When your business doesn’t need a lawyer.

When your business doesn’t need a lawyer.

Why is a lawyer writing to tell you when you don’t need to hire a lawyer? Because it’s a question that many business owners ask themselves all the time, and one that I frequently answer.  This is the first in a series of articles that will hopefully guide you as I frequently guide my clients.

Entity Formation – No, you don’t need a lawyer to form an entity.

Anyone starting a business can access volumes of information about types of entities, the pros and cons of various entity types, and the necessary legal process to form an entity. Assuming you have decided what type of entity to form (which is a question about which you may wish to consult a lawyer), almost anyone can walk through the steps to form the entity. Most states, including Maryland, allow you to form an entity online and provide resources to assist with the process.

While there are more entity types than LLCs and corporations, these two are the most common entities for businesses and the two that I will deal with in this article.

The requirements for forming an LLC are generally simpler than forming a corporation. This is because, when an LLC is formed, the LLC members (owners) do not have to answer questions about the type of stock that will be issued, the initial selection and election of directors and officers, and what type of organizational structure is desired.

If the entity is a corporation, though, there are questions that you should ask and for which you should consider hiring a lawyer (or accountant) to weigh in on professionally:

·      Do I want my corporation to be a “close” corporation? 

·      How many shares should be authorized, and what will the par value be?

·      Do I want more than one class of stock?

·      Who should the initial directors be?

The answer to the above questions will affect what is set forth in the company’s articles of incorporation. If the articles are not correct, they will need to be amended, which, once formed, can be more rigorous than getting it right from the start.  So long as you properly set forth the above information in the articles of incorporation, you don’t need a lawyer to file the articles for you.

Hint: Beyond the actual formation of a corporation, many state statutes require other documents to be completed and other actions to take place if the corporation is to be operated properly. Those actions include the issuance of the stock, the drafting and filing of the organizational minutes, the adoption of corporate bylaws, etc. If these additional steps are not completed, a corporation may lose the limited liability protection that the corporate shield provides.

Who can go without hiring a lawyer to form the entity?

·      Business owners or founders desiring to form an LLC.

·      Business owners or founders desiring to form a corporation who know the answers to the above questions.

Who should consider hiring a lawyer?

·      Business owners or founders who need assistance with the responses to the above questions.

·      Business owners or founders who need assistance with the steps required after the formation of a corporation.

Hint: Many lawyers and firms provide entity formation services that go beyond merely filing the required document with the state. Those services will include the initial discussions about which type of entity to form given the type of business and operational structure you desire. The services will also typically include your ability to ask a lot of questions during the process as well as the follow-through tasks of the corporate formation process including drafting the by-laws, organizational minutes and preparation of the stock ledger and issuance of stock certificates.

This article is general information only and does not constitute legal advice based on any factual scenario. Any situation involves knowing all of the facts surrounding the issue and there is no way in an article like this that all facts can be known. If you have specific legal questions, you should contact an attorney and enter into an agreement of representation. This is not such an agreement and no attorney-client relationship is created herein.

What, exactly, is an easement?

What is an Easement?

An easement is the legal or equitable right of someone to use the land of another for a specific or special purpose, often to travel over the land in question to reach another area of land.  An easement is a legal right if it was created by a legal instrument, like a deed. An easement is an equitable right if it is needed to ensure access to or fair use of another piece of land, for example a property without access to a road would be entitled to an easement over other land in order to reach the road.

The person or entity that owns the easement is called the dominant estate, while the land the easement lies on is called the servient estate.

An easement can last forever, unlike a lease or license, but it does not give the dominant easement the right to sell or improve the land, although the land may be maintained.

Most homeowners are familiar with utility easements -- rights to access property given to power and cable companies.  Counties or localities often also have easements to ensure proper care of roads and sidewalks.  These easements allow the dominant estate to enter onto the servient estate whenever needed for access or maintenance.

If the easement is documented in a deed or other written agreement, it should set forth clearly the rights and responsibilities of both the dominant and servient estates and is the definitive source to understand what the easement entitles the servient estate to do.

Independent Contractor or Employee? (Or, am I like an Uber driver?)

INDEPENDENT CONTRACTOR OR EMPLOYEE?

            Are you an independent contractor or an employee? How do you find out and why does it matter anyway?

