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Monday, April 10, 2017

What Does "Goodwill" Mean When Buying a Business?

Goodwill is an asset that is an intangible part of a business being purchased. In spite of its intangibility, goodwill may be worth more than concrete assets, such as property, buildings, machinery or inventory. Goodwill is the essence of the company's value to its customers, clients, and employees and, as such, is invaluable to any buyer. It is easier, as many people intending to purchase a business will tell you, to maintain goodwill than to establish it, since, among other things, goodwill takes time to build. Purchasing a business that already has established goodwill in the community can give the new owner a strong competitive edge. 

What Intangible Assets Compose Goodwill? 

Prospective buyers and sellers should be aware of the various aspects of goodwill. Not all will apply to every business, but aspects of goodwill include:

  • Brand name
  • Solid customer base
  • Good customer relations
  • Good employee relations
  • Patents or proprietary technology
  • General reputation
  • Future sales projection

Goodwill is a saleable asset, presumed to generate sales revenue and customer continuity. Having been established over years of honest and efficient behavior by the previous owner, it is transferable to the buyer, assuming the buyer maintains the pre-established excellent business practices.

How Is Goodwill Established?

As mentioned, goodwill can only be established over a period of years during which it is nourished and maintained. In business, it is assumed that expenditures have been involved in creating and preserving goodwill. Steps taken to do this include: 

  • Healthy and continuous investment in promotion
  • Maintenance of necessary quantity of high quality customer supplies
  • Support of excellent relationships with both customers and suppliers
  • Maintenance of efficient and respectful management and employees relationships
  • Establishment and maintenance of corporate identity and image
  • Keeping up an appropriate location

How Is Goodwill Evaluated?

There is no set price for goodwill, though it very definitely features in sales negotiations. Generally speaking, goodwill is reflected in the amount in excess of the firm's total value of assets and liabilities. In well-established businesses, goodwill may be reflected in a price several times higher than the firm's physical assets alone would be reasonably worth.

There are several complex methods by which business goodwill can be calculated so it is essential to have a highly competent business attorney involved in the negotiation process. 


Monday, March 27, 2017

Use of Non-Disclosure Agreements

As a small business owner, it is essential to protect sensitive information that is often referred to as trade secrets. While some well known examples of trade secrets include the formula for Coca-Cola and Google's algorithms, any business information such as practices and techniques, processes and procedures, needs to remain confidential. In some cases, business data such as client and vendor lists may qualify as a trade secret.

Although trade secrets and other confidential business information are protected by state and federal laws, it is crucial to secure this information through the use of a confidentiality or non-disclosure agreement. In sum, this is a legal contract between two or more parties in which the party receiving the sensitive information agrees not to reveal it to any other party without prior permission or authorization.

In situations in which a business engages with vendors or enters into a strategic alliance with a similar business, a separate, stand-alone agreement can be used. Similarly, confidentiality provisions can be incorporated into an employment agreement for employees who are given access to sensitive business information. In either case, common provisions included in these agreements include:

  • A definition of the confidential information (but usually not the protected information itself)

  • An explanation as to why the information is being provided to the receiving party

  • Terms under which the information may be disclosed to appropriate parties (such as on a need-to-know basis)

  • The circumstances in which the information may or not be used

  • The duration of time  the information must be kept confidential

In order for a non-disclosure agreement to be enforceable, it must be deemed fair. A court typically looks to whether an agreement is overly restrictive in making a determination of fairness. If the contract is unduly burdensome to the party receiving the information, a court may find all or part of the agreement invalid. If the information has already been revealed to a third party and the agreement is deemed to be invalid, a business may be barred from recovering damages for its losses. For this reason, it is crucial to consult with an experienced business law attorney who can help to prepare a well designed non-disclosure or confidentiality agreement.

 


Monday, March 6, 2017

Employment Contracts in a Nutshell

The contemporary workplace has become increasingly complicated as many businesses are governed by a wide range of state and federal employment laws. Moreover, the relationship between employers and employees has also become more complex, particularly as the work force becomes more diverse. For this reason, business owners should consider utilizing employment contracts to clarify these associations.

