What Are You Buying When You Use an Independent Contractor?

Photographer Dan by Kevin Dooley from Flickr (Creative Commons License)

Photographer Dan by Kevin Dooley from Flickr (Creative Commons License)

I get questions all the time from people involved in situations where a business outsources the creation of their website, marketing materials, or other photography work about who owns the copyright in the final work product and what can the other side do with it. And I get these questions from people on both sides of the relationship – the hiring company and the artist.

In these situations, my first question is always, “What does the contract say?” Under the U.S. Copyright Laws, if you hire a third party to do your graphic design, photography, or similar work, the artist owns the copyright in whatever you’ve hired them to create unless you have a written and signed contract that says you will own the copyright in the final product. A lot of business owners don’t understand this. They think they automatically get the rights in whatever they’ve hired someone to create just because they’ve paid for it. And that’s not true. Without an explicit contract that says they own the copyright, the artist owns it and the business has an implied license to use it.

Look at it this way – if you buy a poster for your office, you’re only buying the print. You don’t get the copyright with it. You can decide where you’re going to hang it or if you’re going to get rid of it, but you can’t make copies of it and sell them. Likewise, if you hire someone to do photography work for your website, you’re only buying the digital images, not the copyright in them. If you wanted to do something else with the images, you would need the photographer’s permission. If wanted to buy the rights, you could do that, but expect to pay extra.

There are many artists who write their contracts to say that the business hiring them owns the copyright in whatever they’ve hired the artist to create once they’ve paid their bill in full. That means if the client hasn’t paid their bill, they don’t own the rights to the work product, and the artist has rights to remove it from the client’s website if the client is using it without complying with the terms of the contract. I recently had a discussion with a website designer about modifying her contract template to explicitly state that she can and will shut down the client’s website if they are using her work and they haven’t paid the balance owed to her.

Here’s a video I did on additional issues you want to consider if you are or working with a third party contractor.

If you are a third party contractor or working with one, please read your contract carefully. This is the document for managing your relationship, including who owns the final work product and what happens if a problem arises. If you have contract templates in your work, make sure a skilled business and intellectual property attorney reviews them before you use it, because otherwise you may be stuck with terms that you don’t like.

If you want to chat more about working with contractors, copyright, and/or contracts, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.

How to Move an LLC to Arizona

New Aduafruit Office - Moving In by Becky Stern from Flickr (Creative Commons License)

New Aduafruit Office – Moving In by Becky Stern from Flickr (Creative Commons License)

It’s not uncommon for people to move from state to another. If you’re a business owner with an LLC, you have to deal with the question of if and how you should move your business to your new state.  There are four main ways to move an LLC to a new state.

Option #1: Maintain your LLC in your Old State and Register as a Foreign LLC in your New State.
This is a particularly good option if you plan to continue doing business in both your old state and your new state.  You will have to file state taxes in both states and you may have to file an annual report in your old state. (Arizona LLCs don’t have to file annual reports with the Arizona Corporation Commission.)

Option #2: Close your LLC in your Old State and Open a New LLC in your New State.
You’ll have to dissolve and liquidate your old LLC and start a brand new LLC in your new state. Filing paperwork for an Arizona LLC is fairly straight-forward, but a bit redundant to put the same information on each of the forms. If you have a single-owner LLC, the process mainly involves closing the bank accounts for the old LLC, filing the proper paperwork with your old state, filing the old LLCs final taxes and starting anew by filing LLC paperwork in your new state and opening new accounts for the new LLC.

Option #3: Create an LLC in your New State and have each Member Transfer their Ownership Interest from the Old LLC to the New LLC.
LLCs are owned by Members. (I encourage all my clients to create manager-managed LLCs where every manager is a member but not every member is a manager). Each member owns a portion of the business and they can use what they own from the old LLC to essentially buy-in to the new LLC. This should be accomplished with contracts. Talk with your accountant about any tax implications in doing this and whether a business valuation should occur on the old LLC before the transfer occurs.

Option #4: Create an LLC in your New State and Merge it with the Old LLC.
If you merge two LLCs, the IRS considers it a continuation of the old LLC and allows you to keep the same EIN. You must create a plan of merger and each LLC must vote to approve the merger based on the LLC’s operating agreement or that state’s laws. If the merger is approved, you must file an Articles of Merger with the new state’s corporation commission.

The Arizona Corporation Commission does not have a form for Articles of Merger. You must create a document that complies with the state’s LLC merger laws along with the Commission’s cover sheet and pay the $50 filing fee ($85 for expedited filings). Before you proceed with the merger, discuss your plans with your accountant to understand the tax implications for each member.

