Month: June 2019

LLC Management: Who Should Run the Shop – Intrepid Law

Determining who will manage the day-to-day affairs of your business is an important decision. You need to know, at the outset, who will manage operations, both for the success of your business and because the Limited Liability Company (LLC) operating agreement demands it. Luckily, LLC operating agreements are very flexible and the management structure can be tailored for your business.

  • An LLC can be managed by its members or by one or more managers.
  • The management structure may be comprised of designated members, non members, or a combination of both members and non members.
  • The management structure need not be a group; a single individual (member or non member) can be appointed to manage a manager-managed LLC.

Given the flexibility and wide range of choices, it can be challenging to decide what type of management will work best for your LLC.  Here are some points to consider.

Member-Managed LLC

In a member-managed LLC, all the members share the responsibility for the business’s day-to-day operations. Business decisions for the LLC are usually made through a voting process described in the operating agreement. Unlike a corporation, there is no board of directors in a member-managed LLC, but officers may be appointed. Although most attorneys do not recommend a member-managed LLC, this type of “flat” management structure may work for:

  • Smaller LLCs in which all members can and will work in the business
  • LLCs with simple ownership structures
  • Members who get along and work well together

It is important to note, if both the articles of organization and the operating agreement of an LLC are silent on management structure, most state LLC statutes default to a member-managed LLC.

Manager-Managed LLC

In a manager-managed LLC, a single manager or a team of managers oversee the day-to-day operations of the business. Although LLC members do not control the day-to-day operations of the business, they usually retain the right to replace a manager. It is crucial that the operating agreement address the members’ rights to hire and fire managers.

The manager-managed LLC is more complex than a member-managed LLC and is usually a better fit for more complex LLCs. This type of management structure works well for:

  • LLCs with members who only want to be passive investors with no involvement in the LLC’s operations
  • Larger LLCs that require a team focused on management activities
  • LLCs offering complex goods or services in which a manager’s expertise is required

In most states, the articles of organization must specify the manager-managed structure to avoid the default member-managed LLC structure.

Changing LLC Management

The operating agreement should specify the process for changing the LLC’s management structure. The LLC members typically must vote to approve the change, usually requiring a super-majority vote. Once approved, an amendment to the articles of organization usually must be filed with the secretary of state’s office to record the change.

Conclusion

Choosing the LLC’s management structure is an important part of the business planning process. Thorough, well-drafted formation documents—the articles of organization and operating agreement—are central to ensuring your LLC is structured the way you want at the outset, yet flexible enough (by a super-majority or unanimous vote of the members) to accommodate changing business needs.

We’re happy to work with you to understand your business needs and ensure your LLC’s articles of organization and operating agreement work together to cover your LLC’s management goals. Contact us now for a consultation.

Legalized Marijuana: What Every Employer Needs to Know – Intrepid Law

The marijuana industry is huge and growing. In 2018, the legal marijuana sales topped $6 billion industry in Colorado alone according to data from the Colorado Department of Revenue, and it has been identified by many analysts as one of the fastest growing industries in the United States.

To date, 40 states and the District of Columbia have legalized either medical marijuana or recreational marijuana, or, in some jurisdictions, both. But the federal Controlled Substances Act still categorizes marijuana as a Schedule 1 drug, which means selling less than 50 kilograms of marijuana is punishable by up to five years in prison and a $250,000 fine. This disconnect between state and federal laws raises a lot of questions for business owners for which there are few definitive answers.

The issues surrounding legalized marijuana use are new and just being sorted out by the courts and legislatures—each state will resolve them differently. Here is what business owners need to know about marijuana now.

Marijuana Use During Working Hours

Under current law, employers do not have to allow employees to use marijuana at work. Of the 40 states that have legalized some use of marijuana, around half of them have passed statutes providing that employers do not need to accommodate marijuana use on their premises during work hours. Some of those statutes go one step further and provide that employers may discipline employees if they are discovered to be under the influence of marijuana, even if the employee is using it lawfully under state law. While four other states have been silent on the issue, no state has expressly stated that marijuana use must be permitted on an employer’s premises during work hours. Employers can rest assured that they can continue to maintain drug-free workplaces under present law.

Marijuana Use During Non-Working Hours

What about using marijuana during non-working hours and off company premises that may result in a positive drug test? Courts in Arizona, Delaware, and Minnesota have held that a positive drug test is not enough for an employee to be terminated. By contrast, courts in California, Montana, Oregon, and Washington have held that employers can have a zero tolerance policy, meaning they can terminate an employee simply based on positive drug test results. Other state courts have not yet had the opportunity to interpret this issue.