While such agreements may not be necessary across the board, they are well suited for executives, sales people, or those who have either a decision making role or an ownership interest in the business. As such, the first element of a comprehensive employment contract is a description of the employee's duties and the duration of employment.

Obviously, an employment contract should specify the salary that is being paid as well as any work-related benefits: bonuses, vacation pay, health insurance, expense accounts, stock options and retirement plans. The contract should also clarify whether the employee is working at will and the grounds for termination. It is important to note that an employee who is fired for reasons not stated in the agreement may have grounds for a wrongful termination lawsuit.

Depending on the nature of the business, it is also necessary to protect sensitive information with confidentiality provisions. In particular, it is crucial to protect trade secrets, such as formulas, designs, practices, client lists or any other information that is generally not known to the public. Moreover, employees should be notified that all work product is owned by the business. Similarly, if the entity has relationships with independent contractors or freelancers, it is important to clarify that anything they produce is on a work-for-hire basis.

In addition to confidentiality provisions, it may also be necessary to include a non-compete clause clarifying that an employee will not accept a similar job with a competitor in the geographical region for a specified period of time.

In the end, there are a number of benefits to utilizing employment contracts. In addition to helping to retain key employees and minimize the costs of training new people, employment contracts give a business control over performance standards. Further, these agreements provide protection against the potential misappropriation of trade secrets and other intellectual property. Ultimately, these agreements help to clarify the rights and obligations of both the employer and the employee. By engaging the services of an experienced employment law attorney, a business can put in place a well designed employment agreement.


Monday, February 27, 2017

The Benefits of Incorporating in Safe Haven States

Many business owners believe it's best to incorporate in their home state, but there are often business and tax advantages available in other states. In particular, Delaware and Nevada are attractive to those who are looking to form a corporation. These so-called corporate haven states are considered to be business friendly.

The State of Delaware is well regarded for its supportive business and corporate laws, said to be among the most favorable in the United States. In addition, the state has a judicial body, the Court of Chancery, that is dedicated to business matters. This exclusive focus allows the court to hear cases quickly and efficiently.

Delaware also features a government agency that is focused on supporting businesses, the Division of Corporations. In particular, this agency has streamlined procedures for incorporating that allow businesses to hit the ground running. The Division boasts long hours and provides new businesses with easy access to important resources.

Lastly, the tax law in Delaware is amenable to corporations. A corporation that is formed, but does not conduct business, in the state is not liable for corporate income tax. Moreover, there is no personal income tax for those domiciled in the state or for shareholders that do not reside in Delaware.

Nevada is the second most popular state in which to incorporate. The state's business law affords favorable treatment to corporations. In particular, owners and managers of a corporation are rarely held responsible for the actions of the corporation in the state. Nevada also offers advantageous tax treatment to corporations with no personal income, franchise or corporate income tax.

Depending upon the exigencies of your business,  incorporating in Delaware or Nevada might be the best alternative. By engaging the services of an experienced business and tax law attorney, you can take advantage of these corporate safe havens.

 


Monday, February 20, 2017

Employment Discrimination Laws in a Nutshell

There are a variety of state and federal laws that make it illegal for employers to discriminate based on certain characteristics when making decisions about hiring, terminating, promoting, demoting or compensating employees, or any other terms and conditions of employment. Employers are also barred from retaliating against employees who file a discrimination-related complaint or engage in other protected activities. While the laws vary from state to state, all employers have an obligation to adhere to the following federal laws.

Title VII of the Civil Rights Act of 1964

This law prohibits discrimination in the workplace based on race, color, national origin, religion and gender. Title VII also established the Equal Employment Opportunity Commission (EEOC), the government agency that is tasked with investigating employment discrimination claims.  Before an employment discrimination lawsuit under federal law can be brought, it is necessary to file a claim with the EEOC. Title VII applies to employers with 15 or more employees.

Age Discrimination in Employment Act (ADEA)

The ADEA prohibits employers with 20 or more employees from discriminating against individuals who are 40 years or older and their age cannot be used as a factor in any employment decision.

