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How to Issue Equity to Employees in a Startup?

The majority of startups will reward early hires with the company for taking a risk and joining the team by providing them with equity. After all, startups are difficult and come with a myriad of expensive, difficult and mundane issues that you need to be aware of to handle and succeed.

Equity To Employees In Startup

One area that can be quite troublesome is tax and legal issues related to issuing equity to your employees. The way you should issue equity to your earliest employees will depend on a number of factors. In most cases, it is best to consult with a business law attorney to make sure you are structuring everything in a way that keeps the best interest of your employees and business in mind.

Here you can find a few guidelines to keep in mind when you are thinking about how to issue equity to your startup employees.

What are the goals of the company?

Is your company poised for quick growth and an IPO or huge exit? Or, is there a good chance you are going to remain privately owned so you can grow more organically as time passes? This is a consideration that will play an essential role in determining how to issue equity to your workers.

There are several options to provide equity compensation depending on if your company is a S corporation, C corporation or limited liability company. In corporations, equity compensation is most common; however, there are ways LLCs can use this, too.

The liquidity of the shares is closely related to the overall goals of your company. If your company is going to enter IPO or acquisition, you will need to raise outside capital. For a company that is going to grow organically, there is less liquidity.

How is equity issued?

In a corporation, equity is typically provided as restricted stock or stock options. In each situation, the stock is typically restricted from being sold or transferred. Liquidity of this is achieved when the company goes public or is acquired and the employees can then sell the shares and cash in.

With an LLC, there is no type of “stock,” which means you can’t issue company shares the same way you can with a corporation. As a result, you will have to make different arrangements. In most cases, LLC owners will reward their employees by sharing the business’s profits.

The Bottom Line

If you are a startup founder, providing your new hires with equity is an excellent way to motivate them. However, you have to consider the advantages and disadvantages of the different approaches that are available when you are trying to figure out how much equity should be issued. In most cases, using the services of a business law attorney will help you make the right decisions.

Learn more about issuing equity to your employees by contacting the attorneys at the Law Offices of Peter M. Feaman, PA by calling 561-734-5552. Having legal representation can help you make the right decisions.

Independent Contractors law

Pros, Cons, and Things to Keep in Mind for Independent Contractors

If a person works as an independent contractor, it means they contract with entities or individuals to provide services in exchange for some type of compensation. Most independent contractors don’t work exclusively or regularly for a single company, and they are not considered to be a traditional employee.

Independent Contractors law

In most cases, an independent contractor charges a fee for their service, is only engaged for the specified amount of time to provide the service, retains economic independence, retains the ability to control the manner and method of work, is not protected by most laws designed to protect employees and is responsible for paying their own Medicare, Social Security and income taxes.

How Companies Benefit from Independent Contractors

When a company uses the services of independent contractors, they can avoid significant tax, wage and other obligations. This can result in a considerable amount of cost savings, as well as enhanced workforce flexibility. However, contractors aren’t the only ones who benefit. For those who want a greater amount of control over their schedule and work environment, being an independent contractor is the perfect fit.

Potential Drawbacks of Working as an Independent Contractor

Even though there are advantages for both parties when it comes to independent contractors, there are still things that need to be considered. For example, there is the potential liability of years of unpaid overtime pay, employee benefits, and taxes. The fact is, if a business misclassifies a worker as an independent contractor, it can mean hefty fines and penalties for all parties.

For example, companies that misclassify employees as independent contractors may wind up being liable for health plan coverage, overtime pay, back wages, stock options, insurance and tax obligations, workers’ compensation, retirement benefits and more.

Independent Contractors and Florida Law

According to Florida law, there is not a single or established definition of what an independent contractor is. There are different tests used to determine if an individual is a traditional employee or an independent contractor for purposes of employer liability, hour and wage laws, unemployment compensation, whistle-blowing, and workers compensation. Different interpretations and tests could mean that workers are independent contractors for some jobs, but employees for others. This can make using the services of independent contractors quite confusing and challenging.

Any employer that is thinking about using the services of independent contractors need to become familiar with the tests that are used and monitor misclassification litigation. This will help ensure they don’t violate any laws or face fines and penalties down the road.