"Independent contractor" and "employee" are not just insignificant names or labels in Maryland. This distinction is legally important and just calling someone by one name or the other,or reporting earnings on a Form 1099 instead of a Form W-2, does not make them what they are called. The specifics of the work must be looked at. A  multi-pronged test is used under both Maryland and federal law to determine whether you are an independent contractor or an employee. These terms are explained in a complex web of Maryland and federal case law, statutes, and regulations. This article does not answer specific questions, but gives a general guideline of the factors applied in determining whether you are legally deemed to be an independent contractor or an employee. Some of these factors are: control, hours, work location, pay schedules, expense reimbursement, tools and materials, training, continuing relationship, reporting, benefits, supervision, level of flexibility, and hiring and firing.

In general, an independent contractor is likely to have more control over his or her work and more flexibility to work when and where he or she likes, with less supervision and accountability on the daily steps of the work involved. Often, an independent contractor can schedule their own hours, may work offsite, and may not have a typical boss or supervisor. An independent contractor is responsible for getting the specified work done in the manner that they choose. This, however, does not mean that they lack accountability. An independent contractor still has a specified job to do and a deadline by which to have it done. Independent contractors may be paid hourly or per project. They typically do not receive benefits such as health insurance, disability insurance, unemployment insurance, sick leave, or vacation pay.

In contrast, an employee, in general, has much less control and flexibility. Typically,an employee has a boss or supervisor, specified hours, and parameters set by an employer on how and when work should be done, to the employer's standards.  While many employees work in an office, some tele-commute or work remotely, but are still under the control of the employer. Employees may be entitled to receive benefits including health insurance, life insurance, disability insurance, unemployment insurance, pension or profit sharing, and sick and vacation leave.

So why does it matter whether you are an employee or independent contractor? First, employees are protected by a variety of wage and anti-discrimination laws that do not necessarily apply to independent contractors. Another ramification of the classification as an independent contractor or employee is that an employer is required to withhold certain federal and state taxes, such as Social Security or "FICA" taxes, worker's compensation and unemployment taxes, and other payroll taxes, from an employee's paycheck. An independent contractor, however, does not have these taxes withheld and instead must file and pay quarterly tax returns and pay estimated tax with Maryland and the Internal Revenue Service. If an employer improperly classifies a worker as an independent contractor when the person is actually an employee, the employer can be liable for back withholding taxes and even fines and penalties.

An overall summary of these issues can be found on the Maryland Department of Labor, Licensing and Regulation website at:

http://www.dllr.state.md.us/labor/wagepay/wpempindcont.shtml

and at the Maryland Workers' Compensation Commission website at:

http://www.wcc.state.md.us/gen_info/wcc_benefits.html

                For federal tax status, the IRS has published helpful information on the factors taken into consideration by the federal government in evaluating whether one is deemed to be an independent contractor or employee:

https://www.irs.gov/pub/irs-pdf/p15a.pdf

                                                               The Uber Case     

           In addition to many of the challenges faced by Uber worldwide, a recent hot issue has arisen in the US as to whether Uber drivers are employees or independent contractors. State courts have come to different conclusions. Maryland has not considered this issue in the Uber context, but it stands to reason that this issue is one with nationwide appeal. 

           Recently, a California Labor Commissioner decided that Uber's classification of its taxi drivers as independent contractors is wrong. In 2014 an Uber driver in California named Barbara Ann Berwick filed a wage complaint in California, seeking reimbursement for business expenses -- gas and bridge tolls. Some other states considering this same issue found that people working for Uber were, in fact, independent contractors. In the California case, Uber refused to reimburse these expenses arguing that Berwick was an independent contractor, not an employee entitled to such reimbursement. 

           The California Labor Commissioner awarded Berwick these expenses, finding that Ms. Berwick was an employee under a detailed "economic realities" test under California law. The Commissioner noted that Uber provided iPhones to its drivers, monitored and required certain ratings for all drivers, and had sole discretion to set and negotiate the prices customers would pay. The Commissioner also found that Berwick's job did not require a special skill. In addition, in weighing these factors, the Commissioner found that Uber had a large degree of control over its drivers, thus making them employees, with the full protections to which employees are entitled. 

          While Maryland is not bound by a California decision, it can be persuasive. The Uber issue is a prime example of the varied factors and interpretations used in determining whether one is an independent contractor or employee.