The American with Disabilities Act (ADA)

The ADA prohibits employers with 15 or more employees from discriminating or harassing disabled employees and requires employers to make reasonable accommodations that will enable a qualified disabled worker to complete his or her job functions.  

The Pregnancy Discrimination Act (PDA)

The PDA prohibits discrimination based on pregnancy regarding any aspect of employment in businesses with 15 or more employees. Women who are temporarily unable to perform their jobs due to pregnancy must be treated similarly to other temporarily disabled workers. The ADA may also protect a woman who suffers from a pregnancy related medical condition.

The Bottom Line

In sum, employers are prohibited from discriminating against employees and potential job candidates because of race, religion, sex, age, disability, pregnancy or national origin. Not only can violations lead to financial penalties, a discrimination lawsuit can damage a business' reputation. By engaging the services of an experienced employment law attorney, you can establish policies and procedures to ensure that your business is in compliance with these laws.

 


Monday, February 13, 2017

Why Your Business Needs an Email Policy

In the contemporary workplace, email is an essential and efficient form of communication. Whether it's used internally among staff members, or for exchanges with vendors and customers, email is a necessary business tool. At the same time, misuse of this technology can expose an organization to legal and reputational risks as well as security breaches. For this reason, it is crucial to put a formal email policy in place.

First, an email policy should clarify whether you intend to monitor email usage. It is also necessary to establish what is acceptable use of the system, whether personal emails are permissible, and the type of content that is appropriate. In this regard, the policy should prohibit any communication that may be  considered harassment or discrimination such as lewd or racist jokes. In addition, the email policy should expressly state how confidential information should be shared in order to protect the business' intellectual property.

By having employees read and sign the email policy, a business can protect itself from liability if a message with inappropriate content is transmitted. Further, it personal emails are not permitted, employees are more likely to conduct themselves in a professional manner. Because personal emails tend to be more informal and unprofessional, these messages pose a risk to the company's image if they are accidentally sent to customers. Lastly, email that is used for non-business reasons is a distraction that can adversely affect productivity.

The Takeaway

In order for a policy to be effective, it is necessary to provide training to all the employees, enforce it consistently and implement a monitoring system to detect misuse of the email system. Ultimately, establishing formal email policy and providing it to all employees will ensure a business remains productive and efficient. If an employee violates the policy, a company will also have the ability to take disciplinary action. Lastly, a well designed policy will ensure the company's image and brand is protected.


Monday, January 23, 2017

What is Pre-bankruptcy Credit Counseling?


Today, individuals who are seeking relief under Chapter 7 or Chapter 13 of the Bankruptcy Code are required to complete credit counseling with an agency approved by the U.S. Trustee's office. The purpose of pre-bankruptcy credit counseling is to determine if the debtor qualifies for bankruptcy or whether an informal payment plan is a better option.

In any event, credit counseling is necessary even if a payment plan is not feasible.


Read more . . .


Monday, January 16, 2017

What is Wrongful Termination?


Many individuals who work hard to earn a living may not realize that they work "at will." This means they can be fired without good cause, or without any cause at all. While there are legitimate reasons an employee can be fired, such as layoffs, poor performance, or violating a company policy, an employee who is fired due to unlawful considerations may be the victim of wrongful termination. While the law varies from state to state, these claims can be hard to prove. Let's take a look at the general grounds for a wrongful termination lawsuit.


Read more . . .


Monday, January 9, 2017

An Overview of Foundational Corporate Documents


There are a number of steps involved in forming a corporation from selecting a name, obtaining the necessary licenses and permits, paying certain fees, and filing foundational documents with the appropriate state agency. While an attorney can help prepare and file the required papers, the owners, officer and directors should have a basic understanding of these documents.

Articles of Incorporation

The first underlying document is the Articles of Incorporation which states the corporate name, and the  purpose of the business. This is typically a generic statement to the effect that the corporation will conduct any lawful business in the state in accordance with its objectives.  In addition, the type and amount of stock that will be issued (common or preferred) must be established.
Read more . . .