An Attorney Can Help

Hiring a business attorney in Florida is beneficial for employers and independent contractors who have questions about this classification of worker. It is better to work with someone who understands the law, rather than trying to handle the situation on your own.

If you have questions about hiring independent contractors in Florida, contact the Law Office of Peter M. Feaman, P.A. by calling 561-734-5552. They can help ensure you fully understand the situation.

Legal Tips for New Entrepreneurs

Legal Tips for New EntrepreneursIf you have always dreamed of owning a business and finally decided to take the plunge, you need to be informed and aware of any and everything that may get in your way. While this may seem a bit overwhelming, you can take it one step at a time. A good place to start is with the legal tips highlighted here.

Keep in mind, hiring a business attorney is a great way to ensure you avoid some mistakes and wrong turns along the way. They can be an excellent source of information and help when starting and growing your business.

Always Use Written Contracts

When you run a business, you can rely on an oral contract to protect your interest. While there are some oral contracts that can be enforced, do you want to take the chance? Or, have to deal with the challenging process of proving what was said?

It is a good rule of thumb to commit yourself to putting every agreement – regardless of how small or insignificant it may seem – in writing and have both parties sign. This will help you protect yourself and your newly formed business.

Categorize Your Workers Properly

While everyone wants to hire independent contractors to avoid paying taxes, this isn’t always a smart move. If your contractor is acting as an employee, then they are an employee. If you don’t categorize your worker properly, you may face serious penalties and consequences. It is best to just do it the right way from the beginning to avoid any serious issues that may arise.

Register Business Domain Names

Make sure you register a few domain names that include the name of the brand you are trying to establish. There is nothing worse than trying to build a brand and discovering that some “cybersquatter” has purchased the domain and wants to sell it to you for an obscene amount of money. If you are proactive and register these names early, it won’t be an issue.

Register Your Trademark

The trademark is the legal basis of all brands. It is the logo or the name that is associated with the service or product being offered. When you register your trademark, it will protect you from having no recourse if someone else uses a similar mark for the same service or product without first getting your permission. While you may not be worried about his at first, when you have built a successful brand, you will be glad to have the trademark in place.

Create a Business Entity

This is perhaps the most important thing you can do for your business. Create a business entity – such as an LLC. This will allow you to keep everything separate. You don’t want to mix business and personal finances or assets, and with a business entity, this isn’t an issue.

Starting a business is challenging, but it can be well worth the effort. If you need help along the way, hire a business attorney. Contact the attorneys at the Low Offers of Peter M. Feaman, PA by calling 561-734-5552 to schedule a consultation.

Are Verbal Business Agreements Legally Binding in Florida?

This is an all too common question that business attorneys receive in the state of Florida. The short answer to this question is, yes, verbal agreements can be legally binding. However, for this to be true, all of the elements of the contract have to be in place, and you can prove there is an oral agreement that binds one party to another.

Elements of a Contract

To have a valid contract, there have to be two things present:

  • An offer
  • An acceptance of the offer in exchange for consideration (for example, something with value, such as goods, services, money, etc.)

However, even when these elements are in place, there are some situations where an oral (and even a written) contract would not be enforceable. Some examples of these situations include:

  • The services or goods contracted are illegal or impossible
  • One of the parties in the contract is a minor
  • One party did not have the mental capacity to enter into the agreement

Also, particular types of contracts must be in writing according to Florida law. These include real estate contracts, as well as any contract that isn’t able to be performed within the period of a year. Other contracts that must be put in writing to be enforceable in the courtroom in Florida include:

  • Contracts for newspaper subscriptions
  • Assurance, warranty or guarantee of health care
  • An agreement made for the consideration of marriage
  • A special promise that is made by a person to answer for the miscarriage, default or debt of someone else

Contracts that must be in writing to be enforceable are commonly referred to as The Statute of Frauds. This is an extremely old legal doctrine that was created to protect parties from fraud when entering a contract. It would prevent the court from enforcing specific types of agreements if it were not put in writing.