If your business plans involve moving to a new state, discuss your plans with your accountant and lawyer to determine what the best course of action is for you. Even if you have a business that solely exists online, there may be good reasons to move your business to your new state.

If you’re planning to move your LLC to or from Arizona, please contact me to discuss you options for making it an easy transitions. You can also connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, and you can subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.

Arizona Fantasy Gaming Bill Fails

Fantasy Football League 1 Draft by Jay Thompson from Flickr

Fantasy Football League 1 Draft by Jay Thompson from Flickr

Arizona lawmakers have, once again, shown how lame they are. Earlier this year they approved the anti-gay SB 1062 which was thankfully vetoed by soon-to-be-former Governor Brewer. This time they killed SB 1468, which would have legalized fantasy sports.

Arizona is one of a handful of states where fantasy sports are illegal. Sometimes this means that Arizonans can’t participate in fantasy sports if they admit their true location or they’re allowed to play but they can’t accept prizes if they win – even if there’s no fee to play or the prize is as simple as a t-shirt.

Here’s what’s super lame – Under federal law, fantasy sports are legal!  Under the Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) fantasy sports aren’t gambling because each participant’s team is made up of players from multiple teams and the results are based on the participant’s knowledge and skill. I can speak from my limited experience playing in the Deadliest Catch fantasy game that it definitely takes knowledge and skills. Unfortunately fantasy gaming is regulated at the state level so each state has the option to say that fantasy games are illegal.

Apparently SB 1468 was killed due to the influence of the Arizona Indian Gaming Association. They were afraid that legalizing fantasy games would negatively impact the tribal gaming compacts. I can understand that the tribal casinos want to have a monopoly on gambling in the state but I don’t see how fantasy sports would hurt them. I doubt that people will give up black jack and slot machines for a fantasy league. I think they’re afraid that people would start fantasy gaming businesses that could create competition for the casinos but I have serious doubts that people who love to hang out in casinos will give that up for fantasy gaming.

Technically fantasy gaming is a Class 5 felony in Arizona, and anyone convicted could face at least 6 months in jail and up to a $150,000 fine. As far as I know no one has been charged or convicted of violating this law and law enforcement isn’t concerned with pursuing these “criminals.” So it’s a law on paper, but in reality it’s just lame. Hopefully lawmakers will legalize fantasy games next session.

If you want to chat more about this issue, connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm monthly newsletter.
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Starting an Arizona LLC – Here Are The Forms You Need

Four Seasons Resort & Spa in Scottsdale, Arizona by Daniel Spiess

Four Seasons Resort & Spa in Scottsdale, Arizona by Daniel Spiess

Starting a business in Arizona is fairly straightforward process. It requires paperwork and money. That sounds simple enough until you look at the Corporation Commission’s website of forms. It can be a challenge to figure out what forms you need to submit. If you don’t do it right the first time, the Corporation Commission will make you do it again. If you want to create a manager-managed LLC in Arizona, here are the forms you’ll need. (There is an option to create a member-managed LLC, but I never advise client to do this, and here’s why.)

Cover Sheet – You need to include this cover sheet every time you send something in to the Corporation Commission.

Articles of Organization – This is the main application for starting a business where you have to state the name and address of the company, whether it’s manger or member-managed, who is the statutory agent. The instructions sheet will tell you about some of the limits regarding your company name and answer other common questions.

Manager Structure Attachment – You must include this with your Articles of Organization and list all the managers who own 20% or more of the company. If you think this is basically a repetition of a lot of the information from the Articles of Organization, you’re right.

Statutory Agent Acceptance – An LLC can be sued. Your statutory agent is the designated person who will accept service on behalf of the when the company gets sued. You can be the company’s statutory agent. It doesn’t have to be a third party, but you could hire someone to be your agent if you wanted. You must submit these forms and your filing fee to the Arizona Corporation Commission to start your business.

You have the option to pay an additional fee to expedite your application, but in most cases that is not necessary. You are allowed to act as if the business exists when you submit your paperwork to the Corporation Commission.

Remember one of the benefits of having an LLC is to protect your personal assets in the event that the business is sued. If you set things up correctly, only the business assets will be on the line, but to do this you must keep your corporate veil intact.

If your plans for 2014 include starting a business, you may also want to check out this post – How to Start a Business in Arizona. If you want to chat with me about this or any other topic, you can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm monthly newsletter. Please visit my homepage for more information about Carter Law Firm.