What Should a Maryland Employer or Employee Do?

When accepting a position or hiring, it is critical to keep in mind that whether you call someone an independent contractor or an employee has significant ramifications. Simply calling a person an independent contractor will not legally make it so. Misclassifications can cause independent contractors to miss out on key employment benefits and protections and can result in penalties for an employer, including payment of back taxes, fines, and other penalties.

For people working in the construction, home improvement, and landscaping areas, Maryland law provides some protection against misclassification by employers. The Maryland Workplace Fraud Act of 2009, which was amended in 2012, sets requirements for the classification of a person as an independent contractor or an employee. This was enacted because too many people in these jobs were automatically told they were independent contractors, when they might have legally been employees entitled to employment law protections and benefits.

Because the classification of a worker as an independent contractor or employee requires a careful analysis of many factors, it is wise to obtain legal counsel and speak to an accountant when you are unclear on this important issue.

For more discussion, see  http://www.paleyrothman.com/wp-content/uploads/2013/11/MBJ_Nov13_final_krasnoff_hammerschmidt.pdf; and http://www.msba.org/uploadedFiles/MSBA/Member_Groups/Sections/Labor_and_Employment_Law/laborwinter11.pdf.

FRANCHISE LAW IN MARYLAND

                Franchise law is complicated. According to the Maryland Attorney General, Maryland is one of about 15 states that requires "registration" of franchise offerings.

                  

                What is a franchise?  Maryland Annotated Business Regulation Code,  Section 14-201 defines it as follows:

        

                (1) "Franchise" means an expressed or implied, oral or written agreement in which:

                (i) a purchaser is granted the right to engage in the business of offering, selling, or distributing   goods or services under a marketing plan or system prescribed in substantial part by the franchisor;

                (ii) the operation of the business under the marketing plan or system is associated          substantially with the trademark, service mark, trade name, logotype, advertising, or

                other commercial symbol that designates the franchisor or its affiliate; and

                (iii) the purchaser must pay, directly or indirectly, a franchise fee.

                (2) "Franchise" includes an area franchise.

                "Franchisor" means the person offering to sell a franchise. The term "franchisee" means the person buying a franchise.

                There are many laws and regulations in effect to require fair dealing and full disclosure regarding proposed franchise sales and purchases. In addition to the laws governing franchises set forth above, there are many regulations that you must comply with under Maryland's Code of Regulations ("COMAR"). Currently, these regulations are set forth in over 116 pages and can be found at  http://www.oag.state.md.us/securities/SecuritiesAct.pdf.  For more information, see the following links from the Maryland Attorney General's Office:

Information for Franchisors : Before you offer a Franchise in Maryland.

Information on Renewing and Amending a Franchise Registration

                 A Franchisor also has to comply with Federal laws and regulations of the Federal Trade Commission.

                As if selling or buying a franchise isn't complicated enough, there are many potential issues that can come up  including: registration, renewal, advertising, civil enforcement, criminal penalties, record keeping, liability and releases, false or misleading prospective information or statements, material changes and notice requirements, registration, escrow requirements, disclosure forms, and other financial and legal issues.

                Given the complexity of franchise law, it's wise to hire a knowledgeable attorney to assist you, whether you plan on buying or selling a franchise.

Do I Owe Self-Employment Tax?

                If you are "self employed" you must pay "self employment taxes." According to the IRS, you are self employed if you are a sole proprietor, independent contractor, member of a partnership, or are otherwise in business for yourself, including part-time businesses. 

                The term "self employment tax" or "SE tax" is somewhat a misnomer, as there are not taxes, per se, that are called self employment taxes. The term instead refers to certain taxes that are generally paid by a combination of an employer and an employee. If an employee is employed by an employer, the employer and employee are each liable to pay half of Social Security and Medicare taxes which are based on the amount of wages paid to the employee.The current rates for SE taxes (Social Security and Medicare) are: "6.2% each for the employee and employer, unchanged from 2015. The social security wage base limit is $118,500, unchanged from 2015.The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2015. 