Proof of the Contract

The entire process is much easier when everything is put in writing. This includes enforcing the agreement in court. It is often difficult to prove that a verbal agreement occurred to the court since it is usually a situation of one party’s word against another’s.

However, if you can prove you performed under the terms made in the verbal agreement, or if there is proof of payment being made, this is typically sufficient to prove the verbal contract exists. Also, if there are any witnesses to the agreement or written communications that reference it, it can serve as adequate proof.

Statute of Limitations

If you need to enforce an oral contract in court, you will have to file a suit within a period of four years. However, there are some circumstances where the suit can be filed in as little as a year after the date the agreement was made. Hiring a Florida business attorney is the best way to determine the deadline for filing a suit and enforcing the oral contract.

If you have questions about an oral contract you have entered into, or the other party is not living up to their end of the deal, contact the Law Offices of Peter M. Feaman, PA at 561-734-5552 to schedule a consultation.

Advantages and Disadvantages of Noncompete Agreements

Advantages and Disadvantages of Noncompete Agreements

The three most valuable assets of any business include the employees, customer relationships, and trade secrets. A noncompete agreement can be an effective way to protect these assets. When the right circumstances are present, and when drafted and implemented properly, noncompete agreements can be enforced in the state of Florida.

However, noncompete agreements are not a one size fit all solution. There are also advantages, disadvantages and even limitations to how they can be used. Understanding what these are can help you know whether or not you should use a noncompete agreement.

Advantages of Noncompete Agreements

A quality agreement can impede or prevent employees from leaving and taking your customers with them. This can impair customer goodwill, which is considered the lifeblood of any business.

Any competitor that hires your ex-employee who is under a noncompete may become liable for tortious interference. This occurs if employers make significant investments in training workers in processes and systems and educating them on confidential and proprietary information and trade secrets. If a competitor acquires an unfair advantage by engaging the employee after this investment has been made, then tortious interference may be present.

A noncompete agreement that is drafted properly will discourage workers from leaving and joining competitors, or starting their own competing companies.

A noncompete can curtail opportunistic behavior, such as startup business competitors who try to overcome certain barriers to entering a market by picking off the competitions key employees.

Prevent rogue ex-employees from trying to compete with your business helps the remaining workforce find success without any unfair competition.

Disadvantages and Limitations of Noncompetes

A noncompete agreement has to be limited to a geographic scope and period of time. In most cases, a period of six months – or less – is considered reasonable, and more than two years is unreasonable. The period between six months and two years is considered a gray area and the battleground for litigation.

According to statute, there has to be a “legitimate business interest” underlying the noncompete and the employer and employee relationship. The business interest cannot be just to prevent competition.

The best, most qualified candidates may not agree to sign this. In demand employees often decline a job opportunity if they are asked to sign this agreement.

Many courts are resistant to enforcing a noncompete agreement.

Are Noncompete Agreements Right for You?

Not all businesses require or need employees to sign noncompete agreements. If you are unsure if they could be beneficial for your business, it is best to speak with a lawyer who understands business law in Florida. Contact the Law Office of Peter M. Feaman, P.A. to learn more.

The Difference between an Independent Contractor and Employee

The Difference between an Independent Contractor and EmployeeThe difference between an independent contractor and employee may seem insignificant and subtle, but the fact is, it can have serious legal and tax consequences for your business. As a result, it is crucial that you get to know the difference in these two things. It is also a good idea to learn why it is so important.

 

Independent Contractor vs. Employee Basics

An independent contractor is someone who works (as the name implies) independently. They dictate how and when they work and have more control over what they do or don’t do. An independent contractor doesn’t receive any benefits from the company, and the relationship is only related to the work that is being done.

An employee, on the other hand, is a person who has to work under the control of the company. Most employees don’t have much say in the work they do, when they work or how they do the job. Companies also provide employees with benefits, in some form, and have an ongoing relationship with the business.

Legal Differences Between an Independent Contractor and Employee

The primary consideration when figuring out a worker’s status as either an independent contractor or employee is the amount of control the company has. According to information from the IRS website, there are three main categories to be analyzed:

  • Behavioral: This refers to if the company controls the work the person does and how the person does their work.
  • Financial: If the employer controls how the worker gets paid, provides office space, tools, and supplies, or if they reimburse expenses.
  • Type of relationship: Does the worker receive benefits, such as insurance, vacation pay, or pension plans?

