Archive for the ‘Basics’ Category

Partnerships, LLCs and Corporations may not be represented by Owners

Written by Michael Pisauro on August 2nd, 2010 in Basics, Corporations, Courts, Limited Liability Company | No Comments »

The other day while researching an issue I came across a case that required noting.  It is not a new case but it discussed an issue I have come across several times over the last year.  If you are a partnership, corporation, or limited liability company, you cannot represent the business in Court.  All business entities must hire an attorney to represent the business in Court, with few exceptions.  This is a requirement set out by the New Jersey Supreme Court in the Court Rules.  R.1:21-1.

That means that if your partnership, LLC or corporation is owned money from a customer, you as an owner of that company cannot file a lawsuit in Court.  That means if your company is sued, you as an owner of the company, cannot file an answer on the company’s behalf.  If you do file a complaint or answer on behalf of the company, and for some reason the Court allows it, you could spend months if not years in litigation just to have the judgment voided by the other side because your company was not represented by an attorney.

As I noted above there are a few limited exceptions to the general rule.  One of the exceptions apply in cases under worth $3,000 or less and which could have been filed in small claims.  There are two exceptions that apply to municipal court.  In all of these exceptions the company could be represented by an authorized officer or employee.  Lastly, a partner of a general partner, not a limited partnership, can represent the business in summary actions for possessions of property.

Can you prove your independent contractor is not an employee?

Written by Mike Pisauro on April 22nd, 2010 in Basics, Contracts, Employee/Employer | No Comments »

In 2005 there was estimated to be over 10 million people operating as independent contractors.  Small, medium and large companies all use independent contractors to remain competitive and to grow their businesses but understanding the differences between an “independent contractor” and a regular “employee” is neither easy nor trival to the business. It is an area that is riddled with traps for the unwary. According to a Department of Labor study, approximately 38% of small businesses misclassify employees as independent contractors.  The problem is not limited to small businesses. Even large, more “sophisticated” companies, such as Microsoft, Federal Express and Wal-Mart, for example, are not immune to this error.   Given the current market conditions, it may be even more important for a business to get the classification correct.  Tax revenues for all levels of government are down while budget deficits are up.  In an attempt to bridge this gap, the Federal government and state governments are going to be taking a closer look at how companies classify their human resources.

There are many reasons why this classification is often hard to get right.  Realize that just because you, the employer, think of the person you hired as an independent contractor,  the contract itself might state that he or she is  an independent contractor and even the person thinks of themselves as an independent contractor but that doesn’t necessarily mean that they really are  an independent contractor. Furthermore, a person may be an independent contractor under one set of laws but will be considered as an employee under another set of laws. The tests to determine whether a person is an employee or an independent contractor may be different depending on whether it is for taxes, compliance with discrimination laws or the operation of respondeat superior or some other law.  At least for the purposes of determining whether the right taxes have been withheld it is up to the company to prove that the person was properly classified as an independent contractors and should not have been considered an employee.

New Jersey uses the “ABC” test for unemployment responsibility and hour and wage requirements.  NJSA 43:21-19.  Under this test it is up to you, as the employer, to prove that the relationship is that of an independent contract and not that of an employee.  Specifically the state would look at the following:

A.  Is the person now and continues to be free from the control and direction over the performance of the job?  This condition not only has to be in a contract but must be what occurs in fact.  If the actual practice is different than what is set forth in the contract, the contract will have little weight.

B.  Are the services either outside the usual course of the business or performed outside your physical location?  Does the independent contractor work in your office space or do they work from their own location?

C.  Is the individual customarily engaged in an independent established profession or business?  Are you the independent contractor’s only job or does the indepenent contractor perform work for several other companies?

The business must be able to prove that independent contractor meets all three prongs of the ABC test and it is important that a business gets the decision right. Failure to meet all requirements could result in the payment of all back taxes, penalties and interest.  Such ramifications could transform a company from a success to barley surviving or worse.  It may even open the business owner to personal liability for the back taxes.

As a business owner, it is crucial that you fully understand the differences between a true independent contractor and an employee.  You must fully understand what need you are trying to fill by the proposed relationship and then structure it to adequately meet your proposed business need so in order to avoid possible issues in the future.

The legal ramifications to businesses for employees texting while driving.

Written by Mike Pisauro on April 16th, 2010 in Basics, Employee/Employer, Liability | No Comments »

A couple of days ago a post that Glenn Gabe and I wrote was posted over at Search Engine Journal. That post, How Texting and Driving Could Destroy Your Business [With Legal Analysis], looked into the impacts on a business from its employees texting while driving.  In case you did not know in NJ ( and several other states) using your cellphone without a hands free system is against the law.  That means no texting; no instant messaging; no browsing the web; sending and reading emails; or downloading an app for that.   Please go over to How Texting and Driving Could Destroy Your Business [With Legal Analysis] and read the article.

Do you know when your contracts end? It may not be when you think.