                If you are self employed, you are required to pay both the employer and employee share of SE taxes.  Thus, self employed individuals must pay a combined total of 15.3% of net income for these taxes (on income up to the limit).  And, since there is not an employer that is paying wages in a paycheck subject to tax withholding, you are required to pay estimated quarterly taxes.  These taxes are owed on the net profit from business income. In order to determine any net profit you subtract qualified businesses expenses and deductions from your gross income to get the net profit. If you have a net loss of income, you will not owe taxes.

               Because tax laws are complicated and changing, it's wise to seek advice from a business attorney and an accountant with expertise in areas affecting self employed individuals. As an overview, the IRS Small Business/Self Employed website has helpful information and tax document links, found here: https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Publications-and-Forms-for-the-Self-Employed

               

Do I Need a Lawyer for a Contract Review?

The contract might seem incredibly simple. You found a great form online, you’ve gone over the details several times and it looks like you might be able to come to a final agreement. Good intentions have been expressed on both sides. However, as the saying goes, “business is business.”
You might be dealing with a family member or a friend you’ve known for years, but that’s not enough to guarantee peace of mind. There could be legal ramifications if you choose to draft your contract without the assistance of a lawyer. In fact, doing it without a lawyer could lead to problems down the line.

You might choose to go with a verbal contract. They are allowed, but can be difficult to enforce in court. If it’s on paper, you have something on record, and that’s the key if a dispute ever arises. It’s also strongly recommended that you have a lawyer review your contract. Although you’ll find plenty DIY (do-it-yourself) opportunities, your best course is to seek the help of a Maryland business lawyer who can help you craft the right contract for your needs.

Here are some basics to consider when putting your contract together.

Have a Plan
In most cases, it’s fine to create an outline of what you’d like your contract to be. Whatever specifics you want in the contract should be included.  You will need to ensure that all terms are put the contract, even those seemingly innocent verbal agreements. Additionally, if your business partner resides in a different state, it’s a good idea to decide which state’s law will apply to the contract (you’ll have to choose which state). Leave nothing to chance. Have your attorney work with you to create a plan that works best for you.

When Things Don’t Work Out
Nothing’s ever perfect and even the best plans can be waylaid. That’s where a detailed contract can come into play. It gives you insurance against a worst-case scenario if your business venture doesn’t work out. The contract can spell out exactly the way you’d prefer to resolve any differences, whether it’s through mediation or arbitration. Your dispute doesn’t have to always be solved in court.

Protect Your Intellectual Property
When it comes to creative ventures, as much as you’d like to ignore the business aspect, the reality is that a well drafted contract will save you a headache (and legal fees down the road). If you’re engaged in a publishing business, whether you’re writing the next great novel or inventing a new technology, you need to take protecting your intellectual property very seriously. Even if the contract seems straightforward, you should always have an attorney review the document.
  
It’s About Your Best Interests
No matter how you decide to move forward with your business venture, having a contract is the first step to protect you and cover your bases if something goes wrong. More importantly, a contract is essential to keep your best interests covered, and a skilled Maryland business attorney can deliver the content (and protection) that you need. A contract review attorney can help steer you in the right direction, so everyone involved can rest easy and feel confident.  

Katherine Taylor is an experienced Maryland business attorney who has reviewed, drafted and litigated hundreds of contracts. Go to www.taylorlegal.com for more information. 

How Do I Sell My Small Business?

            You own a small business. It may have been a good experience or a headache but for whatever reason, you've decided to sell it. You've never done this before and aren't sure what's involved.

            The first thing is to carefully analyze your business from every angle. Get all of your business documents organized. These could include financial records, profit and loss statements, accounts receivables, tax returns, transferable leases, contracts and agreements, pending orders, furniture and equipment lists, warranties, covenants not to compete, and consulting or management agreements, among many other possible things particular to your business. If the business operates as an LLC, make sure you have your articles of organization and any operating agreement available. If the business operates as a corporation, make sure all of your governing documents are in one place and up to date.

            Before you attempt to sell your small business you want to have a clear handle on what you are selling and be able to present it accurately and to your best advantage. Doing the above organization will help you ensure that you have covered each aspect of your business.

            Early on, you will need to decide whether you will be selling the assets of the business or whether you will be selling the ownership interests (LLC interests or corporation stock). You should consult with a tax professional at this point because the type of sale can affect your tax situation. This can be tricky. Since there are tax ramifications in the sale of a business, you not only want to be sure that you sell your business for the right price, you also want to know what, if any, tax liability you will have after the sale closes.

