Joy of Customized Partnership Agreements

Dúo by Hernán Piñera from Flickr (Creative Commons License)

A contract is a “relationship management document.” A well-written contract should put everyone involved on the same page and protect both sides. A contract should provide clear explanations to help the parties avoid confusion and prevent problems. It’s an effective way to document the priorities and goals in the relationship.

You can put anything you want in your contract as long as it’s legal. (I’ve written a legitimate contract where one party had to attest that they are “a sexy bitch.”)

The Roommate Agreement: The Epitome of Customized Agreements
One of my favorite contracts is the Roommate Agreement between Sheldon and Leonard on The Big Bang Theory. It’s a perfect example of how contracts can be customized (and how important it is to define words in your contracts.) Here are some of my favorite provisions of the Sheldon-Leonard Roommate Agreement:

  • Once a day, Sheldon must ask Leonard how he is (even though Sheldon doesn’t care).
  • No “hootennanies”, sing-alongs, raucous laughter, clinking of glasses, celebratory gunfire, or barbershop quartets after 10.p.m.
  • If one friend gets super powers, he will name the other one as his sidekick.
  • If one friend gets invited to go swimming at Bill Gates’ house, he will take the other friend to accompany him.
  • Once a year, Leonard and Sheldon take one day to celebrate the contributions Leonard gives to Sheldon’s life, both real and imaginary.
  • One friend has to put up with the other’s craziness. (Yes, we know: Sheldon’s not crazy. His mother had him tested.)

I love this contract. Not only is it hilarious, it shows what a contract can be.

My Partnership Agreement
If I owned a business with a partner, we would have the best owner’s agreement. Besides the provisions about how we were going to resolve deadlocked votes when a unanimous decision is required and the division of administrative tasks, we’d customize our contract based on our personalities and priorities. Here are some provisions I’d advocate for:

  • We won’t use vendors who are known to be sexist, homophobic, racist, or who treat their workers poorly.
  • No jerks. This applies to vendors and customers who want to hire us.
  • Our office will always be dog-friendly.
  • If we’re driving somewhere together, Ruth doesn’t have to drive.
  • There is only one way to say “data” correctly in Ruth’s presence.
  • If you’re sick and contagious, stay home. Keep your germs to yourself.
  • Neither owner is allowed to do their own taxes. Let the professionals do them.
  • We will have a monthly meeting to discuss the state and future plans for the company. If either owner is 10 minutes late or more, they have to buy the other lunch.

When I write partnership agreements, operating agreements, and bylaws for companies, I have a set of questions I make my clients answer to assist me in drafting a contract that fits their needs. One of the questions is “What else do you want me to include?” and I encourage my clients to be thoughtful and creative, based on their needs and their goals for their business.

If you’re interested in getting a custom contract, you can contact me directly or a business lawyer in your community. I regularly post about legal issues impacting entrepreneurs on TwitterFacebookYouTube, and LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Contract Amendments – Always in Writing

Signature by Sebastien Wiertz from Flickr (Creative Commons License)

When a lawyer writes a contract for a client, it usually includes provisions that say that the all the terms of the agreement are contained in the document and all changes to the contract must be in writing. It may look something like this:

This Agreement is the entire understanding between the Parties concerning the subject of this Agreement. This Agreement replaces and supersedes any and all prior oral or written agreements and discussions between the Parties on that subject. All amendments to this Agreement must be in writing and signed by the Parties.

Contracts are relationship management documents. They keep everyone on the same page to prevent problems down the line or to help resolve problems when they occur. One of the challenges I encounter with contract clients is they often don’t follow the contract they signed and amend the agreement that is documented only in an email exchange, or worse, a undocumented verbal agreement.

Always Get It In Writing
The purpose of the “entire agreement” clause is to put all the terms of the contract in a single document. All written amendments should be stored with the original agreement – in hard copy and/or electronically, so if there is a question or dispute, the parties only need to review the single or amended document. They don’t have to piece together the contract from the parties’ communications and actions.