Can You Trademark a Hashtag?

Rémi Beaupré, Meme Snippets, 2012 by Retis from Flickr (Creative Commons License)

Rémi Beaupré, Meme Snippets, 2012 by Retis from Flickr (Creative Commons License)

I spoke at TechPhx on Social Media Horror Stories from the Legal Trenches. One of the stories I told was Turner Barr’s experience with having his blog, Around the World in 80 Jobs, essentially shut down because another company registered the trademark in the same name. At the end of my talk, someone asked if you could register the trademark in a hashtag.

A trademark is the words, slogans, logos, colors, packaging, etc., you put on your products that differentiate you from your competition. If you don’t register your trademark, you get the exclusive right to use your marks where you’ve established your market. When you register your trademark, you get the exclusive rights to use your marks on your type of products everywhere in the U.S. If you want to know more about trademarks, check the story behind the Burger King trademark.

Hash Tags are Like Snow Flakes by cambodia4kids.org from Flickr  (Creative Commons License)

Hash Tags are Like Snow Flakes by cambodia4kids.org from Flickr (Creative Commons License)

Just like you can register a trademark in a company name, product name, or slogan, you can register a trademark in a hashtag. The first rule is your trademark can’t be the generic product. If you own a coffee shop, you can’t register the trademark #coffee. If the U.S. Patent and Trademark Office (USPTO) let you have that, you could stop your competition from calling their coffee “coffee,” which would be very confusing. You could register your business name (i.e., #DansCoffee) or a slogan like #GreatMornings or #WheresMyMug.

The second rule is you can’t claim a trademark that your competition is already using. If you were a soda manufacturer, you couldn’t register the trademark #Coke or #CocaCola unless you were the Coca-Cola Company.

Another thing to keep in mind is when you register your trademark, you have to declare what you’re claiming as your trademark and what goods or services you’re using it on. You only get the exclusive rights to your mark in your arena of goods. You can’t stop another company from using a similar trademark on their products as long as they are completely unrelated.

Registering a trademark allows you to prevent your competition from using your trademark or something similar to it. It doesn’t give you the ability to stop people from using your slogan in their everyday lives. For instance, the Williamstown Theatre Festival could register the trademark in the hashtag #WTF which would allow them to prevent other theatres from using the same hashtag to promote their products, services, and events, but it would allow them to stop everyone who uses it on Twitter to mean “What The Fuck.”

Registering a trademark is a long process. It can take months for the USPTO to look at your application and then there may be several rounds of communications between you and the USPTO before your trademark is approved. If you want to claim the exclusive right to use your desired hashtag, it should be for something that you’re planning on using for a long time.

So can you register a trademark in a hashtag? Yes. Should you register your hashtag as a trademark? It depends on your situation. That should probably require a joint meeting with your marketing staff and your lawyers. If you want to chat with me about this or any other topic, you can connect with meTwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
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Please visit my homepage for more information about Carter Law Firm.

Fantasy Football = Felony in Arizona

 

Fantasy Draft by Chimpanz APe from Flickr (Creative Commons License)

Fantasy Draft by Chimpanz APe from Flickr (Creative Commons License)

Fantasy football is a Class 5 felony in Arizona. That’s right a felony.

Yeah, I’m with you – What the fuck?!?!

Fantasy football leagues are legal in 45 of the 50 states, but not Arizona. Arizona considers it a “game of chance,” therefore gambling, therefore illegal.

Under federal law, fantasy sports are legal under the Unlawful Internet Gambling and Enforcement Act of 2006 (UIGEA) because each participant’s team is made up of players from multiple teams and the results “reflect the relative knowledge and skill of the participants and are determined predominantly by accumulated statistical results of the performance of individuals.” Making predictions based on your knowledge of the players’ past performances and making strategic decisions in managing your fantasy football team appears to be sufficient knowledge and skill to comply with the law.

The other big rules are the prizes have to be determined in advance – they can’t be something like a percentage of the total money people paid into the league to play, and the winner cannot be chosen based on a score, point-spread, or any performance or performances of any single real-world team or any combination of such teams or solely based on one athlete’s performance in one event.

So what’s wrong with Arizona? In Arizona, amusement gambling is not illegal. Here’s the state’s four-part definition of “amusement gambling.”