Takeaways

As laws continue to change and more states allow marijuana use for medical or recreational purposes, employers must continuously monitor and update their policies. Employers must also remain aware of and in compliance with any notice requirements for employee drug testing. Despite the changing legal landscape around marijuana, employers can have faith in the fact that, to date, courts have generally been empathetic to employers who want to protect the safety and drug-free nature of the workplace.

If you have any questions about how your state’s marijuana laws affect your current policies, give us a call. We can help you develop or revise employment policies to ensure they comply with current federal and state requirements.

Does the “Corporate Veil” Really Protect Your Personal Assets – Intrepid Law

You may have done your homework and weighed your options. Perhaps you’ve even considered the tax and non-tax implications for common business entities.  We bet you’re also intrigued by the protections certain business entities afford their owners. The “corporate veil” that protects personal assets of the business owners can make a corporation or limited liability company (LLC) look very attractive.

To many, the word “veil” conjures up a sheer, flimsy, ethereal piece of material—perhaps fluttering behind a beautiful bride.  And yet, this same term is used by many business owners to describe the personal asset protection provided to owners of a corporation or LLC. Of course, with the right strategy you can make your veil much stronger than the one worn by a bride.

Here’s what you can do to make your veil puncture proof.

Corporation and LLC Asset Protection Background

Corporations and LLCs are statute-created business entities, meaning they have been created by the legislature of your state. Courts view corporations and most LLCs as distinct entities, separate from the people—the owners—who comprise them. For this reason, the owners are not held personally liable for the business debts . . . unless a court decides to “pierce the corporate veil.”  “Piercing the corporate veil” involves the court disregarding the entity’s separate status and holding its owners liable for the business debts, putting the owner’s personal property on the line.

Bottom line: When the veil is pierced, you can lose personal assets (your home, car, bank accounts, or more), even if you did nothing wrong.

WARNING: The smaller and more closely held the business, the more intensely the court will scrutinize it. Small business owners must pay particular attention to this issue.

How to Make Your Corporate Veil Strong

Corporations and LLCs are excellent business entity choices for protecting the owner’s personal assets from creditors. But the protection is only as good as the commitment to operate the entity as a proper business entity. Here are some specific business practices you should consider implementing if you have not already done so.

  • Uphold all statute-mandated formalities.
  • Keep business funds in separate bank accounts from personal funds.
  • For business transactions, always use the business’s full legal name and sign all documents in your formal capacity.
  • Follow the corporate bylaws or LLC operating agreement and amend them when necessary.
  • Make sure the business is adequately capitalized.
  • Ensure the business and all related parties comply with all applicable rules, policies, and laws.

This upkeep is essential to maximizing the protection the corporation or LLC provides to its owners. If you are relying on a corporate veil to protect your personal assets, make sure that veil is made of Kevlar®.

How We Can Help

We are here to help your business meet all of the formal statutory requirements to protect your corporate veil and offer additional guidance. With our expertise and experience, you can leave the compliance headaches to us and focus on what matters most to you, growing your business.

The Business Plan – Intrepid Law – Business Lawyer

Operating your business without a business plan is like going to the grocery store hungry and without a list.  You end up with a lot more than you need—a lot more than you even want—in your cart.  And you’ve likely upset your budget for the week.  A few such carefree adventures and your budget is out of balance for the month or even the year.

To help keep your business on track, you need a business plan. A business plan is an annual strategy exercise, detailing the business’s financial and funding information, its products or services, competitive research and analysis, marketing plans, sales plans and projections, and information about the key people and their roles.  No matter the size or legal structure of your business, the discipline of writing and maintaining a business plan brings structure and organization to the business and validation and motivation to the owners. This can be an especially important exercise for the entrepreneurial spirit.  But this tool can only work for your business if you dedicate the time to write a business plan and calendar it as an item for annual review and updates.

Structure and Organization

The mere exercise of writing out the details of your business and seeing them in print can reveal unnecessary duplication in some areas and gaps in others.  With this information, you can reallocate resources as needed.  Proactively addressing these structural issues before they manifest as problems keeps your business running smoothly and efficiently.  Additionally, businesses need cash to survive.  Planning and forecasting each year is critical to understanding how sales and expenses affect cash flow.  Finally, a business plan can keep you on track with long-term goals when tempting and unanticipated opportunities arise.