If you don’t get your amendments in writing, you’re asking for trouble. There could be confusion about what the change is, or worse, the other side could deny the existence of an amendment and screw you over. Remember, the law does not care about what you know, only what you can prove. If you don’t get your amendments in writing, and you have an “entire agreement” clause, if you have to go to court, the judge could say the amendment doesn’t exist.

Contract Amendments Can Be Easy
Why don’t people put their contract amendments in writing. I suspect it’s because they think it will be a hassle, cause a delay in a project, be time-consuming, or maybe they don’t even think to put in it writing because “it’s not a big deal.” In general, contracts exist, not for when things go right, but when they go wrong. What you think is a minor verbal change when both sides are getting along can become a big problem if things turn sour.

If you spend $100s or $1,000s to have a lawyer draft your contract, don’t revise it without their involvement. You’ve invested time and money to protect your interests. You don’t want to inadvertently throw that away with a damaging and undocumented revision.

Contracts are your Friends
These are some of my guidelines when it comes to reading and drafting contracts:

  • Never sign a contract you don’t understand. Don’t be afraid to ask for clarification.
  • Whomever writes a contract does so for their or their client’s benefit. Keep that in mind when a contract is written by the other side. (Lawyers have an obligation to represent their clients zealously.)
  • Substantial business contracts should always be reviewed by a lawyer to ensure it’s complete and protects your interests.

A contract should be written to protect everyone involved – to make sure everyone understands and agrees to the same course of action.

I’m constantly reviewing and drafting all types of contracts for clients. If you want to keep up with what I’m doing or if you need help, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Year-End Visit to the Accountant

Money Tunnel by Lomo-Cam from Flickr (Creative Commons License)

Every business owner needs an accountant, and a good accountant is worth their weight in gold.

I’ve been saying that for years. Actually, I recommend visiting your accountant twice a year – once during tax season and once at the end of the year. And just to show I “eat my own dog food,” I wanted to share my experience seeing my accountant this fall.

Planning Ahead for Next Year’s Taxes
Visiting my accountant is a great way to begin the process of winding down the year. I brought him a copy of my Quickbooks. (I’m probably his only client who keeps their USB on a Star Trek keychain.) He did a quick review my books for the year to date, made sure everything is categorized properly, and he gave me an estimate of what I should expect to pay in taxes come next April. (I don’t get upset when I have to pay taxes. It means I made money.) I find it reassuring that my tax bill isn’t a big mystery looming in the future. With his estimate, I can budget in my expected tax bill starting December or January.

Avoid the Tax Season Insanity
When I meet with my accountant in November/December, we get to have a laid back conversation about my business for the last year and what’s on the horizon for the next year. This gives him a chance to provide more thoughtful advice since he’s not in the middle of the insanity of tax season. Meeting before the end of the year gives him a chance to give me any advice regarding an end-of-the-year spend-down or if I have a big purchase coming up, whether it matters which tax year it happens.

Connecting with a Fellow Entrepreneur
My accountant is also a fellow entrepreneur who meets with other entrepreneurs for a living. When I share my ideas for my business with him, he gives me suggestions from his own experience and from watching what’s worked for other clients.

I’m always happy to meet with my accountant and never flinch at paying his bill. If you haven’t scheduled your year-end meeting with your accountant, I strongly recommend it. If you don’t have an accountant for your business, get a referral from a trusted professional. Your accountant is your partner for your success.  If you want to connect with me and my thoughts about why every entrepreneur needs an accountant, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Choosing a Business Entity

"Leap" by Sabrina C from Flickr (Creative Commons License)

“Leap” by Sabrina C from Flickr (Creative Commons License)

Just like you wouldn’t ask your plumber to change your car’s oil, don’t ask a lawyer what type of business entity you need. Ask your accountant.

What your Accountant Can Do
Anyone with access to their state corporation commission website can see the different types of corporations and limited liability organizations are available where they live. Determining which one is the ideal for your situation is best left to your accountant, an accountant who does business accounting. The tax code is too complex and has too many changes year-to-year for a regular person to navigate on their own. Get yourself an accountant which whom you can have a candid discussion about your current financial situation and your future plans, so they can tell you what’s the right business entity for you. What’s right for your friend, may not be the best plan of action for you.

