Very soon Rush on Business will have a new design courtesy of the pros at LexBlog.  Kevin O’Keefe and his talented team are putting the final touches on the blog and I am eagerly anticipating the change.

Why did I switch?

  1. I am continually impressed by the professional design and features of the LexBlog law blogs.  When I browse lawyer blogs I have always loved the look-and-feel of LexBlog designs.  They are very appealing.
  2. Kevin O’Keefe knows and understands lawyer blogs better than anyone I know.  Even when I had my typepad blog and gave no indication I was interested in LexBlog he took an interest in my blog, helped promote it and discussed ways for me to improve my blog.  All without any pressure whatsoever to switch to his company.  Now that is impressive!
  3. The company is on the forefront of the growing law blog phenomenon.  The company is constantly upgrading and striving for excellence.  The customer service is exceptional. 

For more reasons on why to consider LexBlog check out this post from legal marketer extraordinaire, Larry Bodine, who also switched from Typepad to LexBlog.

Stay tuned for the change soon.

A couple of Central Iowa business updates for your information:

  1. SEMEE – The next SEMEE (Society for Entrepreneurial-Minded Executives) meeting is scheduled for July 19, 2007 from 6:00 – 9:00 p.m. at the EMC Insurance Building downtown.  I attended the February meeting and thoroughly enjoyed it.  Last time there were some great presentations by some excellent companies including US Rodeo Supply.  The focus of the organization is finding resources, other than money, that might help these companies grow.  Unfortunately I can’t make it this time because of a prior commitment but I highly recommend attending if you are interested in business and live in Central Iowa.  It is a terrific networking and learning opportunity.  Hats off to the Steens of Transition Capital Management for continuing this great program.  There is no charge to attend.  For more information you might want to check out my podcast with Adam Steen.
  2. BIZ – The Business Innovation Zone (BIZ) led by Mike Colwell is off to a fast start.  BIZ is a new regional business accelerator through the Greater Des Moines Partnership.  The organization already has many active clients in the first four months and has approximately 10 more ready to join.  A client, Aerospace Geartech, received substantial funding from the Department of Economic Development with the assistance of BIZ in order to start a new Central Iowa business.  For more information you may want to check out this podcast with Mike.  He has a tremendous amount of insight in business and a wealth of experience.

Pennsylvania business lawyer Anthony Cerminaro has a post on Legal Issues in Internet Contracting.  The post references a comprehensive article from attorney Karl Belum of the Thelen Law Firm’s San Francisco office. 

The article provides an excellent overview of the issues involved in Internet contracting.  Belum advises:

"Entities engaging in repeat transactions can contractually adopt agreed upon digital signature/electronic commerce ground rules which will be enforced. Entities engaging in single, high value transactions with parties with whom they have no ongoing relationship may still wish to utilize conservative methods such as confirming faces or paper documents."

My experience is that many business people are still confused by what constitutes an enforceable contract over the Internet.  If you are engaging in a single transaction with whom you have no ongoing relationship it is probably excellent advice to utilize paper documents.  But if you are running an eCommerce Web site that may not be feasible or fit into your business plan.  In those instances you will want to set up Web site policies which eliminate any ambiguity as to when or how a contract is entered into.

If you run an eCommerce Web site or regularly conduct business on the Web you may want to check out Internet Laws Affecting Your Company written by Brett Trout.  The book is a great resource.  I highly recommend it.

I am hoping you will provide me with some input.  What do you think are the top legal issues facing small businesses today?

My general sense is that employee/human resource issues rank high.  If you are a small business owner, what keeps you up at night from a legal perspective?  If you are a lawyer or consultant, please add your perspective.

Please comment below.   Don’t be shy.  I am hoping to develop some blog posts surrounding this discussion and I would love to hear from you.  If you are not interested in commenting publicly, please feel free to email me at rnigut@sullivan-ward.com.  With your input I should be better able to hone in on the legal issues facing small business owners.

Thanks for reading.  I appreciate it. 

If you are in business long enough it is likely you will eventually face a dispute with a customer, employee or another business.  Are you prepared to face the challenge?

