In a very interesting announcement, the American Arbitration Association has announced that it will follow the NAF in ceasing to do consumer debt arbitrations.
It appears that the not-for-profit AAA did not have the same legal issues that the NAF had, nor had the AAA been sued for the same things the NAF were sued for. However, the AAA said it will cease taking this type of arbitration cases “until some standards or safeguards are established.”
Read more about the AAA decision here: http://blogs.wsj.com/law/2009/07/22/an-arbitration-revolution-aaa-joins-naf-stops-taking-new-cases/
This furthers the questions I raised in my earlier blog post. As a consumer, now that NAF and AAA are out of the picture, does this now grant me the right to sue in state court, even though I signed away that right in the agreement?
Wednesday, July 22, 2009
Monday, July 20, 2009
National Arbitration Forum Stops Arbitrating
It appears that the National Arbitration Forum has closed its doors (mostly). In settlement of the claims against it by the Minnesota Attorney General, the NAF has agreed to cease almost all arbitrations that it currently offers (it has retained the right to do internet domain name arbitrations).
This is significant in that the NAF was one of the go to arbitration panels utilized by credit card companies in their mandatory arbitration clauses. What will this do to the arbitration clauses? Who will become the arbitrator of record? What does this do to cases that went through arbitration to conclusion? At this point we will wait and see.
Thanks to http://www.indisputably.org/ for their coverage of this case.
This is significant in that the NAF was one of the go to arbitration panels utilized by credit card companies in their mandatory arbitration clauses. What will this do to the arbitration clauses? Who will become the arbitrator of record? What does this do to cases that went through arbitration to conclusion? At this point we will wait and see.
Thanks to http://www.indisputably.org/ for their coverage of this case.
Thursday, July 16, 2009
When Your Brilliant Business Mind Can Get Your Business in Trouble
There is a legal adage that every first year law student has likely heard, if not recited numerous times: “the man who represents himself has a fool for a client.” While there are certainly instances of untrained intelligent people winning cases in a court of law, the saying might never be truer than for business owners in Wisconsin. This is because in many instances, the failure to hire an attorney might not only be unwise, but also give the opposing party the easy route to an automatic win.
One popular business form boasts well established rules. Wisconsin corporations are bound by statute to be represented in court (excluding small claims cases) by an attorney. This provision can be especially relevant for business owners choosing the S-corp form of business. While many attorneys advise their clients on the tax benefits of pass-through taxation for an S-corp, relatively few address the ramifications with their new business owner clients.While nearly every entrepreneur gets into business with the intention of running an honest, respectable business that is beyond legal reproach, lawsuits are inevitable. Whether it be a customer who can not be satisfied, a vendor who overcharges, or simply someone not paying a bill, if any controversy exceeding $5,000 (with few exceptions) ends up in court, the corporation may be in a precarious position. Many business owners, whether for economic reasons, or the belief that they are equipped to handle the opposing party in court, choose to represent themselves. The effects can be far reaching. As a practical matter, this means the owner is in violation of the Wisconsin statute and the judge may not be forgiving.
When a Complaint is filed in any lawsuit, an Answer needs to be filed shortly thereafter. Failure to do so can result in the court granting the party filing the lawsuit a default judgment, which in effect, means the non-answering party admits all of the allegations in the lawsuit, and the plaintiff is usually granted whatever relief they sought. When a business is a party to the lawsuit, many owners believe they may appear in court and file an Answer on behalf of the company they own. In many cases, owners file their Answer within the statutory period for doing so. However, savvy Plaintiff’s lawyers are increasingly recognizing the lack of an attorney’s signature on the Answer. Wisconsin cases have recognized that the statute requires an attorney to represent the corporation, and the Answer, unsigned by a licensed practitioner of the law, is not legally recognized. The Plaintiff is able to ask the court for a default judgment as if no action had been taken by the Defendant at all, and they had simply let the time period for answering lapse.
Once the default judgment has been granted, even the subsequent hiring of an attorney might not be enough to get a fair hearing in court. The attorney must move to reopen the case, and judges are not always inclined to allow a reopening, even for parties with compelling cases that may have attempted to make an answer previously. Upon receiving a judgment, the Plaintiff can establish a lien against the assets of the corporation.
