Business Legal Services for Entrepreneurs Legal Services of Eastern Missouri Community Economic Development Program December 8 & 10, 2015 © Legal Services of Eastern Missouri, Inc. 2015

© Legal Services of Eastern Missouri, Inc. 2015 This presentation is for general information only. The information presented is not legal advice, and your use of it does not create an attorney-client relationship. No recipient should act on the basis of any content included in this presentation, including the audio and visual parts, without seeking the appropriate legal advice from counsel. © Legal Services of Eastern Missouri, Inc. 2015

Program Overview Free business legal assistance to Existing businesses AND Start-ups Range of legal issues Entity formation Commercial leases Employment Contracts Intellectual property

Program Overview Benefits to Businesses Services offered Avoid time-consuming, potentially devastating problems Help business grow Services offered One-on-one legal representation Business legal workshops Legal counseling

Topics covered Maintaining your legal entity Regulatory requirements Hiring and firing Protecting your intellectual property Commercial leases and other contracts

Choice of Legal Entity Operate as sole proprietor/partnership? OR Form separate legal entity, e.g., corporation or LLC? Factors to consider Who has formed an LLC or corporation? Have people say Ask reasons why people formed one or the other Be prepared to explain basics on each form based on liability, taxation, ongoing obligations, ease of getting investments or loans

Choice of Entity – Considerations Liability Taxation Ability to raise $ Ongoing requirements and fees Management and ownership of business Ability to transfer ownership

Main types of legal entities Sole Proprietorship Partnership Corporation S Corporation Limited Liability Company

Business legal structure –what does it mean? Independent entity, separate from owner/s No personal liability Draw picture on board – sole p and pship vs. llc and corp

A few details on LLCs Formed by filing Articles of Organization with the state (currently $50) Few on-going formalities: no stock certificates; no board of directors; officers are optional No personal liability if done correctly (is like corporation)

LLC (cont’d) Owned by members Flexible ownership and management structure Managed by members or a manager chosen by members Pass-through taxation if single-member Briefly mention corp and s corp

Protect your legal entity Adequate capitalization Separate bank accounts Uses business name on all marketing materials Somewhere must show full legal name (e.g., Opaque Glass Co, LLC) Can have a separate DBA (“doing business as”)

Protect your legal entity If LLC, must have written operating agreement Required by law with 2+ members If corporation Board of directors must meet at least 1x/year Shareholders elect directors Maintain minutes File annual/semi-annual reports

Protect your legal entity Contracts must be in the name of the entity itself (never your name): This agreement is made December 10, 2012 by Opaque Glass Co., Inc. and Transparent Window Awning Co., LLC (or Transparent Window Awning Co., Inc.) by which . . . . .

Protect your legal entity -- contract signature Sign with business entity’s name, not your name Transparent Window Awning, LLC By: _________________ Name: [Tom Jones] Title: [Chief Executive Officer]

Maintain adequate insurance General commercial liability policy Depending on type of business Auto insurance Product liability insurance Professional liability insurance for services businesses Coverage for home-based businesses Way to protect against personal liability for a sole proprietorship or partnership

Sales/Use Tax If selling a product or service at retail, must obtain a sales tax license and collect sales tax If storing, using or consuming property must obtain a Vendor’s use tax license Required to post a bond, amount based on estimated monthly sales

Sales/Use tax – bond requierments Secure funding for the bond with Cash Surety bond from an insurance company Letter of credit from a bank Certificate of deposit

Employment Anti discrimination laws Employee vs. independent contractor Policies and procedures terminations For anti-discrimination: Federal: Title VII of the Civil Rights Act of 1964 applies to businesses with 15 or more employees State: Missouri Human Rights Act = businesses with 6 or more employees. Can have personal liability

Employee v. Indep. Contractor Pivotal Question: Who has the right to control when, where and how work is completed? Employer has right to control how the work is performed Independent contractors choose method of completing work 20

Employee v. Indep. Contractor Major Factors to Determine: Who supplies equipment? Who determines when person works? Regular salary? Hourly? Based on project deliverables? Duration of employment Right to discharge 21