Anthony Zaller of the California Labor and Employment Law Blog provides some Tips on Litigation that expand on the sage advice from Sun Microsystems general counsel, Mike Dillon.  Here are the key strategies discussed:

  1. Litigate only when you have an important interest to protect.  Litigation is costly.  Very costly.  Many businesses may consider the cost of legal fees and other expenses but forget about the diversion of employee resources.  Time spent preparing for litigation is time spent away from the business.
  2. A non-judical resolution is almost always preferable.  You lose control whether you go to the judge, jury or arbitrator.  Consider mediation as an alternative.
  3. Litigate when you have a high degree of confidence you will prevail.  Bluffing is for weekend games of Texas Hold’em.  You need to carefully evaluate all aspects of the case when you file suit to ensure a favorable outcome.
  4. You litigate to win.  This means your board, management and employees fully support the decision to litigate and are willing to commit the resources necessary (time and expense) required to prevail.  It also means hiring seasoned litigation counsel that understands your business and objectives.

Zaller makes a great point that businesses should hire legal counsel BEFORE trouble occurs to develop and implement policies that 1) comply with the law and 2) assist the company when a lawsuit is filed.  He points out that No. 2 is important because not only do you need to comply with the law but you also need PROOF that you comply with the law.

I also agree wholeheartedly with Dillon’s commentary regarding litigation:

… it’s important to remember that litigation is just a tool. And, as with all tools, it is effective only when used dispassionately, in the right way and for the right reasons.

I often hear business owners and individuals say they want to pursue or defend a case because of the principle of the matter.  This initial emotional reaction tends to disappear after legal fees mount and resources are diverted from the actual operation of the business.  Win or lose, business owners rarely enjoy litigation.  Like Dillon, I encourage you to approach litigation dispassionately and consider the best business approach to ending your dispute.  Sometimes the best business approach means litigation is necessary but only after you have carefully evaluated all aspects of your case to determine how to prevail, or at the very least, extract yourself from the litigation under the most favorable settlement terms. 

On the Texas Small Business Law Blog there is an helpful post on the common mistakes made by small business owners.  The common mistakes listed by business attorney David Willis include:

1) Under-capitalization.
2) Failure to plan and adjust for growth.
3) Over-emphasis on the type of business organization.
4) Failure to understand the impact of an employee.
5) Failure to understand the impact of employees.
6) Not having an employee manual.
7) Thinking: “I’ve got some experience, I can do this myself.”
8) Not keeping up with the paperwork.
9) Failure to plan for litigation.
10) Not having an electronic document retention policy in place.
11) Failure to consult an attorney.

David is following up with more detailed posts about each mistake.  The one that caught my eye was No. 3 – over-emphasis on the type of business organization.  David warns that small business owners should not consider themselves invincible just because they have formed a business entity.  The small business owner must operate the business as a distinct entity. 

In the past I have written about some of the exceptions to limited liability.  The best way to maintain limited liability with your corporation or LLC is to is to make sure you keep your personal guarantees to a minimum, pay applicable taxes and keep all business dealings separate from your personal accounts.  Managing your small business corporate goverance (i.e. regular meetings of shareholders and directors with minutes documenting the meetings) is also critical.

Handcuffs Many business owners I talk with are reluctant to enter into a non-compete with their employees.  These business owners are afraid an employee won’t sign or a confrontation will occur.  Some just don’t believe they should keep the employee from finding a job – even if it is to the employer’s detriment.

But to avoid disruptions to your business or losing customer relationships you should consider non-compete agreements in certain situations.  This is especially true if the employee has a close relationship with the customer and could easily take the customer if the employee leave your employ.

The best time to secure a non-compete agreement is when you hire the employee although continued employment may be sufficient consideration to bind even current employees.  Iowa courts have developed a three-part test to determine whether a non-compete agreement is enforceable:

1.  Is it necessary for the protection of the employer’s business?

Factors to consider:  Does the employee have a great deal of personal contact with customers?  Is the employee in a position to lure customers away?  Have you spent significant time and money training the employee?