Monday, December 26, 2016

How to Rebuild Credit After Bankruptcy

Bankruptcy is often a last resort for an individual struggling with keeping current on rent payments. This does not mean that bankruptcy is the end of a person’s financial life. Quite the opposite; it is a new beginning. It takes 7 to 10 years for a bankruptcy to be erased from a person’s credit report. In the meantime, it is important to take steps to rebuild credit.

The most important thing that a consumer can do to improve his or her credit is to practice responsible spending habits. Maintaining a budget and making sure that all monthly payments are made on time is crucial to re-establishing credit worthiness. It takes 7 years for a delinquent payment reported to a credit agency to be removed from a credit report, so it takes consistent payments over that long period of time to clear a credit report of all delinquencies. People should invest in saving after their bankruptcy to avoid falling into dire straits again in the future.

It is also important to check your credit report for any problems or mistakes. If a debt had been discharged and it still appears on your credit report as delinquent, it may be a violation of the Fair Credit Reporting Act. Errors or mistakes can damage your credit even further and should be disputed. Credit reports are available annually for free from each of the credit reporting agencies, TransUnion, Experian, and Equifax.

In order to re-establish credit after a bankruptcy, a consumer might need to apply for a secured credit card. This credit card requires a deposit of money with a bank as a guarantee of payment. Usually, this security collects interest. It also helps to open a new checking or savings account. After a few months of responsible spending, applications for credit cards may come in. Obtaining a second credit card will improve a consumer’s credit rating, but it is important to pick a card that will not tempt the holder to splurge unnecessarily. A gas card can help an individual repair his or her credit while effectively preventing bad shopping habits common with other cards. The balances on the cards should be paid off in full every month and the cards should not be closed. Together, payment history and total amount owed against available credit make up 65 percent of an individual’s credit score.


Monday, December 12, 2016

Federal Trademark Registration

There are many advantages to registering a mark with the United States Patent and Trademark Office (USPTO).  A licensed trademark can provide “constructive notice” to customers on a national basis.  Moreover, if there is a lawsuit, a valid registration can be used to substantiate or prove ownership of the mark. 

A trademark is used to inform customers of the source of the items that are being sold. The “source” of the goods or services denotes the company or business that is associated— generally the seller or manufacturer.  Trademarks are implemented and enforced to prevent confusion among customers in intrastate and interstate commerce.  For example, if two businesses sell the same type of product, one brand may sell better quality; the other may sell knockoff goods.  The trademark associated with either brand will indicate and alert the customers to the type of quality and goodwill of the particular company. Both factors play a substantial role in a company’s sales and revenue production.   

To prevent conflict, it is essential to conduct a trademark search prior to filing an application. Without  a search, there is a risk of great expense in the future.  For example, if another business in the same industry files a lawsuit claiming a similar trademark, and that business wins the case, the defendant may be obligated to alter any merchandise that lists the prohibited trademark.  When all is said and done,  sued company may not survive. 

Trademark searches can be very complex because they involve a thorough analysis of registrations under both federal and state law. It is possible for an entity to have legal rights to a mark, even if it is not registered.  These are typically called “common law” unregistered marks.  Therefore, a search will often surpass the information listed on the USPTO’S “Trademark Electronic Search System” (TESS) database. 

On the other hand, if goods or services are being offered by a third party under a similar mark, but the goods or services are very different and the industries are separate, then two similar marks may be allowed to exist simultaneously.  Furthermore, if a trademark application has been denied, an attorney can initiate an appeals process with the administrative board.  The “Trademark Trial and Appeal Board” (TTAB) is charged with the task of reviewing the case.  

Even if a trademark is granted, it is often necessary for an attorney to enforce the mark against others who attempt to usurp the mark.  For example, an attorney can draft and send a “cease and desist” letter to any entity using the contested trademark for its business.  If the entity does not stop using the mark, a lawsuit can be filed. In dealing with trademark issues, it is important to consult with a competent business attorney to prevent future litigation and unnecessary expenses, and help ensure future prosperity. 


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