Category: Business Law Blog

Why Epiphany Law chose to partner with Lemonade Stand Economics

At Epiphany Law, we work with many entrepreneurs regarding legal issues. Whether it be writing or reviewing contracts, estate planning, employment law issues or straightforward legal advice about starting a new business, that’s what we do. What does our affinity for entrepreneurs have to do with Lemonade Stand Economics? I will tell you.

At Epiphany Law, we pride ourselves on being different. We are as skilled and talented as any lawyers you’ll find (I’d like to think more so), but we are different in our approach, in our attitude. We are real people who are knowledgeable about the law. We are not stuffy and uptight and will not drown you in legalese. We are different. This works well because as a whole, entrepreneurs and business owners are different. They think differently, they value different things.

Lemonade Stand Economics is different too. The vision is as simple as this. In the world of “make easy money” Lemonade Stand Economics introduces a radical idea. Work hard, work smart and pay for college with money you earn. If a student works, earns a substantial amount of money and pays for school semester by semester, no loans are necessary. It’s a concept totally contrary to current popular thinking, but it’s just that simple.

I’ve read Lemonade Stand Economics and I love the book. It’s written for real life and every teenager would benefit from reading it. College is important but also expensive. This book is focused on paying your way through college-it’s not about avoiding college. It’s about nurturing a new generation of educated, take charge entrepreneurs ready and willing to impact the world by first impacting their own financial well-being.

At Epiphany Law, we know there is nothing more exciting than encouraging young people – especially those brimming with entrepreneurial spirit. We are proud to partner with Lemonade Stand Economics to encourage student’s ideas and develop the latest and greatest group of young entrepreneurs.

The Basics of Small Claims Litigation in Wisconsin

No one ever wants to go to court, but sometimes there is no other choice to ensure that your legal rights are protected.

Litigation may be necessary in many types of disputes including contract and business ownership issues, real estate disputes, employment complaints and evictions. However, litigation can be complicated, expensive and stressful.

Small claims court is for certain types of cases. The most common types of small claims cases are:

  • Claims for money ($10,000 or less)
  • Tort/personal injury actions ($5,000 or less)
  • Evictions (no claim limit)
  • Repossessions of property ($10,000 claim limit on commercial actions; $25,000 for consumer)

Litigation is a deceivingly simple concept to understand; however, the devil is in the details. Litigation is filled with rules regarding deadlines, procedural issues, timing issues, evidentiary issues, and the trial itself. Visit our small claims page for more information: http://epiphanylaw.com/small-claims-litigation/.

Business Contracts: What you need to know about automatic renewals and extensions

Effective May 1, 2011, a new Wisconsin law requires businesses to notify customers of automatic renewal or extension provisions in business contracts.

According to the statute, “business contracts” are contracts “entered into for the lease of business equipment, if any of the business equipment is used primarily in this state, or for providing business services.” The statute does not apply to contracts that allow customers “to terminate an automatically renewed or extended contract period by giving the seller notice,” but only if the contract requires one month or less of advanced notice from the customer.

Referred to as 2009 Wisconsin Act 192, the law impacts business contracts involving equipment and services in a variety of industries (construction, food service, consulting, IT, and manufacturing, to name a few). To remain compliant, you are required to notify your customers as to how they may decline renewal or extension of business contracts. If you fail to notify your customers, the renewal or extension provisions will become unenforceable.

The notice requirement consists of both an initial disclosure about the automatic renewal or extension provision in the contract and a reminder notice in certain cases.

These notices must include information regarding:

  • any increase in charges that will apply under an automatic renewal or extension
  • what the customer must do to decline renewal or extension
  • the date by which the customer must decline renewal or extension

The statute also allows customers to bring an action or counterclaim for damages against a seller for violations. Damages can include twice the amount of the damages incurred by the customer, including reasonable attorney fees.

Now is a good time to go back and take a look at your business contracts to ensure compliance with this new law, as it applies to all business contracts entered into, modified, or renewed after May 1, 2011.

Business Startup: A Legal Checklist

There are a million things to consider when starting a business, not the least of which are the legal aspects of such an important undertaking.