While the rules for the corporation are well defined, the rules for an entity operating as a Limited Liability Company or “LLC” are less absolute. The statutes do not specifically mention an LLC as an entity that requires representation by an attorney in lawsuits, and to date, there is no case clearly defining whether the LLC falls within the scope of the statute. However, there are good reasons to believe the requirement of legal representation extends to this type of entity. The LLC, in most legal respects, is treated like a corporation. Members, like shareholders of a corporation, enjoy legal protections from liabilities of the company. While there are differences between the types of business entity, this seems the most compelling and important one when considering the LLC. If the LLC is treated like the corporation, and indeed, in lower courts it has happened on numerous occasions, the LLC may also face the possibility of having default judgment entered against it, even in cases where a member or owner has filed an otherwise appropriate Answer.
A new business owner has many choices when deciding upon the type of entity for its operations. Do not let your company incur debt by failing to follow the statutory requirements of legal representation.
One popular business form boasts well established rules. Wisconsin corporations are bound by statute to be represented in court (excluding small claims cases) by an attorney. This provision can be especially relevant for business owners choosing the S-corp form of business. While many attorneys advise their clients on the tax benefits of pass-through taxation for an S-corp, relatively few address the ramifications with their new business owner clients.While nearly every entrepreneur gets into business with the intention of running an honest, respectable business that is beyond legal reproach, lawsuits are inevitable. Whether it be a customer who can not be satisfied, a vendor who overcharges, or simply someone not paying a bill, if any controversy exceeding $5,000 (with few exceptions) ends up in court, the corporation may be in a precarious position. Many business owners, whether for economic reasons, or the belief that they are equipped to handle the opposing party in court, choose to represent themselves. The effects can be far reaching. As a practical matter, this means the owner is in violation of the Wisconsin statute and the judge may not be forgiving.
When a Complaint is filed in any lawsuit, an Answer needs to be filed shortly thereafter. Failure to do so can result in the court granting the party filing the lawsuit a default judgment, which in effect, means the non-answering party admits all of the allegations in the lawsuit, and the plaintiff is usually granted whatever relief they sought. When a business is a party to the lawsuit, many owners believe they may appear in court and file an Answer on behalf of the company they own. In many cases, owners file their Answer within the statutory period for doing so. However, savvy Plaintiff’s lawyers are increasingly recognizing the lack of an attorney’s signature on the Answer. Wisconsin cases have recognized that the statute requires an attorney to represent the corporation, and the Answer, unsigned by a licensed practitioner of the law, is not legally recognized. The Plaintiff is able to ask the court for a default judgment as if no action had been taken by the Defendant at all, and they had simply let the time period for answering lapse.
Once the default judgment has been granted, even the subsequent hiring of an attorney might not be enough to get a fair hearing in court. The attorney must move to reopen the case, and judges are not always inclined to allow a reopening, even for parties with compelling cases that may have attempted to make an answer previously. Upon receiving a judgment, the Plaintiff can establish a lien against the assets of the corporation.
While the rules for the corporation are well defined, the rules for an entity operating as a Limited Liability Company or “LLC” are less absolute. The statutes do not specifically mention an LLC as an entity that requires representation by an attorney in lawsuits, and to date, there is no case clearly defining whether the LLC falls within the scope of the statute. However, there are good reasons to believe the requirement of legal representation extends to this type of entity. The LLC, in most legal respects, is treated like a corporation. Members, like shareholders of a corporation, enjoy legal protections from liabilities of the company. While there are differences between the types of business entity, this seems the most compelling and important one when considering the LLC. If the LLC is treated like the corporation, and indeed, in lower courts it has happened on numerous occasions, the LLC may also face the possibility of having default judgment entered against it, even in cases where a member or owner has filed an otherwise appropriate Answer.
A new business owner has many choices when deciding upon the type of entity for its operations. Do not let your company incur debt by failing to follow the statutory requirements of legal representation.
Thursday, April 9, 2009
Wisconsin Legislature Brings Back Protections Against Fraud in Real Estate Transactions
The Wisconsin Supreme Court in Below v. Norton, 2008 WI 77, 751 N.W. 2d 351, expanded the reach of the Economic Loss Doctrine (ELD) to bar claims of fraud and intentional misrepresentation in residential real estate transactions. The Wisconsin Legislature has fought back:
"In addition to any other remedies available under law, a transferee in a residential real estate transaction may maintain an action in tort against the real estate transferor for fraud committed, or an intentional misrepresentation made, by the transferor in the residential real estate transaction." Please see the full text of the Senate Bill here: http://www.legis.state.wi.us/insession/insessiondocs/docs/SB-9.pdf
This new legislation does three (3) things: 1) it protects purchasers of land in WI, without creating the duty to draft veracity warranties as was required by Below. 2) it strengthens the ELD as to all other contracts. Below came down July 1, 2008 and by January 21, 2009, the Senate was working to overturn this decision. ELD decisions in commercial real estate contracts came down long before Below, but no such legislation has been created and passed for commercial protection. 3) Creates an arbitrary deadline for the cessation of fraud. The first two effects are self-explanatory, the third desires further comment.
