Year: 2019

8 Important Provisions Small Businesses Should Include in Commercial Leases – Intrepid Law

Are you considering leasing office or retail space for your small business? The terms of your lease can have a huge impact on whether your business succeeds or fails. There are several important provisions that should be considered before you sign on the dotted line.

Leases of a certain duration (usually one to three years, depending upon the state) are generally required to be in writing and signed by the party against which they are being enforced. In reality, it is advisable for all commercial leases to be in writing, regardless of their duration. They should clearly spell out certain terms that are of crucial importance, including the following:

(1) The leased space. Your lease should state exactly what space you are renting, including common areas such as hallways, restrooms, stairs, and elevators. The square footage of the space and how it was measured should be specified.

(2) Modifications to the property. If you need to make improvements or modifications to the leased space for it to work for your business, this should be spelled out in the lease. In addition, the lease should indicate who will pay for the improvements and who will own them at the termination of the lease.

If modifications must be made for the building to comply with the Americans with Disabilities Act, the lease should specify which party is responsible for implementing and paying for those modifications.

(3) Length of the lease. At first thought, a longer lease term of five or ten years may seem advantageous because it would guarantee that you will not be forced to move your business to another commercial space. However, it also binds you to a space your business may outgrow or that you find to be unsuitable for your customers or employees. For many businesses, especially new ones, a shorter lease term with an option to renew is more beneficial, as it will afford you more flexibility and impose less financial risk. However, if you plan to make a substantial amount of improvements to the leased premises, you should consider the pros and cons of a long-term lease to enable you to recoup the amounts you have invested.

(4) Rent. Obviously, you should make sure your business can afford to pay the monthly rent set forth in the lease. The lease should state not only the amount of the rent, but also how it is to be paid and what it includes: Does it include other charges associated with the property such as taxes, utilities, insurance, maintenance, and water, or is the landlord responsible for those expenses?

Commercial leases also often contain escalation clauses allowing the landlord to increase the rent by a certain percentage at specific intervals (for example, 3% per year) during the term of the lease. It is important to understand how the escalations are calculated and verify that they are acceptable for your business.

If the commercial space is damaged during the lease term, a rent abatement clause can limit your business’s risk by halting or reducing rent payments until damage is repaired. Some landlords try to create exceptions to rent abatement clauses when the damage is caused by the tenant or the tenant’s employee, but these exceptions should be avoided.

(5) Use. Ensure that you include terms specifying that the commercial space may be used for the type of business you intend to run. Further, make sure there are no restrictions on the use of the property that would be an impediment to your business.  If you intend to display a sign, use the sidewalk in front of the space, or play music, you should include provisions to that effect in the lease.

(6) Competition. If you think your business could be harmed if similar competing businesses are located nearby, include a provision restricting the landlord from leasing commercial space to those businesses in the surrounding area.

(7) Subletting or Assignment. A clause allowing you to sublet or assign your lease will give your business more flexibility by allowing you to sublet all or part of the commercial space to another tenant should you decide to change locations or include the lease in a sale of the business at some point in the future.

(8) Termination. An early termination clause specifies certain conditions under which the lease can be terminated early by the landlord, the tenant, or both parties. This type of clause can be beneficial, particularly in the case of a longer-term lease, because it allows you to avoid penalties or litigation if, for example, you are forced to close your business.

Give Us a Call

As business attorneys, we understand the importance of your commercial lease to the success of your business. If you are considering moving into a new commercial space, we would be happy to help you negotiate lease terms favorable to your business. We invite you to contact us to set up a consultation.

Business Insurance: Protecting Your Business From Unexpected Losses – Intrepid Law

As a small business owner, you have invested large amounts of time and money to make your business a success. Business insurance protects this investment in the event of unexpected damage to property or lawsuits, which could otherwise be devastating to your business. There are many types of insurance available depending upon the nature of your business.

Worker’s compensation insurance is required by state law for most employers. It covers the medical expenses and part of the wages of employees who suffer a work-related injury. There could be fines or even criminal penalties if your business does not purchase the required amount of coverage.

General liability insurance is a broad type of insurance that protects small business owners, their businesses, and their employees if a third party is injured by the business’s property, products, or services. It generally covers losses stemming from bodily injury, property damage, medical expenses, advertising injuries such as libel, slander, or misappropriation, and expenses from lawsuits. Additional coverage is usually available, depending upon the particular needs of your business.

