This is our blog, where we post stories, insights, and (hopefully) interesting content for everyone to enjoy. Alec is the primary author of all of these posts, he posts about every three weeks. If you have any questions about anything you read, please don’t hesitate to contact us for more information.
Settling Disputes with Your Business Partner
October 2, 2019 — Auz Burger
Conflicts are bound to happen in any relationship, including those with business partners. When these happen, you need to handle them carefully in order to avoid the partnership breaking down completely. Often these disputes are about the way the business is managed, allegations of misconduct, allocation of resources, or an imbalance in the workloads; these are just a few examples. So, what should you do if you and your business partner have a dispute that needs to be settled? Here are some tips to help you if you get into a dispute.
Before you enter into a business partnership, you should sit down with your partner and a lawyer and draft up an agreement that clearly outlines everyone’s expectations and obligations in the business. You can include in the agreement the steps you should take if there is a dispute so that even conflict resolution is spelled out in advance. In addition to explaining what should be done during a dispute, another thing that should be included is what happens if a dispute cannot be reached. If that occurs, it may be prudent to include an option that one partner can buy out the other for a set price.
Sometimes you really need a third party to listen to the dispute and help you come to an agreement. A mediator is trained to handle disputes and having one step in during a conflict can often help you come to an agreement much faster than trying to simply sort it out yourselves. They know what is needed to make sure each side is fairly heard, and that the outcome is a good compromise that makes both parties happy. Sometimes when you are in a conflict it can be hard to see a side other than your own. This is why bringing in a mediator is a great way to help you resolve disputes with your partner.
This is one of the key factors in any conflict resolution. Before you decide to go to any more drastic measures, try sitting down with your business partner and discussing what the problem is from both sides. Actively listen to each other and be respectful. Each side has a turn to speak without being interrupted, then you ask each other questions and discuss things, addressing the issues you each have; focus on the solution and how to get there instead of dwelling on the problem. Both sides need to be willing to compromise, and often an agreement can be reached from simply talking to each other. Make sure that whatever agreements are reached in the dispute are written out, in case you need to go over the document again in the future. Try to avoid taking the dispute personally, that can make it harder to see your partner’s side of the conflict and hamper attempts to find a compromise.
Consult with Your Attorney
If you have tried negotiations and mediation and the conflict remains unresolved or gets worse, you may need to seek legal counsel to settle the matter. Reaching out to legal counsel sooner than later will help prevent things from getting too ugly. Your lawyer can help you determine what to do based on the terms that are in your partnership agreement. If you end up having to consult your attorney, you can discuss the need for a civil suit. If this is necessary, the civil suit can help to take control of the business from one partner or force a buyout.
Red Flags to Look for When Buying a Business
September 5, 2019 — Auz Burger
It is easier to buy a small business than it is to start one from the ground up, because the business already has equipment, inventory, employees, customers, and a — hopefully good — track record. When you look at it like this, it all sounds great, right? There are still risks involved in buying a small business that you need to watch out for, so you do not end up buying a ship that is already sinking.
Take a look at their discretionary income, which is the amount of money the owner makes after paying the business expenses. While the books may show that all expenses are being paid and business is consistent, the discretionary income may be declining. If it has been declining, that is a serious warning that the business may be in trouble.
If the discretionary income is less than you can live by, you also may want to reconsider purchasing the business. Putting yourself in a position that you know will cause you to struggle is going to cause you unnecessary stress.
Another red flag with the discretionary income is if the owner is not being forthcoming with you about the numbers, they may be attempting to hide accounting problems or something funny with the money.
When you are buying a business, it is important to talk to the existing employees — especially any leads or managers. This can give you a good idea about the culture of the business. Try to find out if the employees are happy, what their complaints may be, and if they plan to stick around after the business changes hands.
Talking to the employees can also give you a better picture of any skeletons in the business’ closet that the current owner does not want to share. If the business was ever a crime scene or had legal problems, you need to know, and the employees can help you learn about these things. You may learn the real reason the owner wants to sell the business, assuming they were dishonest with you about their reasons.
Bad or Old Equipment
Is the equipment getting old and starting to fall apart? Does the furniture look like a 70s reject? If your answer to either of these is “yes,” you need to discuss this with the owner.