The legislation (creating Wis. Stat. § 895.10) includes a provision that this statute will not apply retroactively, but will apply to transactions that close on the effective date of the legislation. As Governor Jim Doyle signed the legislation on April 8, 2009, all falsehoods told before that date are immune, but after are punishable by tort. Yes, according to Below you can go after a seller for "false advertising" carrying far lessor penalties and a greatly shorter statute of limitations. So, for the next six (6) years, attorneys in this state must remember the magical April 8, 2009 deadline in determining whether tort actions can occur.
"In addition to any other remedies available under law, a transferee in a residential real estate transaction may maintain an action in tort against the real estate transferor for fraud committed, or an intentional misrepresentation made, by the transferor in the residential real estate transaction." Please see the full text of the Senate Bill here: http://www.legis.state.wi.us/insession/insessiondocs/docs/SB-9.pdf
This new legislation does three (3) things: 1) it protects purchasers of land in WI, without creating the duty to draft veracity warranties as was required by Below. 2) it strengthens the ELD as to all other contracts. Below came down July 1, 2008 and by January 21, 2009, the Senate was working to overturn this decision. ELD decisions in commercial real estate contracts came down long before Below, but no such legislation has been created and passed for commercial protection. 3) Creates an arbitrary deadline for the cessation of fraud. The first two effects are self-explanatory, the third desires further comment.
The legislation (creating Wis. Stat. § 895.10) includes a provision that this statute will not apply retroactively, but will apply to transactions that close on the effective date of the legislation. As Governor Jim Doyle signed the legislation on April 8, 2009, all falsehoods told before that date are immune, but after are punishable by tort. Yes, according to Below you can go after a seller for "false advertising" carrying far lessor penalties and a greatly shorter statute of limitations. So, for the next six (6) years, attorneys in this state must remember the magical April 8, 2009 deadline in determining whether tort actions can occur.
Tuesday, April 7, 2009
Tenant Rights in Wisconsin Foreclosures
The Wisconsin Legislature passed 2009 Senate Bill 62, which was signed into law as 2009 Wisconsin Act 2 on February 19, 2009. For full text of the Act, click here: http://www.legis.state.wi.us/2009/data/acts/09Act2.pdf.
This Act changed many laws in the State, however one is of particular importance and interest to me. The Act created Wisconsin Statute § 846.35 Protections for tenants in foreclosure actions. The title gives you a good idea of what this is about.
In looking at the newly enacted § 846.35 (1), it requires that the foreclosing plaintiff must give notices to tenants in the subject property at different points in the litigation. This makes sense. These required notices must be given within 5 days of the start of the foreclosure action, within 5 days of the grant of a foreclosure judgment, and notice of the date and time for the judicial confirmation of the sheriff’s sale. I find these to be appropriate times for the tenant to be informed of the progress.
The Statute goes on to discuss how a plaintiff must give these notices. The first option is to personally serve each tenant pursuant to Wis. Stat. § 801.11 (1), in an manner similar to the serving of a complaint. The second is to send the notice via certified mail, with notice completed upon mailing.
Finally, the Statute delineates that each tenant that did not receive a notice may receive $250, plus reasonable attorney fees, from the plaintiff, with a maximum of one award (two missed notices does not entitle a tenant to $500).
So why does this new statute make my skin crawl? Three reasons. First, the Legislature has not defined to whom this applies. Second, it appears that a tenant may force a plaintiff to pay them, even when the plaintiff does nothing wrong. And third, how does a mortgage holder know the names of the tenants?
The wording of the first portion of the statute states "If residential rental property is the subject of a foreclosure action, the plaintiff shall provide the following notices at the following times to the tenants who are in possession of each rental unit when a notice is given." However, in looking at the penalty provision, it states "the court shall award the tenant to whom the notice should have been given $250 in damages, plus reasonable attorneys fees." There is an inherent contradiction: tenants vs. tenant.
Wisconsin courts recognize that when the Legislature puts specific language in a statute, the courts must construe the statute to not make any portion of it meaningless. As such, the difference between tenant and tenants may be significant.
Presume that three students are renting an apartment in a building that is being foreclosed upon. Does the foreclosing plaintiff need to give notice to each of the three students? The requirement for notices requires that notices be given to the tenants (plural) in possession of each rental unit (singular). It appears that the Legislature is requiring that notice be given to each tenant. Especially when you consider the punitive sentence allowing the tenant (singular) to whom the notice should have been given to recover damages. This gives further credence to the each tenant must receive notice theory.