Property insurance protects against loss of or damage to the business’s inventory, equipment, office space, and other business property in the event of fire, vandalism, theft, and some weather-related damage. Even if your business is home-based, this type of coverage is important, as homeowner’s insurance may not cover business losses. Additional coverage should be acquired if your business is located in a region prone to natural disasters, as the typical property insurance policy will not cover those types of events.

Professional liability insurance, also known as errors and omissions or malpractice insurance, protects your business against costs from lawsuits resulting from errors, malpractice, or negligence and is usually obtained by professional service providers such as doctors, lawyers, or architects.

Product liability insurance protects businesses that manufacture, design, distribute, and sell products against losses stemming from a defective product that causes harm or injury. If a customer sues you after being injured by a defective product, the insurance will cover a damage award to the customer and other costs of defending the lawsuit.

Employment practices liability insurance protects your business against costs from lawsuits for employment discrimination or wrongful termination claims brought by your employees. This type of insurance can be especially important for smaller businesses that do not have human resources or legal personnel.

Key person insurance protects a business against the lost business income that can result if the business owner or a key manager or employee becomes disabled or dies. The proceeds of the insurance can be used to keep the business afloat during the transition to a replacement, as well as to hire and train the replacement, pay employees, or implement other measures to compensate for the loss.

We Can Help

The types of business insurance discussed above, among others, can provide essential protection for your business. Failing to obtain the insurance your business needs could ultimately be much more expensive than the cost of the policies. However, determining which types of insurance your business needs can be a bit confusing.  Give us a call today so we can advise you about the best way to protect your business.

What Counts as “Hours Worked” Under the Fair Labor Standards Act? – Intrepid Law

If your small business has non-exempt employees covered by the Fair Labor Standards Act (FLSA), you are required to pay those employees in accordance with its minimum wage and overtime requirements for all “hours worked.” This may seem like a simple requirement, but figuring out what is considered “hours worked” may be more complicated than it seems at first glance. There are several activities that the U.S. Department of Labor has determined should be considered as work (and therefore compensable as hours worked) that may surprise you.

Waiting Time

Time an employee spends waiting may be considered work, but it depends upon the particular circumstances. If an employee is waiting while on duty or has been engaged to wait, such as a plumber who is waiting for the next service call or a firefighter who is playing a game of chess between emergency calls, this waiting is considered to be part of their hours worked under the FLSA. This is because such employees are not free to use the time for their own purposes; instead, the time waiting is controlled by their employer and is an important aspect of their job. In contrast, if a truck driver arrives at a destination at 12pm and is completely and expressly relieved from his or her duties until 6 pm, when the return trip is to begin, the off-duty time is not considered hours worked. Rather, the truck driver is free to use the time for his or her own purposes and is simply waiting to be engaged.

On-Call Time

On-call employees who must stay at the employer’s premises or so close that they are unable to use the time for their own purposes must be paid for the time spent on call, as it is considered a part of their hours worked. In contrast, on-call employees who are merely required to leave contact information with their employer so they can be reached are not working within the FLSA and thus are not entitled to be compensated in accordance with its provisions for that time.

Rest and Meal Periods

Many employers voluntarily provide short break periods (usually 20 minutes or less) for employees which are compensated as working time. These break periods must be included as part of the employees’ hours worked under the FLSA. However, if the employer provides a bona fide meal period (typically 30 minutes or more) during which the employees are completely relieved of their duties for the purpose of eating a regular meal, it is considered a rest period, and not as hours worked. This is true even if the employee must remain on the employer’s premises during the meal period.

Lectures, Meetings, and Training Programs

An employee’s attendance at lectures, meetings, training programs, and similar activities may be counted as working time. Such activities will not qualify as work time if all four of the following criteria are met: (1) attendance is outside of the employee’s regular working hours; (2) attendance is voluntary (the employee’s job would not be adversely affected by not attending); (3) the program is not directly related to the employee’s job; and (4) the employee does not perform any productive work during his or her attendance at the program.

Travel

Whether travel is considered “hours worked” depends upon whether the travel is an integral part of the principal activity the employee was hired to perform on the workday in question. Employees are generally not considered to be working during the time they spend traveling to and from their workplace. One exception is when an employee’s workday has ended, the employee is called back on duty, and is asked to travel a substantial distance back to a work site. The time spent traveling to and from the work site must be considered as hours worked. Similarly, if an employee, who usually works at a particular site, is given a special work assignment in another location, travel to and from the other location is considered to have been performed for the employer’s benefit and at his request. In those circumstances, the time spent traveling to and from the special work site is considered as working time under the FLSA. When an employee must travel as part of his principal work activity, for example, an appliance delivery man, that time is also considered as hours worked.