(1) The player actively participates in the contest.
(2) The outcome is not in the control to any material degree of any person other than the player.
(3) The prizes are not offered as a lure to separate the player from their money.
(4) Any of the following:

(i) No benefit is given to the player other than an immediate and unrecorded right to replay which is not exchangeable for value.
(ii) The gambling is an athletic event and no person other than the player derives a profit or chance of a profit from the money paid to gamble by the player.
(iii) The gambling is an intellectual contest, the money paid to gamble is part of an established purchase price for a product, no increment has been added to the price in connection with the gambling event and no drawing or lottery is held to determine the winner.
(iv) Skill and not chance is clearly the predominant factor in the game and the odds of winning the game based upon chance cannot be altered, no benefit for a single win is given to the player or players other than a merchandise prize which has a wholesale fair market value of less than $4 or coupons which are redeemable only at the place of play and only for a merchandise prize which has a fair market value of less than $4 and, regardless of the number of wins, no aggregate of coupons may be redeemed for a merchandise prize with a wholesale fair market value of greater than $35.

Fantasy Football Hell by Dave Parker from Flickr (Creative Commons License)

Fantasy Football Hell by Dave Parker from Flickr (Creative Commons License)

Based on this definition, you would think that fantasy sports are a type of amusement gambling, but no, Arizona is backwards and says that fantasy sports are based on chance, not skill, so all fantasy football leagues are illegal.

I’ve never played fantasy football, but I did participate in the Deadliest Catch Fantasy Game this past season. Each week I picked my boat and assembled my crew to maximize my points predicting what was going to happen on the show that week. I will say my knowledge of the show, the crew members, and my training as a former mental health professional helped me predict what was going to happen each week. There was definitely skill involved. (And since I didn’t have to pay-to-play, it wasn’t gambling so don’t waste your time investigating me Arizona.)

This appears to be a low-priority issue in Arizona because I have lots of friends who play fantasy football and none of them have been arrested or know of anyone who has been arrested for participating in a fantasy league. (But they get caught they could be facing at least 6 months in jail and up to a $150,000 fine.)

Coming to Arizona in 2015: B Corporations

voting or shopping by photologue_np from Flickr (Creative Commons License)

voting or shopping by photologue_np from Flickr (Creative Commons License)

An exciting bill was approved by the Arizona legislature this year that will allow people to create B corporations in Arizona starting in 2015. (Apparently it will take them until then to update the Arizona Corporation Commission website with the forms and information.)

Benefit corporations, or B corporations, are like other businesses except that they have “higher standards of corporate purpose, accountability, and transparency.” In other corporations, the people in charge have an obligation to make the most money for their shareholders, and if the shareholders believe that management isn’t doing that, they can sue the company. In a B corporation, the company has other motives for being in business besides maximizing profits and the shareholders are on board with that plan. These are companies like Patagonia and Ben & Jerry’s.

B Corp CertifiedEarlier this year, I attended a seminar organized by the Arizona Tech Council on B corporations where we learned about some of the benefits of having B corporations in your community. B corporations are 60% more likely to donate at least 10% of their profits to charity compared to other sustainable businesses and they are 18% more likely to use suppliers from low income communities compared to other sustainable businesses. These companies are four times more likely to give employees paid professional development opportunities compared to other sustainable businesses. In 2011, 95% of B Corps paid a living wage to all employees and were three times as likely to offer health insurance to all employees and have retirement plans.

Until we have B corporations in Arizona, companies can become B-corp certified if they meet the B Lab’s “rigorous standards of social and environmental performance, accountability, and transparency.” There are at least four B-corp certified businesses in Arizona, including Goodmans Interior Structures and DIRTT Environmental Services. A business doesn’t have to have a higher social cause as its obvious purpose for being in business. Many small businesses who provide traditional goods and services can be B-corp certified.

Over 600 companies have become or B-corp certified. If you want to learn more about B corporations including how to become B-corp certified, please visit their website. If you need help deciding whether you should become a B corporation or B-corp certified, contact your accountant or business attorney for assistance.

You can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
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Please visit my homepage for more information about Carter Law Firm.

What Happens to your LLC when you Die

Headstone View by Augapfel from Flickr (Creative Commons License)

Headstone View by Augapfel from Flickr (Creative Commons License)

When you own an LLC or part of an LLC, you own property. This is property that will be part of your estate when you die. If someone came to me and said their business partner just died and they’re not sure what that means for the business, I would initially have two questions.

  • What does your operating agreement say in regards to this situation?
  • What does the deceased’s estate plan say happens to their portion of the business?