The Importance of Knowing the Difference in an Employee and Independent Contractor

With this information, you have a better idea of the difference in an independent contractor and an employee. You may wonder why this matters. The fact is if someone is an independent contractor or employee has significant implications on the business regarding several legal issues, including taxes.

For employees, the company must withhold income taxes, pay and withhold Medicare and Social Security taxes, and pay unemployment tax to that person. For independent contractors, the person they work for doesn’t have to withhold or pay any payments or taxes on their behalf.

It is imperative that when you are ready to hire someone to work at your company, you have a firm grasp on the difference between an independent contractor and employee. This will allow you to classify and treat the new hire accordingly. If you fail to do this, you are going to create several legal headaches, which can have dire effects on the financial wellbeing of the company.

If you have more questions regarding your business, it is best to hire a business lawyer in Florida. Contact the Law Office of Peter M. Feaman, P.A. to learn more.

buy-sell agreements

Why are Buy-Sell Agreements so Important?

An important, yet often overlooked situation by business partners is the possibility of a co-owner eventually separating from the business. This may be voluntary or involuntary; however, it is a situation that must be considered.

buy-sell agreementsThe Need for the Buy-Sell Agreement

In most cases, a situation where a person is leaving a business can be handled with a Buy-Sell Agreement. This is a type of legally binding contract held by the co-owners of a business entity. It is used to clearly define the procedure that should be taking by the business owners when one of the co-owners wants to leave. In most cases, the result is that the shares owned by the departing business owner are bought by the actual business, or another co-owner.

Some of the most common reasons a person departs a business include (but are not limited to):

  • Divorce
  • Bankruptcy
  • Judgment execution proceedings
  • Voluntary sale of ownership interests
  • Resignation
  • Disability
  • Death

Effects of Co-Owners Leaving a Business

When a co-owner separates from a business, it can result in undesirable, drastic and sudden changes to the ownership structure of any small business. This is especially true if a person with no knowledge of the business – such as a surviving spouse – finds themselves in control but doesn’t have the skills, experience or knowledge to effectively run the business. In most cases, sooner than later, businesses that are thrust into this situation will fail and as a result are forced to dissolve.

Also Read: How to Protect Yourself in Your New Business Partnership

Creating a Plan for Succession

If you own a business, it is imperative that you think about these possible change of ownership events. In doing so, you will see why it is so important to plan for the succession of the business in the future. Some instances of someone separating from the business are inevitable – such as death. However, with a Buy-Sell Agreement, you can set forth what type of situations would trigger the buy-out of a departing owner’s shares, who has to or who can purchase the shares and the price that needs to be paid for the shares. Also, these agreements typically stipulate how the purchase price should be funded.

Seeking Legal Help

There is no question that business law in Florida can be complex and confusing. However, ensuring your business is prepared for any and all potential issues that may arise is the best way to ensure the desired outcome is achieved.

Hire an Experienced Business Law Attorney

Hiring a business lawyer is the best way to ensure your business and assets are protected. They can help create a Buy-Sell Agreement, as well as any other documents that may be required. If you have any questions about Buy-Sell Agreements, why they are important or how to create one for your business, contact to West Palm Beach Business Law Attorney  at the Law Offices of Peter M. Feaman, PA today.

Getting a Business Agreements

Things to Consider When Trying to Get Solid Business Agreements

Getting a Business AgreementsRunning a small business can be a very tough job. As your business begins to expand, you will start to forge a variety of new partnerships. In order to protect yourself and the people you are partnering with, you will need to find a way to make solid business agreements.

When it comes to business law in Florida, you can never be too careful. Having iron-clad business agreements can help out to avoid a variety of problems in the future. Below are some of the things you will have to consider when trying to avoid problems with your business agreements.