However, in all of Chapter 846, there is not a definition of tenant. Consider the possibility that a husband and wife enter into a lease and later produce a child. The leased premises begins to be foreclosed upon, to whom must the plaintiff give notices? Under the above analysis, it appears that both the husband and wife must be given notices. But what about baby? Does the baby need to be placed on the lease in order to have tenant rights?
Moving to the manner of serving the notices, there is nothing wrong with personal service pursuant to § 801.11 (1), however it can be expensive for a plaintiff. Personal service of papers can cost between $30 and $75. To perform this three times during the litigation brings the total to between $90 and $225. And as discussed above, it is unclear whether this is per unit or per tenant. Bringing back the three students renting an apartment, the service fees for their one unit could cost upwards of $500 during the litigation.
So, it seems pretty clear that personal service is very costly, so consider the certified mailing method. Certified mail costs approximately $5 per notice. This is a significant cost savings. However, the statute states, "Notice given under this subdivision is considered completed when it is mailed, unless the envelope enclosing the notice is returned unopened to the plaintiff."
Anyone who has received mail returned unopened knows that this process can take some time. So, if the three students are on winter break, the notices are mailed, not accepted (because no one is home to do so), they are returned to the plaintiff (or their attorney). The time period to give the notice has now passed and the plaintiff is deemed to have not given notice, clearly through no fault of their own, and is subject to an award of damages.
Further, certified mail can be refused by the recipient. The Legislature does not put forth a provision regarding refused mail, only unopened mail. So, could a tenant see the Gerbers Law, S.C. envelope for the second notice (knowing that Gerbers Law had sent the first notice), refuse this mail, and then seek damages for failure to give notice? Equity states no, but a strict reading could lead to such a conclusion.
It is hard to imagine a lawsuit for $250 dollars, but with "reasonable attorneys fees" in the balance, there is a possibility that it could be tried.
Finally, as an attorney that has represented financial institutions in foreclosure actions, the foreclosing plaintiff usually does not know the names of all tenants within 5 days of instituting the action. A defendant has 30 days to respond to discovery (and that is when the responses are done timely, which is not always the case). So, a plaintiff may not rely upon the standard discovery to ascertain the names. Then must a plaintiff request this information prior to instituting the action? I do not think that a defendant landlord will be very forthcoming with the information when they receive the "we are going to foreclose on you, but first we need the names of all of your tenants" telephone call.
So then, does this place the onus on the foreclosing plaintiff to keep records of every lease entered into by the defendant? This would create a bureaucratic nightmare for even the smallest of mortgage lenders, let alone the large financial institutions.
While the intent of the Legislature and the statute is good, I feel that there are several glaring issues with the statute that must be addressed.
This Act changed many laws in the State, however one is of particular importance and interest to me. The Act created Wisconsin Statute § 846.35 Protections for tenants in foreclosure actions. The title gives you a good idea of what this is about.
In looking at the newly enacted § 846.35 (1), it requires that the foreclosing plaintiff must give notices to tenants in the subject property at different points in the litigation. This makes sense. These required notices must be given within 5 days of the start of the foreclosure action, within 5 days of the grant of a foreclosure judgment, and notice of the date and time for the judicial confirmation of the sheriff’s sale. I find these to be appropriate times for the tenant to be informed of the progress.
The Statute goes on to discuss how a plaintiff must give these notices. The first option is to personally serve each tenant pursuant to Wis. Stat. § 801.11 (1), in an manner similar to the serving of a complaint. The second is to send the notice via certified mail, with notice completed upon mailing.
Finally, the Statute delineates that each tenant that did not receive a notice may receive $250, plus reasonable attorney fees, from the plaintiff, with a maximum of one award (two missed notices does not entitle a tenant to $500).
So why does this new statute make my skin crawl? Three reasons. First, the Legislature has not defined to whom this applies. Second, it appears that a tenant may force a plaintiff to pay them, even when the plaintiff does nothing wrong. And third, how does a mortgage holder know the names of the tenants?
The wording of the first portion of the statute states "If residential rental property is the subject of a foreclosure action, the plaintiff shall provide the following notices at the following times to the tenants who are in possession of each rental unit when a notice is given." However, in looking at the penalty provision, it states "the court shall award the tenant to whom the notice should have been given $250 in damages, plus reasonable attorneys fees." There is an inherent contradiction: tenants vs. tenant.