And I’ve always said, a good accountant is worth their weight in gold. I’m happy to pay my accountant’s bill because handles the tax side of my business for me and he always answers my random questions.

How a Lawyer Can Help
A business lawyer can describe the differences between the types of corporations and LLCs, what it costs to file the documents in the state to start an entity, whether an annual report is required, and other legal obligations and suggestions accompany different business entities. If you have a limited budget, filing your documents with your state by yourself is one way to save on legal fees. If you can afford it, and you don’t want to take the time to do it yourself, you can hire a lawyer to do your filing for you and take care of the require publication.

Your lawyer can also create the documents that accompany the creation of a new business – bylaws, operating agreement, terms of service, and/or contract templates. They can also advise you about how to protect your intellectual property and the importance of maintaining your corporate veil. Even if you don’t need a lawyer to create your business entity, it’s pragmatic to bring your lawyer into the loop sooner than later, just to make sure you have your ducks in a row.

Being a business owner and running the business are two full-time jobs in one. As an entrepreneur, I sympathize with what my clients go through with the challenges of providing for their customers and managing the nuts and bolts of being a business owner. If you want to connect with me and my experience as a business owner, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

Invest in Yourself with a Monthly Self-Meeting

Stargazin by Zach Dischner from Flickr (Creative Commons License)

Stargazin by Zach Dischner from Flickr (Creative Commons License)

How much time do you devote each month to your own professional development? I’m serious. When was the last time you took a step back to look at your business as a whole and not just focusing on whatever task is in front of you? I want to share an activity that my business mentor ingrained in me very early in my career as a business owner – a monthly self-meeting. It’s been a pivotal part of my business success. Here’s how I do it:

Within a week of getting my company’s bank statements, I reconcile my accounts and run the following reports for the previous month: profit and loss, cash flow, and balance sheet. I also pull the list of all my income sources from the previous month. I’ll need these for my meeting.

For my self-meeting, I block out 2 hours and remove all distractions. This is my time to focus on me and my business. I start my meeting by writing down (by hand) the celebrations since my last self-meeting. These might be things like a successful end to a client’s case, reaching one of my financial goals, or being selected to speak at a conference. It’s always good to look back and see the progress I’ve made, especially since I’m the only person at Carter Law Firm. It’s easy to focus on what I could be doing to improve that I forget to give myself kudos when it’s earned.

I also look at my networking activities from the past month, what networking events I have coming up, what business ideas I’m toying with, what concerns I have, what opportunities might be on the horizon, and whatever else comes to mind. This is my time to look at my business and process how things are going and where I want to see them in the future. By the end of my self-meeting, I have a list of things I want to accomplish by my next self-meeting. At the subsequent meeting, I will review this list and acknowledge my successes and also look at where I came up short and what contributed to that happening. I also make a list of reflections and write out things that I’ve learned in the last month and what issues are currently important to me.

Then I shift my attention to the company’s financials. I look at where my work is coming from – which tells me what marketing techniques are being effective, what type of legal projects are bringing me the most revenue, and I review my expenses. I maintain two spreadsheets: one tracks how much money I’m making from each type of legal work I do and the other tracks my spending. These spreadsheets help me see month-to-month how money is coming and going from the company and by the end of the year it gives me a clear picture of the state of my business affairs.

Sometimes it’s hard to make my self-meeting a priority, particularly when I’m busy. However, it is enormously helpful in terms of my business development as well as understanding who I am and my priorities as a business owner.

Do you do a periodic self-meeting? What’s your process like?

Does Your Business Need Cyber Liability Insurance?

Guilty Viewing Pleasures: Hackers by Ingrid Richter from Flickr (Creative Commons License)

Guilty Viewing Pleasures: Hackers by Ingrid Richter from Flickr (Creative Commons License)

Anthem Health Insurance was victim the latest cyber attack to hit the news. Approximately 80 million customers’ health records were compromised by this security breach. When you hear about these hacking stories, do they make you wonder about your company’s security system? Do you assume that you probably have nothing to worry about because hackers are only interested in big companies like Target?

