Business Law

Monday, July 25, 2016

Employee Handbooks

An employee handbook is an instrument that is widely used by employers to communicate their expectations and policies to employees. There are many reasons to develop and distribute an employee handbook. These written documents enable employers to clearly outline what is expected from employees and what employees can expect from the employer. In the event of a dispute with an employee or in the event that a claim is made with a government agency, the handbook can be invaluable in protecting an employer’s position. 

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Sunday, July 17, 2016

What is a Limited Liability Company (LLC)?

The limited liability company (LLC) is a type of business structure that offers business owners both the liability protection of a corporation as well as the tax benefits of a partnership or sole proprietorship. A limited liability company consists of one or more owners (called “members”), who often actively manage the company’s business affairs. LLCs are relatively simple to establish and operate, and offer flexibility and other advantages to its owners.

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Sunday, December 6, 2015

Legal Mistakes That Cost Entrepreneurs Time, Money and Headaches…And How to Avoid Them

Entrepreneurs must navigate through a maze of legal issues and decisions when launching a new business. At the outset, you may think some seem inconsequential – but this could be a mistake. The choices you make today will have a lasting effect on the viability and profitability of your new business venture. Below are some of the most common mistakes made by first-time entrepreneurs, and what you can do to avoid making them yourself.


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Sunday, November 29, 2015

Which Business Structure is Right for You?

The type of entity that is best for your business depends on many factors. This decision can have a significant impact on the business's future profitability and growth, its tax liability, and the level of asset protection afforded to its owners. Below is an overview of the most common business structures.

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Tuesday, August 4, 2015

Basics of Obtaining 501(c)(3) Tax-Exempt Status

We are a charitable organization and want to be classified as a 501(c)(3) tax-exempt organization. Where do we start? 

You’ve selected the board of directors, drafted the bylaws, and successfully incorporated your organization under your state’s not-for-profit corporation laws. From there, the next – and possibly most daunting – task is submitting the necessary paperwork to the Internal Revenue Service to achieve tax-exempt status. Federal tax-exemption is necessary for exemption from local, state and federal taxes, to qualify for many types of grants, and to be eligible to receive tax-deductible donations and contributions from individuals and other charitable organizations. While filing paperwork with the IRS isn't exactly the highlight of starting a charity, the process of obtaining tax-exemption need not be stressful -– especially with the right support.

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Tuesday, April 14, 2015

The Benefits of Mergers

Mergers bring two businesses together into one, and the combination should benefit both businesses. Merging companies will often be comparable in size. This differs from an acquisition, which typically involves a larger company absorbing a smaller one.

An ideal merger will increase revenue and reduce overhead. Combining two companies should help eliminate duplicate costs such as rent for office space and budgets for marketing, accounting services and other business expenses. At the same time, a merged company should be reaching more customers with expanded services. Individual companies that reached different markets benefit from joining forces and increasing their client base.

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Friday, March 27, 2015

How Restrictive Can Restrictive Covenants Be?

Restrictive covenants are contractual agreements. Usually, an employer includes restrictive covenants in an employment agreement seeking to restrict a departing employee in some way. Examples of restrictive covenants include non-compete, non-solicitation and confidentiality agreements.

Non-compete agreements typically feature a geographic limitation (do not open a competing business within 25 miles) or a time frame (do not work for a competitor until one year has passed). Courts have enforced non-compete agreements when they were necessary to protect an employer's trade secrets or confidential customer information. As with any restrictive covenant, examining a non-compete provision is very case-specific and enforceability will depend upon the particular circumstances.

Non-solicitation agreements restrict an employee from soliciting business from his or her former employer's customers. A non-poaching covenant seeks to prevent the departing employee form soliciting other employees to also leave the company.

Confidentiality provisions usually define types of information that a former employee cannot possess or use, such as customer lists, sales data, marketing materials and other business plans. These provisions typically do not expire.

Restrictive covenants are generally disfavored by New York courts, but they can be viewed less critically when an employee agrees to a restrictive covenant in exchange for post-employment benefits such as a severance package. If an employer breaches the employment agreement, however, courts may not enforce any restrictive covenant contained in the agreement. 