Wisconsin courts recognize that when the Legislature puts specific language in a statute, the courts must construe the statute to not make any portion of it meaningless. As such, the difference between tenant and tenants may be significant.
Presume that three students are renting an apartment in a building that is being foreclosed upon. Does the foreclosing plaintiff need to give notice to each of the three students? The requirement for notices requires that notices be given to the tenants (plural) in possession of each rental unit (singular). It appears that the Legislature is requiring that notice be given to each tenant. Especially when you consider the punitive sentence allowing the tenant (singular) to whom the notice should have been given to recover damages. This gives further credence to the each tenant must receive notice theory.
However, in all of Chapter 846, there is not a definition of tenant. Consider the possibility that a husband and wife enter into a lease and later produce a child. The leased premises begins to be foreclosed upon, to whom must the plaintiff give notices? Under the above analysis, it appears that both the husband and wife must be given notices. But what about baby? Does the baby need to be placed on the lease in order to have tenant rights?
Moving to the manner of serving the notices, there is nothing wrong with personal service pursuant to § 801.11 (1), however it can be expensive for a plaintiff. Personal service of papers can cost between $30 and $75. To perform this three times during the litigation brings the total to between $90 and $225. And as discussed above, it is unclear whether this is per unit or per tenant. Bringing back the three students renting an apartment, the service fees for their one unit could cost upwards of $500 during the litigation.
So, it seems pretty clear that personal service is very costly, so consider the certified mailing method. Certified mail costs approximately $5 per notice. This is a significant cost savings. However, the statute states, "Notice given under this subdivision is considered completed when it is mailed, unless the envelope enclosing the notice is returned unopened to the plaintiff."
Anyone who has received mail returned unopened knows that this process can take some time. So, if the three students are on winter break, the notices are mailed, not accepted (because no one is home to do so), they are returned to the plaintiff (or their attorney). The time period to give the notice has now passed and the plaintiff is deemed to have not given notice, clearly through no fault of their own, and is subject to an award of damages.
Further, certified mail can be refused by the recipient. The Legislature does not put forth a provision regarding refused mail, only unopened mail. So, could a tenant see the Gerbers Law, S.C. envelope for the second notice (knowing that Gerbers Law had sent the first notice), refuse this mail, and then seek damages for failure to give notice? Equity states no, but a strict reading could lead to such a conclusion.
It is hard to imagine a lawsuit for $250 dollars, but with "reasonable attorneys fees" in the balance, there is a possibility that it could be tried.
Finally, as an attorney that has represented financial institutions in foreclosure actions, the foreclosing plaintiff usually does not know the names of all tenants within 5 days of instituting the action. A defendant has 30 days to respond to discovery (and that is when the responses are done timely, which is not always the case). So, a plaintiff may not rely upon the standard discovery to ascertain the names. Then must a plaintiff request this information prior to instituting the action? I do not think that a defendant landlord will be very forthcoming with the information when they receive the "we are going to foreclose on you, but first we need the names of all of your tenants" telephone call.
So then, does this place the onus on the foreclosing plaintiff to keep records of every lease entered into by the defendant? This would create a bureaucratic nightmare for even the smallest of mortgage lenders, let alone the large financial institutions.
While the intent of the Legislature and the statute is good, I feel that there are several glaring issues with the statute that must be addressed.
Sunday, April 5, 2009
Click Here to Accept and Lose All Rights
Social networking sites like Facebook, Twitter, and LinkedIn are becoming a growing way to market not only yourself, but also your business. Further, people now spend more time on these social networking sites than they do writing e-mails. Recently, there was a large outcry over Facebook changing its Terms and Conditions (T&Cs) for using the site. So just what caused the outrage, what are you giving up when using these sites, and what can you do to properly tailor your business’ T&Cs?
When you start to use one of these Social Networking sites, even before you enter your personal information, you must accept that site’s T&Cs. Almost no one ever reads the fine print of these T&Cs (if they read them at all) and, even if they did, many are written in such a way that a layperson could not possibly understand everything they were agreeing to. However, these T&Cs are legally binding contracts you agree to, listing your rights, responsibilities, and the rules or conditions of service.
The outcry involving Facebook occurred not only because the user’s acceptance was given upon the continued use of the site, but because Facebook took a particularly broad license that gave it rights over users' content. This license closely matched users' rights as owners, in addition to content belonging to third parties.
The license that you granted to Facebook was very broad. It covered not only your content on Facebook, but also content you may have linked to from outside of Facebook. This includes photos you may have stored on Flickr or Snapfish, videos from Vimeo, and more. This made Facebook’s new T&Cs particularly invasive. Due to negative press and user scorn, Facebook quickly went back to their old T&Cs.