I attended a workshop last month about cyber liability insurance where the presenter said that a 2011 study revealed that 95% of all credit card breaches were against small businesses. We only tend to hear about the security breaches involving bigger companies but any size company could be at risk. Data breaches can occur through hacking, theft by unauthorized access , employee errors, and stolen or lost paper or electronic files, laptops, smartphones, flash drives.

Any business that handles or stores private business, customer, or employee data should consider getting insurance to cover them if a data breach occurs. This data includes social security numbers, bank account information, credit card numbers, driver’s license numbers, and email address. Additionally, you should take a look at your company’s policies and procedures related to data security. Are you taking the following precautions?

  • Secure sensitive data
  • Restrict access to data
  • Dispose of data properly – i.e., wipe laptops before donating them, shred paper files
  • Use effective passwords
  • Use encryption and secure remote access
  • Make sure your employees understand how to protect data and why it’s important

There are many benefits of having cyber liability insurance. Your provider should offer risk management services to help prevent a data breach from occurring. If a breach occurs, they will can professional assistance for damage control and regulatory compliance as well as cover the response expenses for mailing notification letters, credit monitoring services, and public relations. Your cyber liability insurance policy can also cover your defense and liability expenses if you are sued because of the breach.

This is a serious issue that can affect any company that uses the internet for business or commerce. If you have a traditional business liability insurance policy, read the terms carefully; it may not cover cyber liability. If you need a cyber liability insurance policy, contact a cyber liability insurance specialist to discuss your needs and options.

If you have questions or want to chat more about these issues, feel free to connect with me on TwitterFacebookLinkedIn, or you can send me an email.

Starting a Business in Arizona

Little Waitrose - Birmingham Snow Hill - Colmore Row - Now open - sign by Elliott Brown from Flickr (Creative Commons License)

Little Waitrose – Birmingham Snow Hill – Colmore Row – Now open – sign by Elliott Brown from Flickr (Creative Commons License)

Starting a business is exciting and can be overwhelming at times with everything that has to get done. I wish more business owners put more energy into creating structure within their business when they contemplate and launch their endeavors. It will save a lot of pain and frustration in the long run. If your plans for 2015 include starting a business, make sure these steps are on your to-do list in the first month or two of starting your company.

Discuss with your accountant what type of entity you should form. Every company needs an accountant. In Arizona, you have the option to create a C corporation, an S corporation, a B corporation, or an LLC. I tell all my clients to meet with their accountant to make sure they select the right entity and understand the corresponding tax implications and other responsibilities.

Check with the Arizona Corporation Commission and the U.S. Patent and Trademark Office to ensure that the name you want for your business is available. Many companies make the mistake of assuming that just because the website domain they want is available that their desired company or product name hasn’t been registered as a trademark for another company. If you use a name that has already been registered by someone else in the same or similar industry, they can make you rebrand.

Submit the necessary paperwork and fee with the Arizona Corporation Commission. Consider filing your trade name with the Secretary of State’s Office as well. The forms to file your Articles of Incorporation or your Articles of Organization are on the Arizona Corporation Commission’s website. Make sure you get all the supplemental forms you need. The standard filing fee is $60 for a corporation and $50 for an LLC. The filing fee to register a trade name with the Secretary of State is $10. (Registering a trade name prevents other companies in Arizona from using the same name. It is not a substitute for filing a federal trademark.)

Create a separate bank account for your business and set up your accounting system. It’s imperative that you keep your company’s corporate veil intact. I strongly recommend using an accounting system like QuickBooks. It makes life so much easier when you’re reviewing your books and preparing for taxes.

If your LLC has more than one owner, create an operating agreement. If you have a corporation, write your bylaws. These documents will dictate how you will run your business, including how you will divide responsibilities and how you will address problems when they occur. They will help you decide in advance how you will address situations that are likely to occur.

Create the contract templates you will need for your business. If applicable, write the terms of service for your website. If you are going to be hire to provide a product or service by multiple customers, you will want to have contract templates for those interactions. This creates consistency and uniformity which will help you build your reputation as well as be more efficient. You can customize your templates to suit your needs. I encourage business owners to look at others’ templates for ideas of what they might want to include but be leery of using someone’s template unless it’s been reviewed by your lawyer.