            Next you want to be sure that you have accurately valued your business and/or the assets of the business. You will likely need to hire a business appraiser. Often a broker is hired to help in this process. A broker will be able to develop a marketing plan and sales strategy.  You will want to be sure you have research supporting the value of your business and your sales price, with supporting information tailored to your type of business and location. 

            It is likely that the sale of your business will be more complicated than you think. You should have a purchase agreement or letter of intent for the proposed purchaser. With this is hand, you know you have a prospective buyer but you are not done yet. You need to do your "due diligence,' meaning to check the finances and representations of the prospective buyer to see if you wish to move forward with this buyer. If not, the whole process starts again.

            Once you have found a buyer that meets your criteria, you will want to have a detailed contract for the sale of your business drawn up. This is a critical document with all the important terms and details of sale. Therefore, it is very important that it is accurate, complete, and covers all areas. Not doing so can invite costly litigation or disputes after the closing. It's wise to have an attorney draft the contract. You'll want an attorney you are comfortable dealing with to do this, and one who understands your business and objectives in the sale.

            If you sell the ownership of the LLC or corporation, after the sale the entity will continue under new ownership and you, as the former owner, can enjoy the fruits of your years of labor. If, however, you sold only the underlying asset of the business, then after the sale of assets you will continue to own the entity. A knowledgeable business attorney can also help you file necessary legal documents to dissolve your business. For example, if you own a corporation, it you may need to file articles of dissolution. This is an important step to ensure that there is no lingering liability or obligation for you as owner.

           

            

WHAT IS AN S CORPORATION?

             Exactly what is an S corporation and what types of businesses may be interested in being an S Corp?  First, it is very important to understand that an S Corp is a FEDERAL TAX STATUS of a corporation and not a type of entity. What does this mean? This means that when you form a corporation in Maryland (or any other state), you do not form an S Corp per se. In Maryland, you will form a regular corporation and then file an S Corp election with the IRS. (The Articles of Incorporation and/or the Organizational Meeting minutes will state that the corporation's owners will elect S Corp status.)

             So, why would my corporation choose to be an S Corp? Under IRS regulations, because a corporation is a separate legal entity, it must usually file a tax return and pay taxes on its taxable income. However, the IRS regulations allow certain small businesses to be treated for tax purposes as if they were being run by the owners themselves without a separate entity. Under Subchapter S of the IRS regulations (this subchapter is where the name "S Corp" comes from), a corporation can elect to have the IRS disregard the corporation as a separate taxable entity and allow the taxable income or losses of the business to be reported on ("flow to" or "pass through" to) the owner of the business in proportion to their ownership shares. This prevents "double taxation" of corporate income because the income is taxed only at the owner level rather than at the corporate level as income and then again at the owner level as dividends.

            Aside from the avoidance of double taxation, an S corporation offers flexibility regarding

how earnings are paid to its owners, whether they are paid as salaries (subject to FICA and other taxes) or as distributions, not subject to these taxes. An S corporation must file a tax return but the

shareholders, not the S corporation,  pay taxes on profits on their individual tax returns. 

            The I.R.S. has very specific criteria that must be met before an S corporation election is

approved. To be eligible a corporation must:

            1. timely file Federal Form 2553;

            2. have no more than 100 shareholders, who meet the specified I.R.S. definition of "shareholder;"

            3.  have no nonresident alien shareholders; and

            4.  have only one class of stock.

            5.  and not be an "ineligible corporation" under the I.R.S. Code.

            The following links provide more information on the required form and criteria in order

to be a qualified S corporation: https://www.irs.gov/pub/irs-pdf/f2553.pdf.

https://www.irs.gov/uac/Form-2553,-Election-by-a-Small-Business-Corporation.

            Before attempting to file these forms, however, you first must incorporate in

Maryland and file the required documents with Maryland's State Department of Assessment

and Taxation ("SDAT"),  found at http://dat.maryland.gov/businesses/Pages/Maryland-Checklist-for-New-Businesses.aspx.  Maryland requires that any corporation provide the following information: name of corporation, purpose for which the corporation is formed, the addresses of the principal place of business and resident agent, the issuance of stock shares and the par value, the number of directors pursuant to the bylaws (which  can be increased or decreased), and the name of the directors and successors who shall act until the first meeting or until their successors are chosen.