Most employers today only use Facebook to scout out potential hires. However, a large number of businesses and business people use LinkedIn. LinkedIn works to expand your network among others in your field and geographic area. Unfortunately, LinkedIn’s T&Cs are more overreaching than anything Facebook has tried.
LinkedIn’s T&C language is too wordy to reprint here in full. In sum, it grants a license to LinkedIn that is equivalent to the rights enjoyed by the owner of the original work. This includes the ability to create derivative works and “in any way commercialize” the original work. If you value anything you have created, be it a blog post, a picture, or a business presentation, think twice about putting it on LinkedIn. You are subject to these T&Cs through ANY use of the website, not just upon clicking “accept.”
As you can see, it pays to read through the T&Cs of various websites rather than just clicking “accept.” However, it is not just social networking sites that require T&Cs. If your business provides pricing information, advice, or almost any other service, you should consider adding a T&C page. Also, it is not as easy as going online and copying Facebook’s T&Cs. First, that is a copyright violation. Second, unless your businesses are identical in every single way, it is doubtful that another company’s T&Cs would fully protect your business.
By having clear and concise T&Cs, it will be evident to both parties what's been agreed to, and will cover the process and remedies if things ever go wrong. An attorney should write these T&Cs; however, if as a business owner you are looking to save during this economy, take the following measures.
First, consider what you need to include on your terms and conditions page. These include issues and concerns, potential problems, and your website’s purpose and limitations. Second, look at the T&Cs pages of websites that are in the same industry as yours. Again, do not copy these directly as it is a violation of copyright law and you most likely will not be completely covered.
Third, after collecting as much information as possible, attempt to express your T&Cs in a clear and concise manner. Remember the T&C is a legal document binding on both parties. The T&Cs should state exactly what your site is about, what service it provides and how it provides that service. Also, be sure to address all legal concerns you might have, and fully explain those liabilities you do and do not accept. Finally, even if you elect to draft the T&Cs, have an attorney carefully review them. If issues arise that are not included in your T&Cs, update them, and be sure to let your customers or users know that updates have been made. An attorney will know the applicable law and be able to guide you if you are attempting to reserve too many rights or if you are giving some away unnecessarily. Further, should the law change, an attorney that drafted or reviewed the T&Cs will be able to alert you to these changes and how they may affect you.
When you start to use one of these Social Networking sites, even before you enter your personal information, you must accept that site’s T&Cs. Almost no one ever reads the fine print of these T&Cs (if they read them at all) and, even if they did, many are written in such a way that a layperson could not possibly understand everything they were agreeing to. However, these T&Cs are legally binding contracts you agree to, listing your rights, responsibilities, and the rules or conditions of service.
The outcry involving Facebook occurred not only because the user’s acceptance was given upon the continued use of the site, but because Facebook took a particularly broad license that gave it rights over users' content. This license closely matched users' rights as owners, in addition to content belonging to third parties.
The license that you granted to Facebook was very broad. It covered not only your content on Facebook, but also content you may have linked to from outside of Facebook. This includes photos you may have stored on Flickr or Snapfish, videos from Vimeo, and more. This made Facebook’s new T&Cs particularly invasive. Due to negative press and user scorn, Facebook quickly went back to their old T&Cs.
Most employers today only use Facebook to scout out potential hires. However, a large number of businesses and business people use LinkedIn. LinkedIn works to expand your network among others in your field and geographic area. Unfortunately, LinkedIn’s T&Cs are more overreaching than anything Facebook has tried.
LinkedIn’s T&C language is too wordy to reprint here in full. In sum, it grants a license to LinkedIn that is equivalent to the rights enjoyed by the owner of the original work. This includes the ability to create derivative works and “in any way commercialize” the original work. If you value anything you have created, be it a blog post, a picture, or a business presentation, think twice about putting it on LinkedIn. You are subject to these T&Cs through ANY use of the website, not just upon clicking “accept.”
As you can see, it pays to read through the T&Cs of various websites rather than just clicking “accept.” However, it is not just social networking sites that require T&Cs. If your business provides pricing information, advice, or almost any other service, you should consider adding a T&C page. Also, it is not as easy as going online and copying Facebook’s T&Cs. First, that is a copyright violation. Second, unless your businesses are identical in every single way, it is doubtful that another company’s T&Cs would fully protect your business.
By having clear and concise T&Cs, it will be evident to both parties what's been agreed to, and will cover the process and remedies if things ever go wrong. An attorney should write these T&Cs; however, if as a business owner you are looking to save during this economy, take the following measures.