2. Is the non-compete unreasonably restrictive of the employee’s rights? 

Factors to consider:  Is the non-compete limited in time?  The most common time restrictions are 1-3 years.  Courts tend to favor shorter time restrictions.  (This will always depend on the cirmcumstances of the particular case).

Is the non-compete limited in geographic scope?  For a local business, a 50-mile limit may be reasonable while a regional business may use a scope spread out over several states.  It depends on the market area of the particular business.  Because of the Internet and other technologies, geographic limits are becoming a less effective way to control competition from former employees.  Businesses must carefully consider how to be reasonable and still control competition in the global marketplace.

3. Is the non-compete prejudical to the public interest? 

Factors to consider:  Does the particular non-compete harm the general public?  This part of the test has rarely been used to invalidate non-competes in Iowa.  For example, non-competes in Iowa have been upheld against doctors and dentists where you might expect that limiting access to health care could harm the general public.

Finally, Iowa has adopted a "partial enforcement" doctrine permitting a court to uphold a non-compete agreement to the extent it is reasonable and allowing the Court to modify terms if necessary.  For example, a court may reduce a time restriction from 3 years to 1 year if the judge finds that is appropriate.  Or, a judge could change a geographic restriction from the entire state of Iowa to a 100-mile radius of the business.  This is different from an all or nothing approach where a judge might declare the entire non-compete agreement invalid if just one of the terms is found unreasonable.  When litigating non-compete agreements in Iowa the parties must consider whether the agreement may be partially enforced.   

If you are one of those who is not comfortable with a non-compete agreement for your employees I would strongly encourage you to have at least confidentiality and non-solicitation agreements.  These agreements generally provide protection for your business without restricting the employee’s ability to work elsewhere.  If a departing employee attempts to take clients or other employees with them you will be glad you had those agreements in place.

*Remember there are several pitfalls relating to these agreements if not written correctly so be sure to contact your employment or business lawyer to review and/or draft such agreements.  For more information read this interesting article on The Power of the Noncompete Clause through the Harvard Business School.

Photo on Flickr by D.F. Shapinsky (pingnews)

Brett Trout has a post worth reading on "Who Owns Your Website?"  In the post Brett warns clients to carefully read the agreement and to take steps to ensure you own your Website and the domain name.  As Brett says, 

"Most clients think they are obtaining an “assignment” of these things when they write a check. They are shocked to learn that the people they paid to create these things actually still own them. Intellectual property laws are designed to protect the creator, to encourage the creator to create. If you hire someone to design a website for you, what you are actually purchasing is a “license” to use the design for the use intended by you and the designer."

So make sure to read your written agreement with the Web developer and carefully negotiate the terms of ownership of the site before you make any payment and before any work is performed by the developer.  Further, there is really no reason to have the developer obtain your domain name for you.  Just go to www.godaddy.com or some other site to obtain the domain name on your own.  It is easy and if you register it in your own name there won’t be questions about who owns the domain name down the road.

P.S.  I also wanted to give a big shout out to Brett who is speaking at the Blog World Expo.  Brett is talking on keeping your blog out of court. The Expo is November 8 and 9 in Las Vegas.  See the Blog World Expo Blog for information on the conference schedule.  Congratulations on your selection, Brett.

A dry cleaner has finally been vindicated in court by winning a defense verdict against the administrative law judge who originally filed a claim against them for $67 million.

Thanks to the WSJ Law Blog for a link to the opinion and judgment.  For those interested, the award of costs to the defendant does not include an award that plaintiff must pay for defendant’s attorney’s fees at this point.  There is a pending motion for sanctions concerning the attorney’s fees issue so we must wait to see whether the judge awards fees to the defendant.  (Read the end of the 23-page opinion for details).

Over on IowaBiz.com Joe Kristan has an excellent post describing the basic tax treatment of S corporation losses.  Joe says,

Bottom line? The ability to deduct business losses is a good reason for many taxpayers to use S corporations.  If you expect S corporation losses, talk to your tax pro before year-end to make sure you are eligible to deduct them.

I always say that the choice of entity (C Corp. v. S Corp. v. LLC) usually boils down to tax treatment.  Joe’s article demonstrates why.  If you are forming a new business you not only need to talk with your business lawyer but also an accountant.