Sometimes, when someone decides to sell their business, they stop bothering to invest money in it to keep the equipment running smoothly and help the business keep growing. Looking at the expenses over the last 12 months can help you determine if anything is being neglected. When looking at the expenses, do not just focus on equipment, also see if other parts of the business are being neglected, like advertising and staff training or hiring.
If you need to replace or repair equipment or furniture right away, you may end up having some big expenses on top of what you are paying to buy the business. You may be able to negotiate replacing the equipment as part of your purchase contract, but you need to know it needs replacing first. Talking to the employees can help with that too. They are the ones who use the equipment every day, so they know all of its quirks and problems.
The Dos and Don’ts of Moonlighting Your Startup
August 9, 2019 — Auz Burger
Many entrepreneurs begin their startup businesses while moonlighting a day job. While this is a common occurrence, and it helps keep your cash flow going until your startup is off the ground, it is important that you be cautious about Intellectual property (IP) laws. This is something that can break your startup before it even gets off the ground. Here are a few dos and don’ts to help you navigate IP laws while getting your startup off the ground.
Do: Hire a Business Lawyer Early
Getting your startup off the ground can be difficult, so hiring a lawyer, in the beginning, is a good way to help you navigate getting your startup running. Make sure you hire the right lawyer. Hiring a litigation lawyer or one who practices family law is not going to be the best fit for you. Look for a lawyer that handles business law, startups, IP, or something else along those lines. Those lawyers know what they are doing and are the best suited to help you.
Do: Read All Agreements Related to Your Current Employer
Most employers will make you sign several documents when you are hired, and many people simply sign without paying much attention to the content. All of these documents are intended to protect your employer by making sure you do or do not do certain things.
When you decide to begin moonlighting your startup, you need to sit down and read every single document you have from your employer before you begin your side project. Having a lawyer go over everything with you is also a good idea, because they can help you determine what you can and cannot do, in terms of your startup.
Some employers will include in these documents that any inventions you create while under their employment, even on your own time and with your own resources, are the property of the employer. You may be able to get a written release from your employer so that they cannot claim ownership of your inventions. Even if this is not included, you may still want to ask your employer for something in writing that says they will not attempt to claim ownership of your product.
If you determine that you need some sort of permission from your employer to work on your project, make sure it is an amendment to the current agreement, not a simple document. Making it an amendment gives it a better legal standpoint for if you have trouble with your employer later on.
This is why it is vital that you have your lawyer go over the documents with you, so they can advise you on your best course of action in this instance.
Do: Make a Clean Break
Leave your employer as early as you can, and make sure you make a clean break. The longer you stay with your employer while working on your startup, the stronger their legal claim can potentially get. Try to leave on amicable terms; if your departure from the company gets ugly, the employer may attempt to claim ownership out of spite.
Don’t: Use Your Employer’s Equipment or Time
If you use company time or equipment on your side project, your employer may attempt to claim the rights to your IP. Even if you have finished all of your work for the day and have a couple of hours to kill before you are off work, do not touch your project when you are on the clock. Anything that is linked to your employer in any way, including a work laptop, phone, or email address must stay away from the project.
Working on your side project on the company’s time or equipment can give your employer an opening to claim ownership of your project.
Don’t: Ignore Securities Laws
When you begin your startup, you need to make sure you follow securities laws, because if there is an error in them, it can harm your investment opportunities down the road. Wait to begin looking for investors until you are truly ready to, and make sure you have a good lawyer to help you with this. If you do not follow the securities laws, you will run into trouble when looking for bigger investments.
Don’t: Use Your Employer’s IP to Benefit Your Project
Moonlighting your startup can be tricky. IP is the biggest difficulty here, because if your product is too closely linked to your employer’s, they may be the owner of the IP, not you. This will especially come into play if you are going to be competing directly with that employer. It is important to be cautious here and make sure you have not copied any IP from the employer.
This does not just include products created by your employer, but even things like customer lists or pricing options could be considered your employer’s property, depending on your employment contract.
You can still use the knowledge and skills you have gained from your employer for your project. This is much different than using their confidential information for your project.
There can be a fine line between the general knowledge you have acquired and what your employer considers confidential, so that is important to keep in mind. Consulting your attorney can help you determine where the line falls in certain cases.
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