Written by Mike Pisauro on November 4th, 2009 in Basics, Contracts | No Comments »

We are rapidly reaching the end of the year.  It is probably as good of a time as any to take some time aside from running your business to take a look at your future by taking a look at your past.  What do I mean by that?  Well over the last year or so, you have probably signed many contracts for your business.  You may have signed a contract for janitorial services, a lease on your office space or office equipment.  You may have signed a contract to supply you with widgets to be incorporated in the products you sell to your customers.

You should review these contracts and look at when the contracts will end.  Are you close to the end of the contract?  Even if your contract says it will end on December 31st, that does not mean it will has to or will end on that date.   Many of these contracts will have a renewal clause in them.  These clauses allow the contract to be extended under certain circumstances.  There are at least two different kinds of renewal clause.

One type of renewal clause provides that you can extend the contract.  The clause will likely provide for the length of the additional term of the contract as well as the price increase of for the new term.  In order to be effective you must take an affirmative action to renew the contract.  You must notify the vendor in writing that you wish to extend the contract.  For these types of contracts you have to decide at some point prior to the expiration of the contract whether the price increase built into the renewal clause is more or less than what you could get a new contract with a different vendor.  Obviously if the renewal clause is less than what a new contract would cost you, you would renew the contract.   If the renewable price is greater it is either time for a new vendor or at least a discussion with your current vendor to renegotiate a contract.

The second type of renewal clause is the automatic renewal.  This type of clause provides that the contract will automatically renew if you do not take affirmative steps to inform your vendor that you do not want the contract to renew.  Again you must send a letter to your vendor and notify them that you do not want to renew the contract.

Both kinds of renewal clauses usually have a deadline by which you need to act.  This deadline can be days before the end of the contract or it can be several months before the end of the contract.  You need to know this date.  There is nothing worse to find out that your contract renewed and you are stuck paying more for something than have to because your contract automatically renewed.  Taking a few minutes today can save you lots of the money in the future.

Starting and Running Your Own Business

Written by Mike Pisauro on July 29th, 2009 in Basics, Entity Formation | No Comments »

Back in June I and Rebecca Machinga, an accountant, gave a presentation on Starting and Running Your Own Business: Legal and Accounting Issues for Your Business.  I have upload a copy of my presentation on the legal issues to consider with starting and running your own business.  I hope you find it useful, but remember it or any other document is not a substitute with consulting with professional on your particular needs and situation.

Seminar on starting your own business

Written by Mike Pisauro on May 29th, 2009 in Basics | No Comments »

On June 16, 2009 at 7p.m. I will be holding a seminar dealing with how to start and run your own business.  The seminar is being co-sponsored by the Pennington Business and Professional Association.  It will be held at the Pennington Borough Hall.  We will be discussing the choice of entity type (sole proprietorship, partnership, corporation, or limited liability company), contracts, leases, and other common legal issues of small businesses.  In addition to the legal issues, Rebecca Machinga a partner with WithumSmith & Brown will be discussing common accounting issues involved with selecting your business structure and running your business.

If you plan on attending, I would apprecitate it if you sign up at the Pennington Business & Professional Association’s website.  Registration is free.  If you have any questions regarding the seminar you can contract me at mlp (at) fplegal.com.

HINDSIGHT AND FORETHOUGHTS ON CONTRACTS

Written by Mike Pisauro on April 20th, 2009 in Basics, Contracts | No Comments »

There is a common misconception that most business owners seem to have regarding the collection of customer owed debts. Many times a business owner has come to me because their business is owed a couple of thousand dollars from a customer or two or more and they want to sue those customers in order to recover the money. The owner either cannot afford or is unwilling to write off the bad debt. Maybe they had to borrow money in order to meet their obligations under the contract; or perhaps, since the debtor has not paid, the business owner had to borrow money to cover expenses that would otherwise have been covered.

Sometimes there is no contract or after reviewing the contract, I have bad news for my client. Yes, the business owner has a good case. But that several thousand dollar debt will likely take several months or longer and may cost several thousand dollars in attorney fees to resolve in court – and that does not even take into account collecting on the judgment. The client is also not entitled to interest on the outstanding debt until a judgment is received. Lastly, the Court will not order the debtor pay the costs associated with the litigation.

Not surprising, we follow the American rule wherein each party pays its own costs associated with the lawsuit. Obviously, no business owner wants to hear that client is also not entitled to interest on the outstanding debt until a judgment is received. Lastly, the Court will not order the debtor pay the costs associated with the litigation.

Not surprising, we follow the American rule wherein each party pays its own costs associated with the lawsuit. Obviously, no business owner wants to hear that pursuing the debt may cost more money and that, in the end, the money collected will be reduced by attorney fees and costs. The delinquent customer may even cost the business owner more money in the form of interest they had to pay to borrow money to keep their own vendors happy and their business afloat. In essence, these interest payments reduce that judgment even more. Even if the business owner did not have to borrow money, at the very least, they would be unable get the use of the money owed until it is paid by the debtor. So while they may have won the case, at the end of the day you must really ask did they really win?

If you knew all of the above before you signed the contract, what could you have done differently? In the ideal world, you would have gotten paid up front but, as we all know, we don’t live in an ideal world, so what is the backup plan? In the real world, we must insist that all business relationships be made and conducted in writing. If you can’t afford not to get paid, make sure that the transaction is committed in writing – i.e., a contract.