Validation and Motivation

Over time, comparing your business-plan forecasts with your results will provide the data you need to validate business decisions—including the updates to the business plan itself.  Whether the business is meeting its targets or falling short, having your “hands in the data” on a regular basis means you can spot trends and take action.  For example, consistently hitting sales targets may mean it’s time to evaluate an expansion campaign or to re-evaluate and trim the marketing budget.  Consistently falling short of sales targets may mean the goals are too ambitious or perhaps the sales team needs an additional resource.  Working with fresh data provides you with the opportunity to take timely corrective measures.  If the data reveals an issue, it’s much less overwhelming to correct a slight deviation in course than to be forced to re-chart the entire course. On the other hand, when the data reveals growth, striking while the iron is hot to capitalize on that growth fuels the business with positive momentum.

Next Steps

Your business plan needs to cover a wide breadth of topics in thorough detail.  The Small Business Administration provides an excellent starting point for collecting the necessary information and beginning the writing (or updating) process:

When you begin to write or update a business plan, consider your audience.  If the business plan will be an internal document, you may be able to handle the process yourself.  Consider consulting with your business planning attorney and your tax professional to gather and discuss some of the necessary information.  If the upcoming business needs include financing, additional investors or owners, or anything else that may include an external review of the business plan, the business plan must be extremely well prepared, with information relevant to the decision process.  In this case, you may want to consider hiring a professional business plan writer to take your draft to the next level.

Companies that have written business plans tend to perform better.  Writing and maintaining a business plan can be challenging work, but the benefits greatly exceed time and effort.  While some business owners are comfortable writing their own business plans, many business owners discover significant benefits after working with a business planning professional.  We provide business planning services for the complete business life-cycle, including shaping initial ideas, deciding upon and implementing the right legal structure, crafting a comprehensive business plan, and more. Give us a call today so we can discuss the next steps to getting your business plan underway.

5 Key Benefits of a Well-Written Job Description – Intrepid Law

Although the main purpose of a job description is to, well, describe a job – it actually serves a much bigger role.  In fact, a job description can improve a company’s ability to manage employees in many ways. A well-written job description will do the following:

  1. Clarify expectations. Employers need to spell out their expectations of what an employee should be doing on a day-to-day basis.  Providing a clear description of tasks ensures that both employers and employees are on the same page and prevents misunderstandings of what needs to be done and when.
  2. Provide structure. Organizations must ensure that their needs are being met on a company-wide basis.  Job descriptions provide the discipline and structure a business needs to make sure all necessary duties and responsibilities are assigned.  They enable an organization to allocate and manage roles in a uniform way which increases efficiency and effectiveness of recruitment, training and development, organizational structure, workflow, and customer service.
  3. Enable fair pay scales. Most employers assign pay scales, or grades, to jobs.  A transparent system which provides a “salary range” can ensure that those within the same, or similar, job functions are compensated fairly and logically across the board.
  4. Identify skill sets and training needs. Job descriptions can help employers gauge skill sets to understand who knows what, who doesn’t, and what types of training and development to provide employees.  It can also be helpful in succession planning and career advancement for employees.
  5. Set a standard for performance review. Job descriptions allow employers to identify what has, and has not, been achieved since an employee’s last performance review.  Many employers base merit increases on job performance linked directly to a job description as it provides objectivity for appraisals, performance reviews, counselling, and disciplinary issues.

A good job description is easy to create.  In a nutshell: keep it simple, describe the actual duties, and leave it at that.  Consider the following task identified in a job description:

Monitor office supplies and order replacements when stock runs low.

There’s no room for interpretation of what’s expected in the above.  Sadly, many employers try to wordsmith a bit too much and fall back on corporate speak to “jazz” things up a bit.  Here’s another example of the same job description, but written differently:

Systemically integrate office material processes and facilitate cooperation and synthesis to achieve corporate goals.

It’s fair to say that we’ve all seen job descriptions like this.  Using corporate speak simply doesn’t help anyone.  Say what you mean and everyone will understand what’s expected. Also, keep job descriptions fairly generic so you don’t have to continually update them and so the tasks described are general enough to achieve business needs.  The following tweak to our example would be entirely too specific:

Monitor office supplies on Tuesday afternoon at 2 pm and order more when needed using Form Number xyz and then submit to Mary Smith.

As business attorneys, we can help you craft job descriptions that can benefit employees and the company as a whole – especially when workflows or processes change and a job description becomes outdated. Give us a call today, we are here to help.