3 Must-Have Business Agreements

Hollywood movie mogul Samuel Goldwyn, founder of MGM, once said: “A verbal contract isn’t worth the paper it’s written on.” It’s a good idea for small business owners to put agreements in writing. Here are three agreements that you should definitely consider getting in writing.


Confidentiality Agreement
Your company many not have a secret formula as valuable as those used by Coca-Cola and KFC, but every company has some information that it does not want to become public. Whether customer lists and pricing information or new products and processes, you have valuable business secrets. To help protect that info, use a confidentiality agreement (also called a nondisclosure agreement).

A confidentiality agreement is a contract signed by your employees or any third parties with whom you intend to share confidential information. By signing the agreement, the employee or third party agrees not to share that information. For example, if you’re considering a joint venture with another company, you’ll likely need to divulge certain information about your business; make sure it remains confidential by having an agreement in place before you discuss it.

Find free sample confidentiality agreements at:

• IPwatchdog.com (agreement for inventors)
• MoreBusiness.com (agreement with third-parties)
• oneCLE (employee agreement)

Buy-Sell Agreement

If you have co-owners in your business, it’s wise to decide what happens to an owner’s interest when he or she retires, dies, or just wants out. This can be settled by the terms of a buy-sell agreement.

The agreement can be constructed in several ways:

• Cross-purchase agreement, in which the remaining owner or owners buy out the interest of the departing owner. This type of agreement works best if there are only two owners in a business; it gets cumbersome when multiple owners are involved.

• Redemption agreement, in which the company buys back the interest of the departing owner. This type of agreement works best when there are several owners.

• Hybrid agreement, which can include both a purchase and buyback.

The buy-sell agreement should be made when the company is started, but can be created at any time.

Here are some features to include:

• The type of buy-sell agreement (e.g., cross-purchase agreement).

• A list of triggering events, such as retirement, disability, personal bankruptcy, divorce, or death.

• A mechanism to determine the value of the departing owner’s interest. This can be a formula clause in the agreement, a requirement that an appraisal be obtained at the time of the triggering event, or some other method. It’s usually not a good idea to set a fixed value in the agreement because it may not reflect changes in value by the time of the triggering event.

• The funding that will be used to pay for the buyout. Life insurance usually is used for buyouts at death; other funds must be used for buyouts for other triggering events.

Find free sample buy-sell agreements at:

• DocStoc (for limited liability companies)
• Jian.com (for corporations)
• Meg Financial (for corporations)

Independent Contractor Agreement

Many businesses hire contractors as a way to lower operating costs while still getting things done. The problem is that the IRS and the states will look at how you classify your workers, and if it’s determined that your contractors are really employees, you are liable for payroll taxes, employee benefits, workers compensation, and unemployment coverage for them, too.

Worker classification is primarily based on the degree of control you exercise over the workers. One factor in determining control is the relationship of the parties. If you and the workers agree up front that the relationship involves independent contractors and is not an employer-employee relationship, this helps to avoid reclassification of workers as employees. A good way to show the relationship is with an independent contractor agreement.

The agreement should include the following points:

• A statement about the relationship of the parties.

• A statement that the worker acknowledges responsibility for taxes and insurance.

• Language bolstering independent contractor status, such as that the worker is required to furnish his/her own tools

While the agreement is not binding on the IRS, it can help demonstrate worker classification if the IRS has questions.

Find free sample independent contractor agreements at:

• DocStoc.com
• FindLaw
• LectLaw.com

Bottom Line

While sample agreements may be useful in getting ideas for your situation, it is highly advisable to have any agreement you prepare reviewed by your attorney. Your attorney can tailor your agreement to your company’s specific needs and make sure it complies with the laws in your state.

By Barbara Weltman

Barbara Weltman is an attorney, author of several business books including J.K. Lasser’s Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and her monthly e-newsletter Big Ideas for Small Business®; both are available at www.barbaraweltman.com, and host of Build Your Business Radio. Follow her on Twitter @BarbaraWeltman.

 

Source:  http://www.openforum.com/idea-hub/topics/managing/article/3-must-have-business-agreements-barbara-weltman?cid=em-smartbrief

5 Tips For Avoiding Legal Problems

• Arm yourself with basic knowledge of business law so that you’re alert to your company’s obligations and rights.

• Practice prevention. Have your attorney review contracts and agreements before they’re signed.

• Get your attorney’s opinions on documents you have drafted—such as employee policies—before you put them in place. You want to make sure they meet the requirements of the law.

• Familiarize yourself with trademark and patent laws so that you don’t violate them. Learn how to apply for a trademark or copyright should you need to do so.

• Understand the law as it pertains to your organizational structure. Your legal obligations as a C corporation, for example, will differ from those as a sole proprietor.

Article here:  http://www.score.org/5_tips_leg_1.html

New rule on 1099 tax forms

From Chicagotribune.com

Small-business advice: New rule on 1099 tax forms
Also: Protect company computers from laid-off employees.

By Karen E. Klein

September 13, 2010

Dear Karen: Does the healthcare law require me to send out more 1099s?