            Once the corporation is filed, the next step is to file an I.R.S. Form 2553 to elect S

corporation status.  After both of these steps, if all criteria has been met, an S corporation is

valid.

            Once the S corporation is formed there are legal requirements going forward. The most important requirements relate to the number of shareholders and the type of person or entity that can be a shareholder. S Corps are also limited to certain classes of stock they can issue. For this and other reasons, many tech startups planning to look to venture capital investment should not elect S Corp status. 

  

            Since there are many considerations in evaluating what type of business entity is best for

your  business, and once you decide that, how to go about meeting the requirements for both

setting up and then maintaining your business, an attorney can be one of you most valuable assets.

DO YOU WANT TO FORM A MARYLAND SMALL BUSINESS?

            Are you considering starting a small business in Maryland? If so, it is important that you select the right type of entity and comply with Maryland requirements. A Maryland business attorney and accountant can be helpful in guiding you through the necessary steps. As a broad overview, take note of the following tips.

            1. What type of entity should my business be?  This depends on many factors.

Maryland recognizes the following business entities: sole proprietorship, general partnership,

corporation and limited liability corporation. Sole proprietorships and general partnerships do

not require the formation of an entity. Instead, Maryland simply requires registering such

businesses with the State Department of Assessments and Taxation and paying personal property

assessments.  In contrast, corporations and limited liability corporations must be properly

registered business entities with the State Department of Assessments and Taxation. Regardless

of the type of entity, certain businesses in Maryland also require a business license.

            2. Do I need a Business Name? The name of your business can be critical.  You want a

name that suits your business and can be used effectively in marketing. However, for a

corporation, you must ensure that the name you select is available in Maryland and then file

required forms with the State Department of Assessments and Taxation.  If you have a trade

name or trademark, you should also considering registering them. Trade names can be registered

with the Maryland Department of Assessments and Taxation. Trademarks can be registered with

the U.S. Trademark Office. An experienced Maryland business attorney can assist with this.

            3. How are taxes paid? All businesses must pay Federal and Maryland taxes. New

businesses should obtain an "EIN," or taxpayer information number from the IRS. This is needed

for withholding and tax payments. Your new business should also obtain a Maryland Combined

Registration Number from the Maryland DLLR if the business will have employees.

            4.  Are there zoning considerations? Where you locate your business is

another key consideration. You must comply with local zoning laws to be sure that your business

can be located in the area you select. If you plan to run your business from home, you must be

sure that there are no zoning restrictions for home-based business.

            5. Do the founders need an agreement in writing?  Absolutely yes! If there is more than one founder, you must have an agreement - called an operating agreement for an LLC and a shareholders' agreement for a corporation. This is something that many founders forego, but not having a well drafted agreement can cost many headaches, a lot of money and even spur lawsuits later on. 

            These are some initial things to consider when planning a new business.  This list, however, is not exhaustive. There are many considerations. Selecting the right entity and carefully following Maryland's requirements can make a big difference and get your business off to a strong start.

Katherine Taylor is an experienced Maryland small business attorney who has drafted hundreds of operating and shareholder agreements. Go to www.taylorlegal.com for more information. 

IS RUNNING A HOME-BASED BUSINESS FOR ME?

                Running any type of business is challenging, but running a home-based business has its own set of challenges. If you are considering running a home based business you should thoroughly weigh the pros and cons for your type of business and your personal needs. You need a fit for both to be successful and happy.

                A wide variety of small businesses are home based. Examples include, daycare, home improvement, retail, cleaning services, bed and breakfasts, catering, baking and some franchises. Technology and the ability to run and stay connected to a business remotely, have made home based businesses much more common and acceptable today. According to the U.S. Small Business Administration (quoting Forbes magazine), more than 52% of all small businesses in the U.S. are home based. https://www.sba.gov/blogs/5-reasons-start-home-based-internet-business.

                In many ways, thoroughly evaluating two factors before you start a home based business are the most important:

                1. Does my type of business lend itself to being home based?

                2. Does my personality have the characteristics for a successful home based business?

                Oftentimes, the first thing people jump to is the legal requirements for running a home based business without really thinking through what it takes and whether it is the best scenario for you and your business. This is a big decision which should not be based solely on saving money or not paying rent.