You Must Get It in Writing

While in the past verbal agreements were all you needed to do business with someone, but times have definitely changed. Without a written agreement, you may find yourself dealing with a lot of problems in regards to the partnerships you are trying to forge. The best way to make sure your written business agreements are acceptable, you will need work with an experienced contract litigation lawyer. The money that you pay an attorney to help you with your agreements will be well worth it in the end.

Simplicity is Key

The next thing you will have to do when trying to make your business agreements effective is to make them as simple as possible. The more legal jargon you fill your contracts with, the harder they will be to understand for all of the parties involved. When working with a lawyer on the development of your business agreements, you need to be sure they know what you want. By letting them know what you need with your agreements, you will be able to get them right first time around.

Identify the Parties Correctly

Another vital thing that has to happen for a business agreement to be effective is to identify each of the parties correctly. There are many business professionals who have to learn this lesson the hard way. If each of the parties in the transaction are not identified properly, there will be a variety of loopholes that may lead to a business being ripped off. Rather than letting this happen, a business owner will have to work hard to ensure the language in their agreements is direct and easily understood by all parties involved.

Specify Payment Obligations

Usually, a business agreement will feature a good bit about payment terms. If the language in the payment terms section of your agreement is not spelled out clearly, then you may find it hard to get the monetary compensation you are owed. With the right amount of professional help, you will be able to get the agreements you issue perfected.

Also Read: Most Common Types Of Business Litigation

When seeking out help from the Law Offices of Peter M. Feaman, P.A, you will have no problem making your business agreements effective. Be sure to call us today to schedule a consultation to find out more about the services we can offer you and your business.

Florida Contract Attorney

These Contract Mistakes May Cost You Significantly in the Business World

Florida Contract AttorneyContracts are the lifeblood of any business. They are often used to stipulate a variety of different relationships in the business world, including that between employer and employee, vendor and business, and even between business partners.

Every contract, however, is an important outline for the relationship between two or more individuals. Having properly drafted contracts is often the first step towards minimizing the chances of a legal dispute down the road.

Unfortunately, it is all too common to make contract disputes that can end up costing you and landing you in a court to deal with a litigation issue.

Get a Lawyer to Review It

Make sure you always read a contract fully and understand all of the terms inside it before you sign. You should also have your experienced business attorney evaluate the contract and provide recommendations for edits, if necessary.

Not every contract needs to be accepted as is. In the event that you need to update the contract or change the terms, speaking with your business lawyer can help you.

Do the Research

Doing research on the people you’re going into business with and their past performance and reputation before you sign any document. This is a great way to verify the facts and potentially uncover any issues ahead of time.

You should never begin working with someone without having a signed contract. There are two components to protecting yourself.

First of all, both sides have to agree as to what kind of value will be exchanged in the form of services, goods, or money. Both sides also need to agree on the expectations and obligations outlined in the [inaudible 00:01:49] have agreed to how the transaction will unfold.

Get Legal Help

The jargon inside in terms of intellectual property law. There are often many aspects of a business contract, and it is imperative that you understand how they influence your business and can protect, or harm you down the road.

Simply signing without having an attorney review this document could put you at significant risk of sustaining damage down the road in the form of a legal conflict, where you have to spend the time, energy, and money to protect yourself in court.

It is far better, where possible, to avoid conflicts altogether. An experienced contract attorney can help you with this process.

Always Ask Questions

It is not enough to just evaluate what is written inside the contract that could lead to problems in the future. You also need to get answers to all of your questions up front. If you fail to do this, you could be looking at expenses or an unpleasant outcome that you hadn’t considered when you started out.

Some of the clauses that frequently should be included to protect you, but are often left out include:

1. What is the kill fee?

2. When is payment due?

3. Who pays for reimbursements for accrued expenses of an argument?

Set Expectations

While the contract is doing the heavy lifting for defining the relationship, there are major issues when an entrepreneur creates a contract that doesn’t have clear guidelines about how revisions will be handled once work is completed.

The verbiage of the contract may specifically outline whether or not someone is entitled to multiple revisions, or bonuses, or discounts.

Putting this inside the contract can make it crystal clear what everyone is responsible for so that there are no questions down the road and so that you minimize the chances of a legal dispute later on.