Employee v. Indep Contractor See Missouri and IRS 20 factor test at: http://labor.mo.gov/DES/Employers/reportable.asp#notreport

Employment Policies and Procedures Employee handbook Discipline Regular performance evaluations

Employment - Terminations “At will” relationship: can fire anyone for any reason as long as it is not an illegal reason BUT…

Employment - Terminations Before termination, consider: Prior notice for unacceptable behavior Reasonableness of policy and fair application Adequate investigation Proof of policy violation Progressive discipline 3rd person present in termination meeting

Intellectual Property Trademarks Copyright Trade secrets Patents Websites

Trademark Word, symbol, and/or design used to identify and distinguish a product service or business from others Must be non-generic Identifies source of good or service KODAK ®

Trademark Trademark – used with products ™ BIG MAC, Coca Cola Servicemark – used with services (SM) Hertz (rental car services) Facebook

Trademark Types of trademarks Word marks (NIKE) Slogans and tag lines (just do it) Stylized words (Coca cola) Logos, designs (apple icon) (note, just the design is protected)

Trademark Types of trademarks (cont’d) Colors, sounds (T-Mob jingle), smells (perfume) Trade dress – design of product or package

Trademark (protecting your mark) Notice: use “TM” “SM” or ® State vs. Federal Must actively enforce rights Cease and desist letters Renewal every 10 yrs with USPTO

Trademark Avoiding Infringement on Other’s Marks Do not duplicate existing trademarks Search US Patent Office web site (www.uspto.gov) and the internet to determine if there are existing trademarks in that name Letters from other businesses claiming trademark infringement must be taken seriously

Copyright Original artistic or intellectual expressions fixed in a tangible medium (e.g., curriculum, books, computer programs, databases) Gives business/individual exclusive right to control the use, distribution, adaptation, display and performance of the work 33

Copyright Copyright created automatically Add © or “copyright” and the year (e.g., “copyright 2012”) Can register with Library of Congress

Copyright Practical Tips Avoid infringing others’ copyrights: Generate your own pictures, images and marketing materials Do not copy software When in doubt seek a license Fair Use not an infringement Amount used Purpose and nature of the use (educational generally okay) 35

Copyright If contractor prepares materials, have him/her assign ownership of materials to business

Copyright & Trademark For more information on copyright see: http://www.publiccounsel.org/tools/publications/files/fairuse.pdf For more information on trademarks and copyrights see: www.http://ggmark.com

Trade Secrets Information that has independent economic value because it is not generally known to other people Examples: recipes, client lists, business information, software code Non-disclosure agreement

Patents Right to exclude others from making, using or selling an invention Two principal types Design patent: what the product looks like Use patent: how the product works

Patents cont. Limited duration Involves filing and maintenance fees If you think you have a patentable design or invention only share it with legal counsel

Websites Have a written contract with web designer/host Use own pictures and other material Can put links to other websites on your site

Work for Hire Who owns intellectual property created for the business? Business if created by employee Individual if created by independent contractor Can change these default rules by written agreement

Commercial leases Total economic costs Other essential terms that could impact the business Do not rely on verbal promises from landlord or landlord’s attorney

Lease Agreements Essential terms (required by MO law): Identification of the parties Description of the property Rent Term of lease Include name and address. Remember to use corporate name for liability shield. LL must include his/her name and address as well as manager’s if there is one Don’t just use address. Spell out what T has exclusive control over, parts of common area T can use, and parking (e.g., nonexclusive use to use halls, stairs, elevators, restrooms, other common areas and access points) Term of lease means duration – start and end date. Lease may be effective before term of lease begins. Date of termination must be clear or could become tenancy at will or year to year. If property is unfinished and/or needs substantial improvement lease should state that term begins when property is ready for occupancy rather than specifying a date.