                On the type of business, ask yourself if it's feasible to run your business from home? What kind of equipment or tools will you need? How much space will you need? Do you have a separate and dedicated office, computer, and phone? Do you have a business address? Does it matter? Will you need to meet with clients or customers? Will they be deterred from hiring you if you work from home? What zoning requirements are there for your type of business? Will you have room for employees and growth? What about parking? What about homeowner's nearby or homeowner association covenants? What about traffic flow? What about supplies and technology you will need?

                On whether a home based business suits your personality ask yourself if you would like not being in an office or around others regularly? Are you disciplined enough to work at home and ignore household chores and other distractions? Will you put in the required hours? Are you good at or do you have the money to hire someone to help you with taxes, payroll, necessary filings, accounting, marketing, equipment repair and maintenance, and every other aspect to keep your business afloat and flourishing? Can you really treat your home office like an office? Are you good at time Management? Do you have the discipline to treat this like your real job, which it is, without being tapped by friends and family during the workday to run errands or do non-work related things?

                Like any other type of business, there are people who love working from home and others who hate it. This is a personal decision. To help you, here are some links to websites and articles discussing this topic:

• https://www.sba.gov/content/home-based-business-zoning-laws
• http://commerce.maryland.gov/start

                If you decide that a home based business is right for you, you must still form the right type of business, get any necessary licenses, and comply with tax laws and other laws and regulations. http://www.taylorlegal.com for more information about Katherine Taylor, a Maryland business attorney. 

   

WHY YOUR START-UP COMPANY NEEDS A LAWYER

            If you are starting a new company in Maryland, particularly a small business, you may wonder, "why do I need a lawyer?"  With the abundance of information readily available on the Internet, couldn’t you save money on lawyer fees by not retaining a business lawyer from the outset and just hope legal issues either don’t arise or are simple enough for you to navigate on your own?  After all, you can find a lot of legal information readily available in Maryland, for example, on the State Department of Assessments and Taxation (http://dat.maryland.gov) and Department of Commerce (http://commerce.maryland.gov/start/resources) websites, such as the types of legal entities recognized, the forms to set up the type of entity you select, and some basic business information.

            However, retaining a knowledgeable Maryland business lawyer from the start has many advantages, including: advice on planning and starting your business, evaluating the right type of business entity for your needs, selecting a location, complying with zoning laws, tax planning and business deductions, employee issues, copyright/trademark, complying with regulations and business filing requirements, safeguarding your work product, understanding covenants not to compete, licensing and permit requirements, technology, financing, loans, and many other issues just to get our business off the ground and started on solid footing. Often starting a business is much more complicated and involved than most people realize.

            Consequently, advanced planning with the business knowledge of a reputable Maryland business attorney can save you headaches, money, and avoid potential costly legal battles that may have been avoided. An  attorney who understands your business model, goals, customers, competition, and cash flow can offer a wealth of wealth of strategic advice and help you steer clear of  rouble areas or effectively resolve them.

            So, while you can try to “wing it,” trying to piece together information from the Internet (perhaps not knowing whether certain cites are up to date or credible), it is advisable to have a trained lawyer skilled in understanding, explaining, and keeping up to date on statutes, regulations, and case law governing start-ups in Maryland.

            Katherine Taylor is an experienced Maryland business attorney and a former CPA who understands the ins and outs of starting a business. Go to www.taylorlegal.com to see more about TaylorLegal.

EMPLOYERS BEWARE! YOU MAY BE LIABLE FOR AGENTS' AND EMPLOYEES' ACTS

                In Maryland an employer can be liable for the negligence of an "agent, servant, or employee." The legal term for this is "respondeat superior." In Latin this literally means "let the master answer." First, while we often hear the word "negligence," what does it mean in this context? In general, negligence is a breach of a duty owed that "proximately" (or directly) causes the alleged harm. This is a threefold test and all three elements above are required to establish negligence. Therefore, questions arise in evaluating an employer's responsibility for an employee's  negligence include: Is the person someone to whom a duty was owed? What is the applicable "standard of care" (this varies depending on the context)? Was there any intervening act or omission that caused or contributed (called "contributory negligence") to the alleged negligence? If so, does this break the "chain of causation?" Applying this to the employer context, an employer can be held "vicariously liable" for negligent acts of an agent, servant or employee.