Taking action now is strongly recommended so as to avoid problems in the future. Legal disputes over contracts can be expensive and frustrating for anyone so make sure you work with a lawyer who will do everything possible to prevent this.

Get Help from An Experienced Florida Contract Litigation Attorney Today

Working with an experienced contract attorney is strongly recommended if you find yourself in the position of using these tools on a regular basis.

This is because your attorney can point out problematic areas and give you guidance as to what to do next. You should never initiate a contract with someone until you have had the opportunity to have your lawyer review it.

Know how to protect yourself in your new business partnership: http://astonishing-purpose.flywheelsites.com/how-to-protect-yourself-in-your-new-business-partnership/

Business Partnership

How to Protect Yourself in Your New Business Partnership

Business PartnershipWhen a partnership works well, it can be an exciting opportunity to start and grow a business with someone that you love working with. In many different situations, partners will come together in order to establish and grow a business.

Sometimes these partners have different goals and aims about the purpose of the business and this can cause problems in terms of conflicts down the road. As much as possible you want to be on the same page as any other business partners.

Even in the event that you do not agree on every single aspect of the purpose of the business or how you’ll work together, you still want to have all of the details outlined in the legal contract so that you can most appropriately protect yourself going forward.

Partnership agreements and getting on the same page as soon as possible in the partnership allow you to avoid conflicts that can be costly and frustrating down the line. Read on to learn more about the key ways to protect yourself in a partnership.

Roles, Decision Making and Business Forms

All partners should have their attorneys and tax professionals at the table to discuss the best business structure for the business. A limited liability partnership is one of the most commonly selected formats because it allows partners some limited protection from the actions of the general partners.

However, an S Corporation might also be appropriate. It is a good idea to get on the same page with everyone about the roles that each partner will take early on. This may even include delegating particular management responsibilities and setting benchmark goals.

One other key aspect that you should always address with your partners is how decisions will be made, especially when a decision will have a significant impact on the business and there’s no general consensus.

Compensation

The majority of partners will have a critical interest in establishing percentages of ownership but they might also overlook issues associated with other interests they have like reservations of stock, equity adjustments, vesting schedules and allocation of losses and profits. Make sure that these are all considered and again, retain professionals where possible.

Exit Strategy

At the outset of a business it’s common to be more excited about founding and growing the business than it is thinking about the end. In fact, it can seem counter intuitive to think about closing the business and the departure of partners.

You might all be thinking that you will be involved in the business for many years to come. However, there are multiple reasons that a persona might choose to leave a company.

Some of these reasons are involuntary like sudden disability or death. Failing to plan ahead can generate a lot of legal issues or having to work with new partners like family members of the deceased individual, if you do not properly outline plans well in advance. Although it’s certainly hoped that you will continue to have a fruitful partnership with the original members for years to come, you should never assume that this is the case.

This can set you up for a big disaster and legal conflicts down the line. Many different disputes arise for voluntary reasons such as a situation where one individual wants to cash out or sell the company and remaining partners are unable to do so.

This is why any partnership agreement should consider the conditions that will affect terminating the business relationship and exit as well as when people are not able to get together on an agreement.

A buy-sell provision is strongly recommended and an experienced business lawyer in Florida can help you determine your best options here.

Methods for Resolving Disputes

If you do not include relevant details about resolving disputes, you could find yourself in expensive and lengthy litigation. Sometimes business partners will want to agree on arbitration or mediation, for example.

You can also outline selecting a forensic accountant or forensic accounting firm to determine the value of the business at any point in time as well. All of these can be extremely beneficial for protecting all partners and laying out a method so that there is no potential for disagreement down the line.

Also Read: How a Business Law Attorney Can Make Running Your Business Easier

Consult with An Expert Florida Business Law Lawyer Today

Where possible, your partnership agreement should address all key issues such as the management of the company, the format of the company when it is initially started and methods for individuals leaving the company if so desired.

Doing this and having it carefully reviewed by an experienced business law attorney is strongly recommended.

Learn more about critical agreements to protect you in a business: http://astonishing-purpose.flywheelsites.com/top-reasons-why-your-company-needs-a-buy-sell-agreement/