Sleeping

Employees who are on duty for periods of less than 24 hours are considered to be working even if they sleep or engage in other personal activities when not busy with work duties. For those on duty for 24 hours or more, the employer must pay the employee for sleeping time and include that time as hours worked in calculating overtime unless the parties have agreed otherwise. Even if the parties have agreed to exclude sleeping time from the employee’s hours worked, they may do so for no more than eight hours (if they agree to a sleeping time of more than eight hours, only eight hours will be excluded from working time, and the rest of the period must be considered in the calculation of hours worked). In order to exclude sleeping time from hours worked, the employer must provide adequate sleeping facilities, and the employee must be able to have an uninterrupted night’s sleep (at least five hours). If there are interruptions as a result of a call to duty, those periods must be included as working time—and the entire period must be included if the employee is unable to get at least five hours of sleep.

Time Suffered or Permitted to Work

Employees are entitled to be paid in accordance with the FLSA for all time suffered or permitted to work. This includes situations in which employees engage in work outside of their normally scheduled time without their employer’s express permission, but the employer is aware, or has reason to be aware, that the employee is doing so. For example, with the pervasiveness of smartphones, employees who respond to emails from home may be entitled to be paid for this time as hours worked.

We Are Here to Help

Violations of the FLSA can result in substantial fines. The examples discussed above are only some of the activities that may be considered hours worked under the FLSA. If you are confused about whether a particular activity should be considered hours worked in computing your employees’ compensation, we can help. Call our office today to schedule a meeting.

The Personal Guarantee: 5 Ways Small Business Owners Can Reduce Their Liability – Intrepid Law

Small businesses make a huge contribution to the U.S. economy. Nevertheless, starting a new business is risky. Lenders view loans to small businesses, particularly start-ups, as among the riskiest they make, particularly when there is little or no credit history or business revenue on which to base their decision. In an effort to lessen their risk, lenders frequently require small business owners to sign personal guarantees as a condition for giving the loan.  A personal guarantee is a legal commitment by a business owner to repay a business debt if the business is unable to repay it. These guarantees put the personal assets of small business owners on the line—savings accounts, cars, homes, and retirement funds. However, there are several steps you can take to minimize your liability.

  • Request limitations on when the guarantee goes into effect. Try to include terms allowing the personal guarantee to be utilized only once a certain number of payments have been missed or if the net worth of the business decreases below a specific amount.
  • Ask for the amount of the personal guarantee to be decreased over time as the business grows. Once your business has stabilized and established a good track record of creditworthiness, the amount of the personal guarantee could be reduced.
  • Seek a limited personal guarantee based on ownership percentage. Unless you negotiate other terms, lenders are likely to try to establish an unlimited personal guarantee. This allows the lender to collect 100% of the loan amount, as well as attorneys’ fees, from an individual business owner, even if there are multiple owners. It is important to avoid this “joint and several” liability, which allows the lender to recover the full amount from you if the other owners no longer have sufficient personal assets to cover the loan. Even if you only have a 50% stake in the business, you would be personally liable for the entire amount of the loan. Instead, seek to limit your personal liability based on your ownership percentage in the business.
  • Ask for certain assets, such as your home or retirement account, to be expressly excluded from the scope of the guarantee. Some states have homestead statutes that exempt primary residences from being sold to meet the demands of most creditors or limit the amount creditors can recover from the sale.
  • Agree to pay a higher interest rate–you may be able to eliminate or limit the need for a personal guarantee by doing so. It is important to evaluate the pros and cons of a higher interest rate, however, as the profits your business generates will be reduced by higher interest payments.

Note: Establishing a business structure providing limited liability, for example, an LLC, will not protect you from liability under a personal guarantee.

Conclusion

Lenders are likely to include terms in small business loans providing extensive personal liability. It is essential to seek legal counsel to explain the full ramifications of a personal guarantee before you sign on the dotted line. We can help you negotiate terms that will minimize your liability and maximize protections for your assets (and your credit rating). Call us today to set up a meeting.