Hopefully both of these documents exist and give clear instructions. If you don’t have an operating agreement and the person didn’t have an estate plan, their portion of the business will pass to their relatives like the rest of their estate per that state’s law. Most likely, if the person was married, their portion of the business would go to their spouse. If they didn’t have a spouse, it would go to their kids. If they didn’t have a spouse or kids, it would go to their parents.

When I draft an operating agreement for LLC owners, I make them answer the hard questions like what happens if an owner dies or gets disabled and document their plans for addressing those situations at the beginning of their business relationship so they won’t be scrambling when they find themselves facing these issues.

If you are a sole LLC owner, you don’t need an operating agreement that tells you how you’re going to run the business, but you may want one to thoroughly document what you want to happen to the business when you become disabled or die. Make sure you document the pertinent information like where keys, passwords, and bank accounts are so your employees or loved ones can take over or wind up the business.

Once you have your estate plan and operating agreement in place, make sure you tell your family and whoever else may need to know where you put it so they can carry out your wishes. My Wills and Estates professor (who is a brilliant estate planning attorney) suggests you put them in a fire-proof and waterproof safe with the door unlocked (or the key in the lock). That way the documents are safe but if a thief gets into your business or house, they will quickly see that it doesn’t contain anything of value to them and leave it.

It’s hard to think about what should happen to your business if you die. If you work in an industry (like law) where a person needs a specific credential to be an owner, you may not be able to keep the business in the family but they could be charged with closing down your operation. Otherwise you will have to decide if you want the business to go to a family member, an employee, or a combination of people. You ultimately won’t have control over whether the business continues to exist, but you can put the documents in place to try to make it happen.

You can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
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Ask the Hard Questions Before Starting a Business

dock at dusk by Scott Ellis from Flickr

dock at dusk by Scott Ellis from Flickr

When business owners are launching their new venture, they can get so excited about launching the business that they don’t put the energy into making sure they have the structure of their business relationship laid out. Why would they want to do that? That sounds really boring and kind of a downer when you think about it.

Even though it might seem boring or superfluous, people who are going into business need to have a meeting of the minds and address some of the hard questions that come with owning a business. It might be the first stressful conversation you have to have and it’s a good way to gauge how well your partner(s) communicate under stress. You might learn that they’re an irrational nutball when things aren’t smooth sailing and you don’t want to go into business with them.

When I’m working with new business owners, here are some of the questions I throw at them to see how well they’ve thought through their plans.

  • When and how much will each owner get paid?
  • What happens if an owner gets divorced? Becomes disabled? Dies?
  • What are each person’s responsibilities? How much can each owner spend without getting the other owner(s) approval?
  • If the owners are deadlocked on a decision, how will you resolve it?
  • What should happen if an owner isn’t performing up to par?
  • What will happen if an owner wants out?
  • Under what circumstances can an owner kick another owner out of the company? What will the process be?
  • What’s the goal of the business, including the exit strategy?

Ideally, these answers should be a part of the owners’ operating agreement if they have an LLC or otherwise documented in a master plan so everyone’s on the same page. Business divorces can be as messy as family divorces, especially when the owners didn’t figure some of these things out in advance.

It’s much easier to deal with these questions when everyone’s happy and thinking about what’s fair and what’s best for the business than to wait until everyone’s pissed off at each other and looking for ways to get ahead or screw over the other owner(s).

Before you start a new business, talk about the hard questions with your potential partners before you launch your venture and consider meeting with a business mentor and/or a business attorney to make sure that you’re setting yourselves up to be a success from all angles from the beginning.

You can connect with me on Twitter, Google+, Facebook, YouTube, LinkedIn, or you can email me.
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How to Avoid Screaming Matches in Coffee Shops

Office Cleaning Prank Played On Janitor In Frederick Md from Flickr

Office Cleaning Prank Played On Janitor In Frederick Md from Flickr

When you and a friend have a great idea for a new business, you create an LLC.

When you create an LLC, you get super-excited about your new venture.

When you get super-excited about your new venture, you forget to put in the business infrastructure behind the scenes.

When you forget to put in the business infrastructure behind the scenes, you and your partner may have different ideas about how you’re going to run the business.

When you and your partner have different ideas about how you’re going to run the business, you get frustrated with each other.

When you get frustrated with each other, you get into screaming matches at coffee shops.

Don’t get into screaming matches at coffee shops.

Get an operating agreement at the beginning of your business relationship.
This will make sure that everyone is on the same page and you can predetermine how you’re going to address certain problems before they arise.

You can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
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Please visit my homepage for more information about Carter Law Firm.