Courts can review restrictive covenants to determine whether the restrictions imposed are fair and enforceable. Factors to be considered include whether the restraint protects a legitimate interest of the employer, whether the restraint imposes an undue hardship on the employee and whether the restraint is harmful to the public. Courts can modify the restrictive covenant ("blue pencil" it is sometimes called) or reject it entirely. The more narrowly drafted a restrictive covenant is, the more likely it is to be considered enforceable.

Employers doing business in more than one state often include a choice-of-law provision in their contracts. Sometimes, however, a New York court might reject another state's restrictive covenant law as contrary to New York's public policy.

Tuesday, March 10, 2015

Should I Have Arbitration Clauses in My Contracts?

Whether you want a contract drafted for your business, or another party is asking you to sign a contract, arbitration clauses deserve your attention. Arbitration clauses are designed to have legal disputes resolved outside of court, through arbitration, which is a common alternate dispute resolution method. 

A neutral person, called an arbitrator, hears arguments and evidence from each side and decides the outcome. Generally, arbitration is less formal than a trial and the rules of evidence are typically relaxed. Parties can agree to binding arbitration, where the arbitrator's decision is accepted as final with no right to appeal, or non-binding arbitration, where the parties can request a trial if they do not accept the arbitrator's decision.

While companies often view arbitration as less expensive and less time-consuming than traditional litigation, and see arbitrators as more business savvy and less likely to be biased against them than a judge or jury, there are potential downsides that should be thought through. For example, it can sometimes be easier for a claimant to proceed with a frivolous claim than if the matter was litigated in court, where a motion to dismiss must include facts sufficient to state a plausible claim. In contrast, arbitrators are sometimes disinclined to dismiss a case before discovery and a hearing.  

Arbitration clauses can be modified to be more favorable to your business, so it is important when drafting a contract that you understand the language being agreed upon. It can be helpful to add details about the location of the arbitration, the scope of arbitration, including whether discovery and document exchange will be allowed, whether a panel of arbitrators should decide the case versus just one arbitrator, as well as the manner of selection of the arbitrator(s).

Sometimes there are waivers associated with arbitration clauses, such as when a party waives the right to join a class action lawsuit. Often, costs are assigned through arbitration clauses. For example, it can be agreed that the losing party pays the cost of arbitration plus the costs of the winning party. Generally, arbitration proceedings can be kept confidential. To be fully effective, language that allows the arbitration award to be enforced in court is important. 


Tuesday, March 3, 2015

Overview: Buy-Sell Agreements and Your Small Business

If you co-own a business, you need a buy-sell agreement. Also called a buyout agreement, this document is essentially the business world’s equivalent of a prenup. An effective buy-sell agreement helps prevent conflict between the company’s owners, while also preserving the company’s closely held status. Any business with more than one owner should address this issue upfront, before problems arise.

With a proper buy-sell agreement, all business owners are protected in the event that one of the owners wishes to leave the company. The buy-sell agreement establishes clear procedures that must be followed if an owner retires, sells his or her shares, divorces his or her spouse, becomes disabled, or dies. The agreement will establish the price and terms of a buyout, ensuring the company continues in the absence of the departing owner.

A properly drafted buy-sell agreement takes into consideration exactly what the owners wish to happen if one owner departs, whether voluntarily or involuntarily.  Do the owners want to permit a new, unknown partner, should the departing owner wish to sell to an uninvolved third party? What happens if an owner’s spouse is involved in the business and that owner gets a divorce or passes away? How are interests valued when a triggering event occurs?

In crafting your buy-sell agreement, consider the following issues:

  • Triggering Events - What events trigger the provisions of the agreement?  These normally include death, disability, bankruptcy, divorce and retirement.
  • Business Valuation - How will the value of shares being transferred be determined? Owners may determine the value of shares annually, by agreement, appraisal or formula.  The agreement may require that the appraisal be performed by a business valuation expert at the time of the triggering event.  Some agreements may also include a “shotgun provision” in which one party proposes a price, giving the other party the obligation to accept or counter with a new offer.
  • Funding - How will the departing owner be paid?  Many business owners will obtain insurance coverage, including life, disability, or business continuation insurance on the life or disability of the other owners.  With respect to life insurance, the agreement may provide that the company redeem the departing owner’s shares.  Alternatively, each of the owners may purchase life insurance on the lives of the other owners to provide the liquidity needed to purchase the departing owner’s shares (a “cross purchase agreement”). The agreement may also authorize the company to use it’s cash reserves to buy-out the departing owners.  