                Who is an "agent, servant or employee?" The definition of an employee was discussed at length in a previous blog written by Maryland business attorney Katherine Taylor (Employee or Contractor?). An agent is someone doing something on behalf of an employer, who Figuratively stands in the shoes of an employer and acts on his or her behalf. The arcane term Servant" comes from early Maryland common law and does not mean "servant" in the way we think of it today. Instead, it is basically another term for employee.

                Under what theory does someone sue an employer for negligence of an employee? The Theory is that an employer is responsible for the acts of an employee. Are there any prerequisites? An employee must be "acting within the scope of employment" before employer liability can attach. How does this work in the real world? Say an employee is driving a delivery truck for an employer and causes an accident. The first question to ask is whether the employee was acting on behalf of the employer. For example, when and where did the accident happen? Was the employee using the truck during regular work hours? Was the employee on a "mission" for the employer or was the employee doing personal business unrelated to the employer? Did the employee have a valid license? Did the employee have training or ability to drive the type of truck? Did the employee have a good driving record? If not, did the employer know this or should the employer have know about this?  Was the employer aware of any issue that should have prevented this employee from driving this truck for this mission?

                As you can see, there are many issues that can arise in the employer/employee context. What can an employer do to reduce the chances of being held liable for an employee's negligence?

The following tips can help:

                1. Carefully screen and interview potential employees to make sure they are a good fit for you and your business.

                2. Do a background check, including driving record and criminal history.

                3. Check references.

                4.  Communicate clearly what is expected and what is prohibited during employment hours.

                If an issue arises, you should think about contacting a Maryland business attorney who can help you wade through the many layered issues in an employer liability case.  A business lawyer experienced in this area can help you evaluate the facts, understand the law, advise you, and assert any available defenses on your behalf.

Katherine Taylor is a Maryland business attorney who has extensive experience dealing with employer/employee issues. Go to www.taylorlegal.com for more information.

Taylor Legal

Do I Have a Valid and Binding Contract?

          Is the agreement I just entered into a legally binding contract? In general, a valid contract requires four elements: offer, acceptance, consideration, and performance. The process begins when one party offers the terms for the contract. Next, the other party can accept, reject, or request to modify the contract. At this step there is often back and forth, with negotiation on the terms of the contract. If the parties agree to the terms, then consideration or something of legal value must be offered and accepted. This could be and is often money or services. If the above are met, the next step is performance. In order for the contract to be completed, there must be performance according to the terms of the contract.

            But before you can have a valid contract you must also have parties who have "capacity." In Maryland, this means that the parties must have reached the "age of majority," or 18. In addition, a party must not be under a disability that would prevent them from understanding the contract. They cannot be under "duress," which means unlawful coercion or force, taking away the voluntary consent to contract. A contract with willful misrepresentations may be  fraudulent and nonbinding. Instead, the basis of a valid contract is a mutual agreement, sometimes referred to as "mutual assent," and a "meeting of the minds." Contracts, to be valid, must be entered into freely.

            There are many issues that may arise after a valid contract is entered into. There may be issues such as what contract terms mean, the scope of the contract, the manner of performance, the consideration and the time frame, among others. The language used in a contract is critical. People drafting or signing contracts may not realize the legal implications of terms used.

            Most contracts can be oral or written. Certain contracts, however, such as those under the Uniform Commercial Code for the sale of "goods" must be written. Nevertheless, it is usually advisable to have a written contract. It is important to know that a written contract is interpreted from "the four corners," of the page, and cannot be modified or explained by "parole evidence," or outside evidence regarding what the contract really means. Consequently, it is critical that the written contract accurately says what you intend. There can be many legal issues with both the drafting and enforcement of a contract. If there is a "breach" of contract, or failure of one party to uphold the terms of the contract, legal action may be required.

            If there is a proven breach of contract, another issue is the measure of damages. This can be complicated and may require experts.

            The statute of limitations, or time in which to file suit for a breach of contract in Maryland is generally three years. However, there are some exceptions. Consult an attorney for the specific statute of limitations in any breach of contract case you face.

            Whether you are the promisor (person making the offer) or promissee (person to whom the offer is made), it is advisable to contact an attorney. Often doing so at the negotiation stage can save a lot of headaches and ensure that the contract says and does what you intend.