The following checklist will help you identify key legal concepts all business owners should consider:

  • Obtain a Federal Employer Identification Number (EIN): A federal Employer Identification Number (EIN) is a 9-digit number assigned to sole proprietors, LLCs, corporations, partnerships, estates, trusts, nonprofit organizations, farmers’ cooperatives and other entities. It’s used for tax filing, reporting purposes and establishing business tax accounts. It’s important to complete this application correctly, and business owners should use this instead of their individual Social Security numbers. NOTE: Anyone who hires independent contractors in Wisconsin must insist that the contractor use a federal EIN instead of a Social Security Number!
  • Determine the proper legal entity: When starting a business, you’ll need to decide what form of business entity to establish. The type of business you own, whether it’s a sole proprietorship, partnership, LLC or corporation, determines the extent to which your liability will be limited, and how your income will be taxed.
  • Articles of organization or incorporation: Articles of Organization must be drafted to form a Wisconsin LLC, and Articles of Incorporation are required to form a Wisconsin corporation. Be careful when selecting whether an LLC should be member-managed or manager-managed, as this will dictate who can make decisions on behalf of the entity.
  • State identification number: A Wisconsin Employer Identification Number (WEIN) is required for employers who pay wages subject to withholding of Wisconsin income tax or for other persons with a withholding requirement (e.g., third-party payers of sick-pay plan benefits, etc.). Only one WEIN is issued to an applicant for withholding tax purposes, regardless of the number of business locations.
  • Seller’s permit: In Wisconsin, a seller’s permit is required for every individual, partnership, corporation or other organization that makes retail sales, leases or rentals of tangible personal property or taxable services in the state. It is issued by Wisconsin’s Department of Revenue.
  • Operating agreement or bylaws: An operating agreement is an essential organization document for an LLC which governs the business and defines the members’ financial and managerial rights and duties. Such an agreement is similar in function to corporate by-laws. If a business is ever sued, the court will look for the company’s operating agreement or bylaws to ensure that the company, so it is important to have this to avoid having the court “pierce” the corporate veil and get to the business owners’ personal assets.

Other Key Considerations:

  • Put everything in the name of your business – Litigation in America is often absurd and losing your business to a lawsuit, if you are not properly protected legally, makes you more vulnerable to losing your home, your car and your retirement savings. It is essential that you protect your assets by having all leases, customer and vendor contracts and other legal documents and permits listed in your business name instead of your personal name. It is also essential that you avoid commingling funds between personal and business accounts.
  • Have a business plan – A business plan is a document that outlines every critical aspect of the business’ operation. It’s an important communication tool that should be a work in progress. Writing a business plan can be intimidating, but it’s not something that should be avoided. There are a number of local, state and federal resources at your disposal that can help with the process. Along those lines, it’s a good idea to enlist the help of a team of reliable advisors when it comes to the formation and operation of your business. They can provide valuable guidance for situations that occur from day to day and well into the future.

Employees vs. Independent Contractors – Classify Correctly or Suffer the Consequences!

Small businesses often try to avoid the costs that come with hiring an employee. Hiring an employee means unemployment compensation, worker’s compensation, employment taxes and increased liability. All of these can be a serious drain on the small business.

Independent contractors can be a valuable tool to keep costs down in your business. However, there can be serious consequences for misclassifying an employee as an independent contractor.

For starters, you could receive 3 audits: the IRS, the Wisconsin Department of Revenue and the Wisconsin Department of Workforce Development. In addition to the audits, the monetary costs to your business are often astronomical — from back taxes, unemployment compensation and worker’s compensation payments, to penalties, fines and interest. Often, the end result is the end of your business.

To make it more complicated, there is no simple checklist to determine the correct classification of an employee versus an independent contractor. The IRS uses a 3-category test which balances various criteria for and against classification as an independent contractor. This test, however, is different from the test used for determining unemployment compensation coverage and the test for worker’s compensation coverage. Unfortunately, the rules are confusing and often conflicting. The answer depends, in large part, on how much control you exert over the worker as he or she fulfills the job requirements. The more control you exert, the more it looks like an employment arrangement.