Tuesday, February 24, 2015

Should Your Business Maintain Minutes of Meetings?

Regardless of the size of the business, companies must observe all of the required corporate formalities. Meeting minutes document the decisions made by the company’s governing board, and help to preserve the “corporate veil” in the event of a lawsuit. If corporate formalities are not observed, the business's owners' personal assets may be at risk.

One such formality is the maintenance of a corporate record book containing minutes of meetings conducted in accordance with the company’s governing documents, such as the bylaws or operating agreement. Every major decision that affects the business should be approved and ratified by a resolution of the governing board contained in the corporate records. Even in a one-person company, resolutions should be drafted, signed and maintained with the corporate records.

There is no specific required format for meeting minutes, but the document should include any important decision made regarding the company, its policies and operations. Minutes should include, at a minimum:

  • Date, time and location of the meeting
  • Names of all officers, directors and others in attendance
  • Brief description of issues discussed and actions taken
  • Record of votes taken, including whether the vote was unanimous and whether anyone abstained from voting
  • Vote and approval of the prior meeting’s minutes

How do you know whether a decision should be documented in the meeting minutes? Generally, if a transaction is within the scope of the company’s ordinary course of business, it need not be addressed in the minutes. On the other hand, major decisions should be documented in the minutes, such as:

  • Significant contracts
  • Leases
  • Loans
  • Reorganizations and mergers
  • Employee benefit plans
  • Elections of directors or officers


Tuesday, December 16, 2014

Negotiating a Commercial Lease? Be Sure to Address These Issues

When it comes time for your business to move into a new commercial space, make sure you consider the terms of your lease agreement from both business and legal perspectives. While there are some common terms and clauses in many commercial leases, landlords and property managers sometimes incorporate unusual terms and conditions. As you review your commercial lease, pay special attention to the following issues which can greatly affect your legal rights and obligations.

The Lease Commencement Date
Commercial leases typically will provide a rent commencement date, which may be the same as the lease commencement date. Or not. If the landlord is performing improvements to ready the space for your arrival, a specific date for the commencement of rent payments could become a problem if that date arrives and you do not yet have possession of the premises because the landlord’s contractors are still working in your space. Nobody wants to be on the hook for rent payments for a space that cannot yet be occupied. A better approach is to avoid including in the lease a specific date for commencement, and instead state that the commencement date will be the date the landlord actually delivers possession of the premises to you. Alternatively, you can negotiate a provision that triggers penalties for the landlord or additional benefits for you, should the property not be available to you on the rent commencement date.

Lease Renewals
Your initial lease term will likely be a period of three to five years, or perhaps longer. Locking in long terms benefits the landlord, but can be off-putting for a tenant. Instead, you may be able to negotiate a shorter initial term, with the option to extend at a later date. This will afford you the right, but not the obligation, to continue with the lease for an additional period of years. Be sure that any notice required to terminate the lease or exercise your option to extend at the end of the initial lease term is clearly articulated.

Subletting and Assignment
If you are locked into a long-term lease, you will likely want to preserve some flexibility in the event that you outgrow the space or need to vacate the premises for other reasons. An assignment transfers all rights and responsibilities to the new tenant, whereas a sublease leaves you, the original tenant, ultimately responsible for the payments due under the original lease agreement. Tenants generally want to negotiate the right to assign the lease to another business, while landlords may prefer a provision allowing only for a sublease agreement.

Subordination and Non-disturbance Rights
What if the landlord fails to comply with the terms of the lease? If a lender forecloses on your landlord, your commercial lease agreement could be at risk because the landlord’s mortgage agreement can supersede your lease. If the property you are negotiating to rent is subject to claims that will be superior to your lease agreement, consider negotiating a “non-disturbance agreement” stating that if a superior rights holder forecloses the property, your lease agreement will be recognized and honored as long as you continue to fulfill your obligations under the lease.

Additional Costs and Expenses

For commercial leases, landlords often add extra costs and expenses that must be covered by the tenant, in addition to their monthly rental payment. These include real estate taxes, maintenance fees, cleaning of common areas, snow removal, and maintenance and repair of the heating and cooling systems. Be sure the lease clarifies how these extra charges are measured. For example, they can be individually metered or apportioned by square footage. Find out what costs are typically incurred by other tenants in order to budget properly.


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