough for the court.”


Example 1: Things for Things

Consideration is a legal term that encompasses the thing that is exchanged. In simple, contemporaneous contracts for goods, the consideration is concrete. For example, if I buy an apple for a dollar. My dollar is consideration for apple, and the apple is consideration for the dollar.


Example 2: Things for Promises

Now let’s take a slightly more complicated example, say I promise to pay you a dollar for your apple, and you give me your apple now. In this case, my promise to pay you later is consideration for the apple, and the apple is consideration my promise to pay.


Example 3: Promises for Promises

Now let’s take a slightly more complicated example, say I promise to pay you a dollar for your apple, and you promise to give me give me an apple. Neither of us have exchanged anything except promises. You haven’t given me an apple, and I haven’t given you a dollar. The promises themselves constitute the exchange.


Example 4: Promises for Conditional Promises

Now let’s take a slightly more complicated example, say I promise to pay you a dollar, if I ever have one, and you promise to give me give me an apple. Neither of us have exchanged anything except promises. But my promise is contingent on me ever having a dollar. If I never have a dollar, the conditions for my promise never mature, and thus, my obligation to give you a dollar never becomes due.

This is exactly the case of Lady Duff Gordon. Lady Duff Gordon was a fashionista of her time. She gave Wood exclusive rights to use her name to brand a proposed clothing line he wanted to produce. In return, they agreed to split the profit they would make. But AHA! the unspoken rule of profits are that they may or may not exist. So in reality, they agreed to “split the profits if there ever were any.” Which is exactly like my promise to pay a dollar if I ever have one.

Lady Duff Gordon argued in court that Wood’s promise to pay under the condition that he had any profits wasn’t a real promise. Unfortunately for Lady Duff Gordon, the court disagreed.

Which brings us back to exclusive distribution agreements. If you’re the supplier, how do you prevent the distributor from gaming you? The answer lies in making them do things that A REAL BONEFIDE BUSINESS would do: annual business plans, minimum marketing expenditures, monthly accounting, quarterly reports, minimum order amounts.

The provisions may seem onerous, but that’s the price of exclusivity.

Nov 20 2014

A non-profit business is still a business.

I get a lot of calls from people seeking advice about starting a non-profit business. The first thing I ask for is information about what the business does. How does it generate revenue? Who is going to run it? How much starting capital does it have? What are the projected finances?

These questions always seem to surprise people. “That’s not what the IRS requires!” they think. And it’s true, that’s not what the IRS requires. Filling out the IRS forms is a simple clerical matter. CPA Carol Topp has a neat little checklist for what the IRS requires:

  • Do you have a Board of Directors, regular meetings and a method to elect the board?
  •  Do you have Articles of Incorporation and nonprofit corporation status from your state?
  •  Do you have bylaws?
  •  Do you keep minutes of your meetings?
  •  Do you have three years of financial history or can you predict two years of budgeted financial statements?
  •  Do you have a written mission statement? Can you explain your purpose and activities? Is your mission charitable, educational, scientific or one of the IRS’s other charitable purposes?
  •  Do you have a Conflict of Interest policy?
  •  Would you be willing to forgo any political candidate endorsements? 501(c)(3) organizations may not endorse political candidates.
  •  Do you have enough money to pay the IRS filing fee of $300-$750?

What people came to me for, isn’t really to pay me to fill out the forms. They came to ask about the holes in their plan, they just didn’t know that’s what they were asking about.

When it comes to merely filling out the application for 501(c)3 tax status, a lawyer can do the job for you. An accountant can do the job even better. After all, there are numbers involved and most lawyers went to law school because math was not their strong suit.

The hole people tend to overlook is almost always the same, “what is the BUSINESS of the non-profit business?” Just because a non-profit is not legally allowed to distribute its profit to its shareholders, it doesn’t mean that the non-profit doesn’t need to make a a profit. Put another way, a non-profit has to be profitable.

Logically speaking, if a business loses money every year, it will fail in the long run. Losing money is an unsustainable business model. If you lose money, where will you have the capital to do the community service or other non-profit work that you aim to do?

At that point, people think “OOoooohh… I need to give this more thought.”
Tl;dr: 501(c)3s have to make money, they just use the money for charitable purposes

Nov 19 2014

A Tort in All Your Houses – 7 Things to do When an Accident Happens

So you’re a small business owner. Someone just slipped and fell in your shop. Obviously, if anyone is seriously injured, you need to call an ambulance. But other than that, what should you do?

Here are seven things you should do to make sure there’s adequate evidence for you to prevail at trial.


1. Get Photos.

Take pictures! Take a lot of pictures! Most people never think about it, but its important to preserve the evidence as much as possible. Take pictures of the potential plaintiff, the scene of the accident, take pictures of the damage, take pictures of your cleaning and maintenance logs if you have any. If you’re lucky enough to have surveillance footage, you need to keep the footage.

Take pictures with whatever you have to take pictures with. If you have a camera use a camera. If you have a cellphone use a cellphone. If your friend has a cellphone use her cellphone. Some pictures are better than no pictures.


2. Get Witnesses.

Next, its important to get witnesses. If you’re a busy business, you probably have a lot of customers looking and watching. Those people probably saw the accident. Don’t be afraid to stop them get their names and information. If you’re too afraid to do that, you should at least take down their license plate number and the make and model of their vehicle. And once again, you can do this with your cellphone camera!


3. Determine the Extent of Your Injuries.

Next you need to determine the extent of the injuries. If someone had to go to the hospital, they should have already gone, but just because they’re not bleeding out in your store doesn’t mean you’re not injured. Dizziness, pain, bruises, bumps, and scrapes are still injuries. Determine try to determine injuries, and take pictures if their injuries can be seen.


4. Exchange Information.

You need to exchange information with the victim. Its important to get their identifying information such as their drivers license information, and license plate number. You can capture their information with your camera or cellphone if you don’t have pen and paper handy.


5. Report it.

Interview your employees and make an written incident report. It’s important to make a written incident report because it will be found in discovery, and you’ll be able to call up your employees and have them recall their story from the incident report. It’s all part of preserving evidence for trial.


6. Make Time to See Your Attorney.

Lastly, you should make time to see your attorney and get some advice. Don’t wait until two or three years after the accident to do this. Like milk and vegetables, evidence is best when it’s still fresh. Get an attorney and let them advise you.


7. Call Your Insurance Carrier.

If your attorney was worth any salt, he asked you about your insurance coverage. If you had any insurance, he asked you for that information. If he didn’t ask about your insurance coverage, you should find a new attorney. At the very least, even if he doesn’t ask, you need to call your insurer to see if they’ll cover you under your circumstances. If they do, your insurance company will step in and defend and/or settle the claim.