Now, how can a contract be prepared that will protect you in case your customer does not fulfill their obligations? Along with the many concepts that need to be addressed in a contract, there are two that should be included to ensure that the scenario described above doesn’t happen. First, the contract should provide that, if the customer does not fulfill their obligations and you have to sue them, they must pay the costs of your attorney as part of your damages. Second, if payment is not received by you on the due date (and maybe any grace period) the outstanding debt will begin to accrue interest.

These are just two very common concepts that you should consider in any contract you enter into. There are many more concepts that should be addressed in your contracts. Which concepts and how they should be addressed are dependent upon what you are selling/buying, relative strength in negotiations between the parties, and the nature of your business. If you are unwilling or unable to write off the bad debt from a transaction, it is a transaction that is important enough to warrant consulting with an attorney so that you will be protected in the event of a disagreement or the other side’s failure to perform. To borrow from the old adage, an ounce of prevention may save you thousands of dollars later.

A little bit of forethought on constructing the appropriate contracts for your business can save you a lot of regret in hindsight.

The article above is a reprint from my first newsletter from July 2006, but a conversation over the weekend made me think it would be useful to post it in the blog.

There is more to it then picking a name you like

Written by Mike Pisauro on January 15th, 2009 in Basics | No Comments »

There are multiple steps a business owner must make before the first time the doors of the business can open.   One of those steps is naming the company.  It used to be in the process of forming the company, the lawyer or business owner would check with the State of formation/incorporation to see if the desired name was available.  States were the business was likely to do regular business would also be checked.  If the name was available, then the lawyer or owner would form the company by certificate of incorporation or formation with the State.  Things have changed somewhat and I believe that merely checking with the state(s) to see if the name is available is not enough.

When you consider your company’s name you should also consider at the same time whether you can get the company name or a very similar name as you domain name for your company.  For example my firm is named: Frascella & Pisauro, LLC.  and our domain name is: fplegal.com.  If you want to name your company XYZ Consulting, Inc. and that name is available with the State of New Jersey but is not available to be registered as your domain name because someone already has it, then maybe you should re-think your company name.  The internet has become a huge avenue for creating awareness for your company and its ultimate success.  By taking a domain name that it is not the same as or similar enough to your company name you are making it hard or confusing for customers to find your company.  As you begin you new venture you should minimize the hurdles to success, so check domain name availability as well as State availability.

Consumer Fraud Act- The Basics

Written by Mike Pisauro on December 22nd, 2008 in Basics, Consumer Fraud | 1 Comment »

The Consumer Fraud Act (CFA), NJSA 56:8-1 et seq.  is a very powerful law and one which business owners need to be aware of. In New Jersey, the CFA applies to persons who, in general, sell products to consumers. That is a very broad definition and it applies not only to individuals but can apply to a business as well.

Generally, a “consumer” is defined as any person or business that purchases products for their own use.  This does not include persons or businesses that purchase products to incorporate into their own products, nor does the act cover businesses that buy objects for resale.   (I will discuss further who is covered by the statute in a later post).

Specifically, the CFA prohibits:

the act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment suppression, or omission of any material fact, with intent that others rely upon such concealment, suppression or omission, a connection with a sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been mislead, deceived or damaged thereby, is declared to be an unlawful practice.  NJSA 56:8-2.

There are three categories of CFA violations: affirmative acts, omissions and regulatory violations.   For affirmative acts and violations of regulations, it does not matter whether the business made an honest mistake.  For example, the Courts have found that a realtor’s statement as to which section of town the property was in was a violation of the CFA – even though the Realtor honestly believed in the statement she made.  In another case, an advertising agency accidently omitted the odometer reading on vehicles in an ad and, since this is contrary to state regulations, the agency was found to be in violation of the CFA.   This is one aspect of the law that makes it so powerful and so very important to be aware of.

Acts of omissions, on the other hand, must include proof that the business intended to mislead the consumer.  Therefore, as an example in the realtor’s case, if the realtor never told the plaintiff that the property was in a specific section of town, the plaintiff would have had to show that the realtor knew the property was not in the particular section of town requested and that the buyer based their decision to purchase the property on this incorrect information. Further, since the realtor omitted the information regarding which section of town the property was in order to encourage the buyer to buy, the realtor may have committed a violation of the act.

What are the penalties for violating the CFA?  Upon demonstration of an ascertainable loss, the person is entitled to treble those damages.  Additionally, the Court is required to award attorney fees and costs.  Even if a plaintiff cannot show an ascertainable loss, if they can prove a violation of the act, the plaintiff is entitled to attorney fees and costs.  The trebling of damages and the award of attorney fees and costs is not discretionary but is required under the statute.  It is always possible that the damages caused by the violation of the CFA could, even if trebled, quickly be overshadowed by the award of attorney fees and costs.

In short, every retail business (and many other businesses, as well) should become familiar with the Consumer Fraud Act and any regulations governing their business.   By being familiar with these laws a business can, at least, minimize the risk of finding itself trying to avoid a claim under the Act.