Discuss what intellectual property your business will or might create and what strategies you will use to protect it. Every business has intellectual property: copyrights, trademarks, patents, and trade secrets. It’s often the company’s most valuable asset. It is important you understand what you have and the best ways to protect it.

Ideally, you would have a lawyer involved from the beginning of your business, if only to tell you what you should do and when you’re better off hiring a lawyer to work for you. Even if you’re on a shoestring budget, you can find a reasonably priced business lawyer or resources for startups to assist you. It’s also prudent to schedule an annual consultation with your lawyer to educate yourself about what legal issues might be on the horizon and to get advice about what more you should do to protect your business as you have the ability to afford it. It’s easier and cheaper to prevent problems than to clean up the mess when something bad happens.

If you want to chat with me about starting a business in Arizona, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

Please visit my homepage for more information about Carter Law Firm.

What is a Statutory Agent?

FW Pomeroy's statue of Justice atop the Old Bailey by Ben Sutherland from Flickr (Creative Commons License)

FW Pomeroy’s statue of Justice atop the Old Bailey by Ben Sutherland from Flickr (Creative Commons License)

If your plans for 2015 include starting a business, you need to understand what a statutory agent is.

Starting a business usually begins with filing paperwork with your state’s corporation commission to create an LLC or a corporation and paying a fee. (Talk with your accountant to determine which entity is right for you. And yes, every business owner needs an accountant.)

Filling out the paperwork is a fairly straight forward process, and part of that will be designating a statutory agent for the business. A business can be sued just like a person. In the event that the business gets sued, the process server will need to know how to serve the business. They can’t serve a building – they need to serve a person. Your statutory agent is the person who will accept service (notice that you’re being sued) on behalf of the company. You have to provide a name and a street address.

As long as you live in Arizona, you can be your own statutory agent. Most business owners I work with choose this option. The only thing I remind them about is this information is publicly available on the corporation commission website, so if you’re running a home-based business, you’ll be using your home address. For people who live out of state or who don’t want to be their own statutory agent, there are companies who will provide this service for you. You pay a monthly or annual fee and they agree to accept service on your behalf. Many of these companies will also provide your business address as well.

In the event you are in a position where you want to sue a company, you’ll have to look up that company’s statutory agent to determine where to have them served. It’s an important part of beginning a lawsuit.

A gentleman called me a few weeks ago asking me to explain what a statutory agent is. The phrase “statutory agent” can sound scary to some, but the scope of the position’s responsibility is very narrow.

If you want to chat with me about your business plans for 2015, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

Please visit my homepage for more information about Carter Law Firm.

Truth in Advertising – Deceptive Word Choices can be Costly

My Vibram Fivefingers by Lavender Dreamer from Flickr (Creative Commons License)

My Vibram Fivefingers by Lavender Dreamer from Flickr (Creative Commons License)

I’m sure you’ve heard about the class action lawsuit that claimed that Vibram misrepresented how its FiveFingers shoes benefited consumers’ health.  In the settlement, Vibram offered to provide a refund to any purchaser who requests it. Vibram created a site about the settlement that will provide information, including how to file a claim if you qualify.

Unfortunately, cases like this are not uncommon. I saw a similar article in the Wall Street Journal last week where Proctor & Gamble (makers of Crest) sued Hello Products for false advertising when Hello put a claim on its toothpaste that said the product was “99% Natural.” Hello was forced to remove ~100,000 tubes of toothpaste from store shelves, change the claim “99% Natural” to “Naturally Friendly,” and pay “six figures” for legal fees related to this case.

So how do you avoid these problems? It’s pretty easy – just be truthful.

Federal rules about truth in advertising require that all your advertisements be “truthful and non-deceptive.” If you make any claims, you must be able to back them up with evidence. If you have endorsements, they must be truthful and accurate, and you must disclose when a person is compensated for giving their opinion. (This includes getting free products.)

If you violate these rules, you might receive a cease and desist letter from your competition or the Federal Trade Commission which is tasked with protecting consumers. You could also be fined by the FTC, be sued for unfair competition and/or false advertising by another company, and/or face a class action lawsuit from consumers who claim that they were deceived into buying your product.