First, consider what you need to include on your terms and conditions page. These include issues and concerns, potential problems, and your website’s purpose and limitations. Second, look at the T&Cs pages of websites that are in the same industry as yours. Again, do not copy these directly as it is a violation of copyright law and you most likely will not be completely covered.
Third, after collecting as much information as possible, attempt to express your T&Cs in a clear and concise manner. Remember the T&C is a legal document binding on both parties. The T&Cs should state exactly what your site is about, what service it provides and how it provides that service. Also, be sure to address all legal concerns you might have, and fully explain those liabilities you do and do not accept. Finally, even if you elect to draft the T&Cs, have an attorney carefully review them. If issues arise that are not included in your T&Cs, update them, and be sure to let your customers or users know that updates have been made. An attorney will know the applicable law and be able to guide you if you are attempting to reserve too many rights or if you are giving some away unnecessarily. Further, should the law change, an attorney that drafted or reviewed the T&Cs will be able to alert you to these changes and how they may affect you.
Thursday, March 26, 2009
S-Corp, C-Corp, Partnership, or LLC: Which one is Right for Me?
Starting a small business in a tough economy can be a daunting yet exciting task filled with difficult decisions and strategic planning to maximize your chances of success. Your planning must necessarily begin even before your company does, when deciding which type of entity to be. Make the wrong choice and you could end up being handcuffed on options when it comes time to make distributions to the owners. Prepare taxes inconsistent with the business type you have chosen and you could end up handcuffed in a much more literal sense. So which considerations are important? The answer depends on your intended purpose and goals for the business, but the issues that follow are nearly universal, and should be considered by any new business owner.
LIABILITY
Liability, and specifically its limitation, can play a large role in deciding whether to run your business as simply as possible, or to create a formal business entity. Sole proprietorships and basic partnerships are perhaps the easiest business types to form. Simply start doing business and your entity exists. However, sole proprietors enjoy no protection from business liability; owners are personally responsible for any debts the business incurs, in any amount. While the rules can differ slightly for partnerships, at least one partner will risk unlimited exposure to business liability. The drawback is easy to see: most new business owners understand that their venture carries some risk, and these entities place personal assets at risk.
Other entities offer significantly more protection. The corporation, limited liability company (LLC), and limited liability partnership (LLP) all enjoy limitations on liability to the owners. Generally speaking, owners of a corporation or LLC are not personally liable for business debts as long as certain formalities are observed in running the business. The LLP form can protect a partner for incurring debt caused by the negligence of the other partner(s).
To qualify for the protections afforded by the various business types, there are strict filing requirements with the state and rules on the methods for running your business. It is highly recommended you consult with an attorney and an accountant to ensure your business is complying and maintaining protection.
TAXES
While the tax code is extensive and confusing, every new business owner should understand the method of taxation on businesses, at least in a rudimentary sense. As much as any other factor, taxation can dictate your choice of entity.
Sole proprietorships are disregarded for purposes of income taxation; all of the income and expenses are reported directly on the owner’s individual tax return. Generally, partnerships work in much the same way, though there are a number of special rules dealing with participation in the partnership and deduction of losses that are best suited for an accountant’s advice.
C-corporations, on the other hand, are subject to what is popularly called double-taxation. This means the company files its own tax return and is taxed on its income before any distributions are made to owners. Upon distribution of corporate assets or dividends, the owners are taxed in their individual capacity, so tax is effectively "doubled." The drawback to this form is obviously that in most cases, a net greater percentage of profits generated by the business will be paid to the government as tax.
Passthrough taxation remedies the C-corporation tax treatment, and eliminates one of the levels of taxation. S-corporations, LLCs, and LLPs can elect to be disregarded for tax purposes so that instead of being taxed at the business level and again at the owner level, the business is treated more like a sole proprietorship or partnership. Owners are taxed only at the individual level, generally in proportion to their ownership interest in the business. Unlike sole proprietorships and partnerships however, the other entities retain their limited liability while taking advantage of the tax treatment.
OTHER CONSIDERATIONS
Limitation of liability and tax treatment are but two factors to consider when choosing the type entity for your new business. Other questions owners should consider include how do you plan to transfer assets in and out of the business? Will certain owners be employed by the business and others merely hold a passive ownership interest? Will the business have employees that receive benefits? How will the business be transferred to the next generation, and does that fit with your current estate plan? Exploring these questions with your advisors before making a selection will help you make the right choice, and whether in a literal or figurative sense, keep you from being handcuffed.