What is the Difference Between an LLC and an LLP? – Intrepid Law

If you are starting a new business, the type of business entity you decide to establish will have an impact on the extent of personal liability, how the business is taxed, its management, the level of formality required, and many other factors. There are a wide variety of options, which can make this decision quite overwhelming. Limited liability companies (LLCs) and limited liability partnerships (LLPs) are two business forms that share some characteristics, but also have some important distinctions.

Similarities

  • Liability

LLCs protect members and managers from personal liability for the LLC’s debts and obligations, as well as for any wrongdoing or negligence committed by the other owners or the employees of the LLC. However, it will not protect members from their own negligence or wrongdoing committed in relation to the business.

LLPs provide similar protection from personal liability for the partners. Generally, the partners in an LLP are not personally liable for business debts and obligations. Thus, creditors of LLPs cannot reach the personal assets of the partners and are limited to the assets of the business. In addition, in most states, partners in an LLP are not personally liable for the mistakes or wrongdoing (negligence, malpractice, or misconduct) of the other partners. However, as is the case with LLCs, partners can be personally liable for their own negligence or wrongdoing. The nature and extent of liability protection varies depending upon the state in which the LLP is formed, so it is important to meet with us to verify the scope of the protection in your state.

Note: A limited liability partnership is different from a limited partnership: In a limited partnership, the managing partner(s) are subject to personal liability for the business’s obligations. To qualify for limited liability, the limited partners cannot play a role in the management of the business but must be merely passive investors.

In certain limited circumstances, a court may “pierce the veil,” holding the members or partners of LLCs and LLPs personally liable for business debts or obligations: This could occur when the business is merely the “alter ego” of the members or partners, the business form is used to perpetuate a wrong, or there is a need to achieve an equitable result.

  • Tax Treatment

LLCs are not typically taxed as a separate business entity; rather, the profits and losses pass through to the members, according to their percentage of membership interest in the business, who report them on their individual tax returns. Like an LLC, an LLP is not a tax-paying entity. Rather, its profits and losses are passed through to the partners according to their percentage shares in the business. The partners pay taxes on their shares at the individual tax rate.

By default, under IRS rules, LLCs and LLPs are treated as partnerships and must file a partnership information return. One exception to this is a single-member LLC, which is treated as a sole proprietorship (note that partnerships must have more than one partner) and does not have to file a partnership information return. Both LLCs and LLPs can elect to be taxed as an S or C corporation if they meet certain qualifications.

  • Formalities

Both LLCs and LLPs avoid the extensive recordkeeping and operating requirements imposed on corporations. LLCs typically must file articles of organization providing basic information about the business with a state or local agency and pay a filing fee. This is the act that creates the LLC in most states.

Partnerships are created automatically when two or more individuals engage in a business enterprise for profit. However, partnerships that elect to become LLPs must typically file a registration form with their state’s secretary of state to acquire status as an LLP and enjoy limited liability benefits.

Both entities may also have to file an annual report with the state. Regardless of which entity you choose, we can help you make sure you are meeting your ongoing responsibilities to the state.

Differences

  • Business Purpose

Some states limit the use of LLPs to businesses offering professional services, such as lawyers, accountants, or doctors.

LLCs, on the other hand, usually can be formed for any type of business. In fact, many states allow LLCs to be formed for any lawful purpose, that is, a specific business purpose is not required. However, a few states prohibit certain licensed professionals from forming an LLC, and others require professionals to form a special kind of LLC called a professional limited liability company.

Because the law varies by state, it is essential to work with us to ascertain the types of entities your business is permitted to form.

  • Management

In most states, LLCs can elect to be member managed, or the members can designate or hire one or more managers, creating a manager-managed LLC. All the members can participate in the management of a member-managed LLC, although they may choose to alter these rights and responsibilities in their operating agreement. Only managers can manage the operations of a manager-managed LLC. If the articles of organization do not specify that the parties have elected a manager-managed structure, state LLC statutes generally default to a member-managed LLC.

In an LLP, all the partners can participate in the management of the business, as is the case in a general partnership. Unlike an LLC, there is no option to hire an outside manager.

We Can Help

The factors discussed above are only a few of the important considerations relevant to choosing the right structure for your business. The decision about which type of business entity to form is a complex one that will depend on your particular circumstances and the goals you seek to achieve. We can provide guidance about the type of business structure that will work best for you. Please call us today to set up a meeting.