Answer: A provision of health insurance reform that goes into effect in 2012 requires companies to issue a tax form 1099 to any vendor with whom they spend $600 or more annually on goods or services. It is an attempt to close an estimated $300-billion tax gap on unreported income, said Gregg Wind, a certified public accountant with Wind & Stern in Los Angeles.

Because companies currently issue 1099s mainly to independent service providers, accountants have warned that this provision could double accounting costs for small firms. But because the provision is controversial, it may be overturned or limited before it goes into effect.

“Hopefully the impact will be minimal for somebody who’s using an automated tax package. If nothing else would spur small companies to automate, this might do it,” Wind said.

• Cut off ex-employees’ computer access

Dear Karen: How can we protect our business from laid-off employees?

Answer: Aside from securing your physical premises, make sure you block former employees’ computer privileges, said Jon Heimerl, director of strategic security for Solutionary, an information security firm.

Before laying off an employee, determine where he has access to the company’s computer files and networks, including e-mail, internal systems and customer accounts. Revoke that access as soon as he is let go, then scan all your systems for viruses and malware and make sure you back up everything, Heimerl said.

Small-business questions? E-mail Karen at smallbiz@latimes.com

Copyright © 2010, Los Angeles Times

Full Article Here: http://www.chicagotribune.com/business/smallbusiness/la-fi-smallbiz-qa-20100913,0,2900949.story

Insurance Suggestions for Small Business

The United States is a very litigious  society; someone is to blame and at fault for something.   While we won’t take up the responsibility debate on this blog, we will focus on reality and small business needs, home-based or not.  Simply, many businesses require some level of basic insurance to cover potential liability.

Depending on the legal business structure, you may be personally liable for any claims of damage, defective product, breakage, loss of client revenue, etc.  Examples include computer consultants that should probably carry errors and omissions (E&O)  insurance.  This is an insurance form that protects the insured against liability for committing an error or omission in performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury and property damage.*

A second general common business insurance policy is broad form comprehensive general liability (BFCGL) endorsement. This insurance is a comprehensive endorsement to be attached to pre-1986 editions of the standard general liability policy that provided coverage enhancements including blanket contractual liability; personal injury and advertising liability; premises medical payments; host liquor liability; fire legal liability on real property; broad form property damage liability, including completed operations; incidental medical malpractice; nonowned watercraft liability; limited worldwide coverage; additional persons insured (employees); extended bodily injury coverage; and automatic coverage for newly acquired organizations.*

Insurance policies are vital if:

A) You have personal assets you might lose in a legal judgment

B) The business legal structure is a Sole Proprietorship or S-Corp where no corporate protection exists

Consider carefully your business risks and whether you can sleep at night without adequate coverage and possibly losing a great deal of money to a zealous litigator and client.

Disclaimer:

The author(s) of this article, Homepreneurs, and affiliated entities are not certified insurance agents and claim no expertise or authority in the insurance industry.  Readers of this article are strongly encouraged to contact an appropriate insurance broker, agent, or appropriate entity to review individual circumstances.  This article is solely an opinion of the author(s) who holds no liability for insurance options chosen by an individual, individuals, or organizations.

* Insurance definitions copied from the glossary at http://www.irmi.com/online/default.aspx

Licensed, Bonded, and Insured – A Summary

A typical marketing phrase used by many companies – large and small – is “We’re licensed, bonded, and insured.”  What exactly is the meaning of each of these?

Licensed

For specific professions, a license is required to prove competency and/or permission to conduct business (in an area of expertise) in a defined geographic area, including (but not limited to) cities, counties or states.  For example, attorneys are ‘licensed’ to practice law in states where they have passed the bar exam.  Licenses can be verified by local governments, trade associations or the Better Business Bureau.  Companies that are licensed will often list the license number on their advertising documents.  Write down the number and verify with the mentioned agencies to ensure accuracy.

Bonded

Money is set aside by a company, secured by a bonding company, and controlled by the state as a ‘bond’.  Since the money is in control of the state, the company has no access to these funds and is available for claims made against the company. Bonding generally suggests that a bonding company has conducted a thorough background investigation and determined that a company (or individual) is ‘risk worthy’ enough to have their work guaranteed against possible claims.  If a claim is filed, an investigation is conducted (likely by a state agency) and the bond is used to pay the claim.  Bonding issues can vary by state; once again, do your homework.

Insured

Much like personal insurance, this refers to 3rd party coverage for damages that may be caused by the company and/or worker employed.  In some states, companies (or individuals) without insurance could potentially hold the customer liable for damages, e.g. a contractor falling off roof while replacing shingles.  Again, prior to having work done by a contractor, ask for proof of their insurance.

In summary, it is advisable that ANY company/contractor/worker hired to perform a service is licensed (if applicable), bonded, and insured.  In a litigious society such as ours, the risk of lawsuit is too great to risk loss of personal assets for physical or bodily damage done to a hired party.

By Dion D. Shaw

Dion D. Shaw is the founder and owner of Homepreneurs

Homepreneurs.  New Day.  New Opportunity.

Disclaimer

Homepreneurs does not endorse nor have any relationships with any of the services listed.  Homepreneurs receives no compensation or consideration for its suggestions.  Homepreneurs strongly urges all interested parties to conduct research and accepts no responsibility for any losses incurred.

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