Even if you think you’re following all the rules and innocently make a mistake with a misclassification, you may wonder how you could possibly get caught. Sometimes it’s simply the “luck” of the draw — you or your “independent contractor” can be randomly selected for audit. One of the most targeted areas of audits today is independent contractors. Often, however, getting caught is the result of a deteriorating relationship with the independent contractor. If the independent contractor files for unemployment compensation, worker’s compensation or a tax refund, you will inevitably receive a phone call or letter which will begin the inquiry.

So what should you do to protect your business? First, look at the tests and determine whether the worker really is an employee or independent contractor. If the worker is truly an independent contractor, use an Independent Contractor agreement to solidify that both parties understand the nature of the relationship. For example, include that the worker will operate under his own Federal Employer Identification Number, will use his own equipment, and will be paid per project. Such an agreement is often just the proof you need to satisfy the inquiring minds of the IRS, Wisconsin Department of Revenue and Department of Workforce Development.

You’re Ready to Buy a Business – Now What?

Starting a new business from scratch requires a lot of work and expense, so for many entrepreneurs buying an existing business is more appealing. An established customer base, employees and suppliers, and the notion that someone has already done all the heavy lifting, are just a few of the reasons “pre-owned” can rival “new.”

But buying an existing business is still a complex process. Typically, potential buyers have preliminary discussions about terms of the sale with the seller. After a preliminary agreement is reached between buyer and seller, a Letter of Intent, or LOI, is often the next step. The LOI sets forth the rudimentary terms of the deal and establishes confidentiality. It also establishes whether the seller has to deal with you exclusively during the next phase, or if he can entertain other offers.

Following the LOI, you will need to do your homework, or conduct “due diligence.” Due diligence is a detailed review of the business that will help you uncover potential problems. Consequently, you will want to review and verify all of the information the seller has provided to you. The items you will need to review include the record book, historical and current financial data, tax returns, business plans, minutes of directors’ and shareholders’ meetings, all contracts with suppliers and customers, and all information relating to employees and contractors.

Commercial Leases: Find the Right Space – Without Surprises

You have a lot of options when it comes to choosing a commercial space for your business. In fact, with the economic downturn, it’s definitely a buyer’s market.

But before you sign on the dotted line, there are a few things you should know. Legally speaking, commercial leases are extremely complicated documents often heavily weighted in the lessor’s (aka: landlord’s) favor. There are also a number of differences between commercial and residential leases.

For example, commercial leases are not subject to most consumer protection laws that govern residential leases. There is no “standard form” (despite what you might hear!), so a commercial lease is generally customized to fit the lessor’s needs – not the lessee’s (aka: tenant’s). That’s why it’s critical you understand the fine print for every commercial lease agreement you’re offered.

There are a number of issues that you should be concerned about with a lease. While each business’s needs are unique, there are a number of common problem areas that arise in commercial leases. A few examples include:

Maintenance & Repairs – If the $20,000 boiler goes out in the last month of your lease, do you   have to buy a new one?

Exclusive use – Can the landlord lease adjacent space to your competitor?

Calculation of Rent – Is rent based on rent-able or rented square footage? The difference could mean thousands of dollars.

Permitted Use – Will your business be able to expand its service offerings?

Personal Guarantee – As a business, you should have established a business entity (i.e. LLC, Corporation, etc.), so the lease should be in the name of the entity. Personal guarantees should be avoided or, at a minimum, limited to a reasonable time.

Options to Renew – What happens if the business is a success and you want to stay?

Notice Before Default – Make sure the landlord tells if a rent payment was inadvertently skipped or lost in the mail so you don’t end up in default without even knowing.

Common Area Maintenance (CAM) [charges in a multi-unit building] – Will the clothing store and hair salon share the water bill equally, or are the utilities separately metered?

  • Also, be aware of the difference between a “gross lease” and a “triple net lease”. A gross lease should mean that all expenses are included in the rent payment, and triple net leases require the lessee to pay a smaller rental amount and all additional charges separately. Either might work depending on the circumstances, but exactly which expenses will be yours is dependent on the precise language of the lease and can vary widely, regardless of what it is called.