Lease Agreements: Economic Factors Space—confirm sq. footage, delivery date Security deposit Rent

Lease Agreements: Rent Base Rent (Formula? $/sq. foot; % gross sales) Additional Rent Other costs (e.g., utilities, property taxes, insurance, maintenance) Look out for vague language -- “costs of managing and operating the building . . .” Annual increases in multi-year leases (specify how increases are calculated) Re: additional rent. Often see an “escalation clause” allowing for increased rent in correlation with LL’s increased operating costs. TIP: try to get as much specificity as possible with additional rent. Could ask for estimated range of cost increases and propose a cap

Rent (cont’d) Specify when rent due Late fees, if any When first and last payments are due Place of payment When rent due – custom in MO is one mo in advance

Economic Factors (cont’d) Insurance often required General liability Casualty to protect personal property Improvements Often requires LL approval Who pays? Removable fixtures Maintenance/repairs – who covers expensive items? Pre-existing environmental problems T has no obligation to insure the property and LL has no obligation to rebuild after a fire, flood or other casualty. Leases often contain these clauses. Want a clause allowing for rent abatement while LL rebuilds. RE: repairs. Typically LL responsible for structural repairs and Tenant for non-structural. Who responsible for snow and ice removal? Re: environmental problems, if have question about property want LL to include a representation that t here are no problems (e.g., asbestos, hazardous substances)

Lease Agreements: Flexibility Change in use Assignment -- right to sell business Sublease Extend term Agree on rent or formula to calculate rent for extended terms Notice to LL often required Expand space Option to purchase Assignments and subleases --- need LL written consent if lease term is less than 2 yrs. If longer, freely assignable. HOWEVER, often lease will still require written consent If sublease LL may want any profit T collects Extend term—may require notice to LL by certain time. Could be automatic renewal unless T gives notice or onus on T to provide notice to renew

Lease Agreements: Other Important Terms Right to refuse to lease other space --e.g., no competing businesses Termination Events of Default Subordination (to mortgage or other lien) Personal Guaranty Default – notice not required by law. Try to negotiate notice so T has chance to cure default. Spell out what constitutes default (e.g., failure pay rent or make repairs, use property illegal way or use not specified in lease, LL mortgaging or selling property, T fail comply with other promises in lease. LL fail to provide services stipulated in lease Personal guaranty often required unless can show corp’s financials can perform tenant’s obligations during lease term

Lease Agreement: Default by Tenant LL can ignore default Give Tenant notice, take possession and relet Terminate lease

Lease Agreement: Termination If tenant stays after end of lease, terms of lease apply Who keeps fixtures? Unless lease states otherwise Fixtures left for LL or T must remove. Depending on business, if large amount invested in fixtures could be costly for T if LL keeps. Best to spell out what T gets to take, what must leave for LL

Lease Agreements -- Tips Consult an attorney If LL has an attorney, do not rely on him/her If business is a legal entity, sign with corporate name Put lease in writing Law requires it if longer than 1 year or if term is other than month to month If legal entity, sign as follows: ABC Corp, Inc., a MO corporation. Then name and title e.g., John Smith, President If lease is just oral, will be deemed month to month. Also, if circumstances change (e.g., landlord sells to new person), that person might not follow understood agreement you have had with original LL)

Contracts May be oral or written Advisable to put agreements in writing Clearly describe terms of agreement Avoid “piercing the corporate veil”

Contracts Why Make a Contract? Written Agreement: Less room for misunderstanding Helps identify and resolve differences Legally enforceable: Protect yourself from unfair business practices Clearly articulate business terms

Certain Agreements MUST Be In Writing Purchase of land Goods specifically manufactured for the buyer Sale of good greater than $500 Contracts that cannot be completed within one year Goods specifically manufactured: Tshirts for a nonprofit fundraiser event Oh yes, and marriage

Key provisions Breach and termination Remedies for breach Term and any renewal term Representations and warranties Reps – induce one to enter into contract e.g. house purchase agreement make rep as to age of roof. In purchasing a business, may want reps that there are no outstanding taxes or liens, no unpaid debts Warranty mostly with goods, that they will not be defective for certain period of time

Contact information Laurie Hauber, Program Director and Staff Attorney Ebonie Reed, Staff Attorney Legal Services of Eastern Missouri, Inc. Community Economic Development Program 4232 Forest Park Ave. St. Louis, MO 63108 314.534.4200 ljhauber@lsem.org