When you are working on your marketing campaigns, be careful that your marketing team doesn’t create content that crosses the line from mere puffery into false advertising. If you haven’t done so yet, review the FTC’s Truth in Advertising website.  They have useful information about required disclosures, using endorsements and testimonials, and making health or “green” claims about your products. If you have legal counsel, consider inviting them to your marketing meetings or at least have them review your materials to make sure that your team doesn’t inadvertently cross the line into false advertising.

If you want to talk more about truth in advertising, you can connected with me on TwitterFacebookYouTubeLinkedIn, or you can email me. There’s also a chapter dedicated to endorsements and blogging in my book, The Legal Side of Blogging: How Not to get Sued, Fired, Arrested, or Killed. You can also subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.

What was up with General Mills’ Legal Terms?

General Mills Kids Breakfast Cereals by Mike Mozart from Flickr (Creative Commons License)

General Mills Kids Breakfast Cereals by Mike Mozart from Flickr (Creative Commons License)

I got lots of messages last week when it came out that General Mills’ legal terms said that if you downloaded their coupons, connected with them on social media, entered a contest, or purchased any of their products that you agreed to resolve all disputes with the company through binding arbitration or informal negotiation via email.

And everybody lost their minds.

I can understand requiring arbitration for disputes related to contests. I write terms of service for websites all the time and I also include a dispute resolution where my client specifies where, how, and using which state’s law problems will be resolved. I would never tell a client to write their terms in a way that dictates how they’re going to resolve problems that are not related to a website.

I think it’s ridiculous that they’d even try to tell consumers that making a purchase forces them to resolve disputes in arbitration unless those provisions are available on the packaging and in print that might make a consumer take notice. I’ve never thought to examine a cereal box for contract terms.

Thankfully General Mills saw the light and reversed its decision and voided the offensive terms this past Saturday. In a blog post, General Mills spokesperson Kirstie Foster wrote, “No one is precluded from suing us by purchasing our products at a store, and no one is precluded from suing us when they ‘like’ one of our Facebook pages.”

General Mills still supports arbitration for resolving disputes and I understand why. It can be a faster and more cost-effective way to resolve problems. However, some disputes are better left to litigation where there is the option to pursue a class-action lawsuit when the situation warrants it.

We agree to contract terms all the time. Every time we click the “I agree” button for an online service or to create an account on a social media platform, we are agreeing to the terms of the contract (even if we don’t read the terms). The next time you go to a concert or a professional sporting event, flip over your ticket and read the fine print on the back. That’s a contract. I have no problem with these contracts as long as they make sense for the situation and don’t overreach into scenarios where it would be unreasonable for the terms to extend.

My Neighborhood Whataburger

My Neighborhood Whataburger

For example, I recently heard that there was a sign at a Whataburger restaurant that put consumers on notice that by eating in the restaurant, they agreed to resolve all disputes related to their dining experience via arbitration. I tried to confirm this but I didn’t see such a sign in my neighborhood Whataburger. I visited their website and didn’t see such a provision; however, I was perturbed to see terms and conditions that said:

By giving us permission to use your post or tweet, you agree that we may, at our discretion, use your real or social media user name and the content of your post or tweet (including all accompanying images) on our website to promote our company, products and services for such time period as we wish. You give us the right to edit your post or tweet for brevity, clarity and the like and to modify any image in any manner we deem necessary to use it on our website. You will not have the advance right to review or approve what we post on our website….You will not receive any compensation for granting us the above rights. We agree that you may withdraw the permission you have given us at any time by sending us an email at customerrelations@wbhq.com.

Whataburger’s Facebook page says they can use anything you post on their page but I didn’t see any similar verbiage on their Twitter profile. I think they’re trying to set themselves up so they can use anything you post about the company on social media, including editing it which I’m not too keen about the verbiage they used.

This is a topic that is worth watching to see what becomes the norm in social media marketing. I f you want to talk more about terms of service or social media law, connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. Please subscribe to the Carter Law Firm monthly newsletter and visit my homepage for more information about Carter Law Firm.