Remember – a lease is a binding legal contract, so thoroughly review and understand the terms before signing!

Buy-Sell Agreements: Protect Your Business From The Unexpected

As a business owner, have you ever worried about what would happen to your business if one of your partners became disabled, got divorced or died? If you had a Buy-Sell Agreement in place, you could sleep a little easier.

Simply put, a Buy-Sell Agreement is a contract that dictates how, when and for how much a company or its remaining owners will be required to pay to acquire the interests of a departing owner. This kind of agreement is essential if your business has two or more owners, but it makes sense for any kind of business entity, from LLCs to corporations and everything in between. In addition to the peace of mind it provides, business owners with a Buy-Sell Agreement in place can avoid costly court battles, or worse, total business failure.

An effective Buy-Sell Agreement should address how the funds needed to buy out an owner will be provided. This funding needs to align with the triggering events. Often, insurance is maintained to fund purchases in the event of death or disability. Other situations are often covered by structuring a purchase over 5 to 10 years.

There are different types of triggering events that Buy-Sell Agreements address. For example, if an owner dies, the surviving business owners may inherit heirs for business partners who care little whether the business survives. The death of a spouse, disability, bankruptcy, termination of employment and retirement are other types of triggering events that put a business at risk.

There are also three forms of such an agreement. They include Cross-Purchase, Entity-Purchase and a hybrid of the two. An experienced business attorney can help you determine the appropriate type for your situation. To have an effective Agreement, the owners must agree upon a mechanism to set the future value of the business. Possibilities include: book value, multiple of earnings, appraisal and annual valuation by owners. Again, these are things you should discuss with your attorney.

Your business needs protection from the unknown and ensuring that critical events are properly covered is essential to the long-term survival of your business. A Buy-Sell Agreement can provide just that.

It is an essential requirement to the long-term survival of your business.

Succession Planning Cheat Sheet

Succession planning can seem like an overwhelming process, especially when you’re in the early stages of considering the transition.  The following list of questions is designed to help you organize your thoughts as you determine the proper strategy for transitioning your business.

Personal Goals

  • What are your goals for retirement and how much money will you need on an annual basis to achieve these goals?
  • Besides your retirement savings, what sources of income will you have in retirement (e.g. rents, social security, pension, etc.)?  Will these sources be sufficient to meet your retirement goals?
  • If not, how much additional retirement savings will you need to ensure that you can meet your goals?  -Do you already have a sufficient nest egg or, if not, how far short are you?
  • Are you comfortable spending a portion of the principal of your retirement savings each year or do you desire to simply let earnings on those savings make up the shortfall?
  • When do you want the succession planning process to begin?  When should it be completed?

Business Goals

-Do you know how much your business is worth?  Do you have an independent estimate of value?  When was it completed?

-How important is it to you that, after your retirement, your business remains an independent entity?  Is that an emotional or perceived financial issue?  Do you want your business to remain in your family?

-If your deisre is for the business to remain independent:

-Who are your successors (managers and owners)?

-What roles will they play?

-What training will be required?

-Will you remain involved?  In what capacity?  For how long?

Estate Planning

-Is your estate plan updated (i.e. living trust, powers of attorney, etc.)? Does it ensure your that your estate will avoid probate?

-If there are other owners in your business, do you have a buy-sell agreement?  When was it last reviewed?

-If you have a family owned business, are there family members who are not active in the business?  If so, will they inherit an equitable share of assets?

Tax Considerations

-How will the transfer of the business affect your taxes? The business’ taxes? The successors’ taxes?

-Will you run into estate tax issues upon your death?  If so, have you figured out how to pay for those, or how to avoid them?

Method of Transfer

-If you’re planning to sell the business to a third party, will you sell the actual stock or the assets of the business?  How will the buyer finance the purchase?

-If you’re planning to retain the business, can you take advantage of gifts?  Bequest?  Discounted sales?  Options?  Combination of choices?