LIABILITY
Liability, and specifically its limitation, can play a large role in deciding whether to run your business as simply as possible, or to create a formal business entity. Sole proprietorships and basic partnerships are perhaps the easiest business types to form. Simply start doing business and your entity exists. However, sole proprietors enjoy no protection from business liability; owners are personally responsible for any debts the business incurs, in any amount. While the rules can differ slightly for partnerships, at least one partner will risk unlimited exposure to business liability. The drawback is easy to see: most new business owners understand that their venture carries some risk, and these entities place personal assets at risk.
Other entities offer significantly more protection. The corporation, limited liability company (LLC), and limited liability partnership (LLP) all enjoy limitations on liability to the owners. Generally speaking, owners of a corporation or LLC are not personally liable for business debts as long as certain formalities are observed in running the business. The LLP form can protect a partner for incurring debt caused by the negligence of the other partner(s).
To qualify for the protections afforded by the various business types, there are strict filing requirements with the state and rules on the methods for running your business. It is highly recommended you consult with an attorney and an accountant to ensure your business is complying and maintaining protection.
TAXES
While the tax code is extensive and confusing, every new business owner should understand the method of taxation on businesses, at least in a rudimentary sense. As much as any other factor, taxation can dictate your choice of entity.
Sole proprietorships are disregarded for purposes of income taxation; all of the income and expenses are reported directly on the owner’s individual tax return. Generally, partnerships work in much the same way, though there are a number of special rules dealing with participation in the partnership and deduction of losses that are best suited for an accountant’s advice.
C-corporations, on the other hand, are subject to what is popularly called double-taxation. This means the company files its own tax return and is taxed on its income before any distributions are made to owners. Upon distribution of corporate assets or dividends, the owners are taxed in their individual capacity, so tax is effectively "doubled." The drawback to this form is obviously that in most cases, a net greater percentage of profits generated by the business will be paid to the government as tax.
Passthrough taxation remedies the C-corporation tax treatment, and eliminates one of the levels of taxation. S-corporations, LLCs, and LLPs can elect to be disregarded for tax purposes so that instead of being taxed at the business level and again at the owner level, the business is treated more like a sole proprietorship or partnership. Owners are taxed only at the individual level, generally in proportion to their ownership interest in the business. Unlike sole proprietorships and partnerships however, the other entities retain their limited liability while taking advantage of the tax treatment.
OTHER CONSIDERATIONS
Limitation of liability and tax treatment are but two factors to consider when choosing the type entity for your new business. Other questions owners should consider include how do you plan to transfer assets in and out of the business? Will certain owners be employed by the business and others merely hold a passive ownership interest? Will the business have employees that receive benefits? How will the business be transferred to the next generation, and does that fit with your current estate plan? Exploring these questions with your advisors before making a selection will help you make the right choice, and whether in a literal or figurative sense, keep you from being handcuffed.
Monday, March 16, 2009
TM and the Digital Age: Does SciFi need to be SyFy?
NBC Universal has announced that as of July 2009 the SciFi channel will be changing its name... to the SyFy channel. Phonetically there is no difference between the names, but SyFy represents a chance to trademark the company name, whereas SciFi was too generic and common to receive trademark protection. The channel (lovingly referred to as Skiffy - another phonetic pronunciation, that will need to be rethought - by its fans) is hoping that owning the trademark on the channel name will help it to market and gain some brand distinction. Considering the outlets for digital media, this seems to make some sense. While there may be some ground-level dissonance about the switch, will people really stop watching a channel because it changes its name (and really only its spelling)? I do not believe so. However, from a legal perspective, this change represents a great opportunity for SyFy to brand, market, trademark, and protect its intellectual property. The importance of the TM and circled R should not be underestimated. Considering the amount of traffic sites like YouTube generate, protecting your intellectual property must be a priority in this digital era.
Thursday, March 12, 2009
Polsky v. Virnich: Last Stop on the Gravy Train
A case recently heard by the Wisconsin Supreme Court might greatly shift the balance of power between corporate executives and creditors in Wisconsin. In most jurisdictions, when a company's debts begin to greatly exceed its assets, the directors owe a duty to the creditors to conduct the business and collect money for their benefit. For quite some time, Wisconsin law has been in the minority. As long as the company is operating, the directors owe no special duty to creditors. In Polsky v. Virnich, the owners/directors of a company siphoned off money in the form of executive compensation while running up huge debts. The Wisconsin Supreme Court recently heard oral arguments and will have a chance to bring Wisconsin's law in line with the majority rule. For a full analysis, see Michael Rust's article on the possible impacts and outcomes.
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