You don’t have to have all the answers before you start putting your plan in place, but the more you consider these issues, the easier the process will be.  Ultimately, a proper succession plan will: 1) leave you in control for as long as you wish, 2) set expectations for all involved, and 3) avoid unnecessary taxes on the transfer.

Difficult Debtors: Tips from the Front Line

Bad debts are a source of irritation, and sometimes ruin, for all companies.  According to a July 15, 2008 article by Melanie Lindner on Forbes.Com, a business can expect to collect nine out of ten dollars of a debt within the first 90 days of the due date- after that the numbers begin to plummet.  While most debtors are simply good people who have fallen on hard times, there are exceptions.  We all know the ‘professional debtor’; that person who has so much debt he or she has ceased to care.  The professional debtor has collectors knocking down his or her door while continuing to buy new clothes, go on exotic vacations and live it up.  The professional debtor is one of the most difficult debtors to deal with as he or she has a litany of excuses and tactics to turn the situation into something that’s your fault.  At Epiphany Law we’ve dealt with all kinds of debtors, either through experiences with our own various business ventures or by helping our clients get the money they’re entitled to.  We’ve heard all the excuses in the book, from the mundane to the downright outrageous.  We’ve compiled a list of tips that you can use everyday in your own business.  By using what we’ve learned, you can make dealing with difficult debtors less stressful and increase your chances of getting paid.

Be Prepared

The professional debtor is always prepared.  He or she will have a list of excuses as to why you can’t be paid right now or why you didn’t receive the payment that he or she sent last week.  The professional debtor might even go into a story detailing the many blows he or she has been dealt by life.  If you’re unprepared for these excuses, you’ll easily be blown off.  Write a list of the most common excuses that you hear and then match each one up with an effective rebuttal.  If a debtor says that he or she mailed the check, ask for the check number and the date of mailing.  If he or she says your invoice has been lost, say you’ll fax a copy over immediately and ask when you can expect the payment to be mailed.  Be sure to have all the information you’ll need ready so you can answer any questions.  Have the exact amount that’s owed, any terms or conditions of the sale, what was provided or purchased and anything else pertinent to your transaction at your fingertips.

Be Professional

Having a professional demeanor demands respect.  Treat the conversation as if it were a job interview.  Speak a bit more slowly and enunciate so you can be easily and clearly understood.  Remember that this is business, not personal.  Never raise your voice, swear, or threaten the debtor.  The professional debtor may try to fluster you or make you get angry; he or she may yell, swear, and threaten you.  Don’t retaliate.  If the debtor yells or becomes excessively belligerent, ask when a better time to call him or her would be or put the debtor on hold for a few seconds.  This gives the debtor time to calm down and, hopefully, respond to you in a more appropriate manner.

Take Control of the Situation

Don’t make the debtor go on the defensive- that won’t get you anywhere.  Using language centered around you, such as “I understand that you’re frustrated” or “I see how upsetting that would be,” instead of language centered around the debtor, like “You’re getting too upset over this” will help keep the debtor from getting defensive.  Stay focused on the task at hand.  If the debtor tries to get you off topic, be polite but always bring him or her back to the focus of the conversation- getting paid for the goods or services you provided.  Take notes every time you contact the debtor.  Keep track of what date and time you called him or her, the key points of what was said, and any promises that were made by the debtor.  This will come in handy if you have to contact the debtor again.

Get a Commitment

Do not end the conversation without summarizing the results.  Reiterate what he or she has committed to (payment amount, payment plan, etc.), your expectations (receiving payment by X date), and the consequences if the debtor does not follow through (turning the matter over to an attorney, etc.).  Depending on your relationship with the debtor, it may be a good idea to follow up with a letter recapping the conversation.  If the debtor still fails to follow through on his or her commitment to pay you, you must make sure to put your consequences into action.  If you constantly issue empty threats, the debtor will never take you seriously.

As with any situation, use your best judgment when deciding how to handle a debtor, and consult an attorney if needed.  However, don’t allow yourself to feel there is a stigma associated with collecting money that is rightfully owed to you.  The bottom line is that you have a contract, the goods or services were delivered and you have a right to expect payment.  If you have questions about collections for your business, call us at (920) 996-0000.