MAZURKRAEMER LAW 1

Legal Concerns for the Entrepreneur

By Salene Mazur Kraemer, Esquire, MBA, CTP-DPittsburgh, PA 15241

412.427.7075 phone, 412.221.3658 faxwww.mazurkraemer.com

salene@mazurkraemer.com

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Overview• A. Getting Started• B. Corporate Formation & Formalities• C. Hiring Employees or Contractors• D. Regulatory Compliance• E. Raising Money• F. Intellectual Property• G. Corporate Counseling• H. Contract Drafting & Review• I. Product Liability, Warranties, Advertising• J. Business Torts• K. E-Commerce• L. Exit Strategies

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A. Getting Started

• 1. Leave Current Employment• 2. Startup, Acquisition (stock or assets), Franchise• 3. Business Plan• 4. Location Selection• 5. Hiring Professionals• 6. Choose Business Entity• 7. Forming the Board

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Leave Current Employment

• Covenant Not to Compete • Trade Secrets• Invention Assignment Agreement• Misappropriation of Company Resources• Non-Solicitation Agreement

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Location Selection

•Office share•Commercial lease•Buy property•Virtual office•Location visibility

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Choose Business Entity

• Sole Proprietorship ***• C Corporation • S Corporation ***• Partnership• Limited Partnership (who is the GP and who is

the LP) ***• Limited Liability Limited Partnership• Limited Liability Company ***

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Considerations

• Number of Owners• Type of Owners• Personal Liability Protection• Tax status• Governing Agreement• Flexibility re: management/governance• Flexibility re: profit/loss allocations, as well as cash

distribution• Securities concerns- additional investors?• Liquidation of entity

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Hiring Professionals

• Accountant• Graphic Design Artist• Website developer/hosting• IT consultant• PR firm/social media consultant• Insurance• Banker• Lawyer (Corporate, IP, FDA, etc. )• Printer• Benefits Company

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B. Corporate Formation Documents

• Articles or Certification of Incorporation or Formation or Partnership• Written Consent of Sole Incorporator• Unanimous Consent of Board of Directors• Corporate Minute Book• Stock Certificates• Docketing Statement• Application for EIN• Name Reservation in State Incorporated and Where Intend to Do Business• Fictitious Name Filing• Certificate of Authority to Do Business in Other States• Publication of Authority to Do Business in State• Voting Agreements, • Necessary Tax Forms• Shareholders Agreement, Partnership Agreement, Operating Agreement• Buy-Sell Agreement

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C. HR Issues-Hiring Employees & Contractors

• Employment Agreements• Consulting Agreements• Covenant Not to Compete• Policy/Handbook• Discrimination Prevention• Pre-employment application/screening • Wrongful discharge v. employee at will• Equity compensation

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Employee v. Independent Contractor

• TEST IC- 1) control the outcome of a piece of work and the means and manner of achieving the outcome; 2) Offer services to public at large, not just one business

• IMP-employer does not have to pay social security or Medicare, unemployment insurance or workers’ comp for employee, no benefits, no retirement

• Lower paid, lower skilled often considered employees

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Important Legislation

• Civil Rights Act• OSHA• National Labor Relations Act• ADA• Age Discrimination• Family Medical Leave Act• Fair Labor Standards Act• EEOC

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Reduce Litigation Risk

• Pre-employment recruiting materials• Careful interview and screening process• Consistent job evaluations during course of

employment• Have written employment or independent

contractor agreements

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D. Regulatory Compliance

• Local, state (foreign or domestic), federal level • Zoning approval, permits and licenses• Insurance• Government

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E. Raising Money

• Business plan• Private placement memo• Stock Purchase Agreement/Subscription Agreement• Securities Compliance (both Federal and States)• Loan agreements (term v. revolver v. secured)• UCC filings, Security Agreements• Guaranty agreements

SOURCES: *Private investors (self, friends, family, angel investors)*Venture capital financing*Credit (term loan or revolver)*Strategic alliances, joint ventures*Loan funds*Issue common stock, preferred stock, bonds

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F. Intellectual Property

• Basic Forms– Patents– Trademarks– Copyright– Trade Secret

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IP Issues Continued

• Trade Secret Proprietary Information Program– Confidentiality or non-disclosure agreements – Non-competition and non-solicitation agreements– Invention Assignment Agreement

• Trademark, Service Marks-brands, logos, packaging or designs that are used to distinguish its goods and services

• Registered Internet domain name• Copyright for text, graphic, software, audio or film materials,

such as manuals or promotional or training materials• Licensing Agreements• International?

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G. Corporate Counseling

• Board Formation– Legally required– Selection, number, frequency of meeting, diversified, outside v.

interested, compensation– Synergy, credibility– Fiduciary Duty of Care to corporation and shareholders (BIOTC)

• Duty of Loyalty (no self-dealing, no usurp corp opportunity)• Duty of Care (“reasonable man” test)• Business Judgment Rule (disinterested, informed, shifts burden)

– D&O Insurance• Indemnity Agreement (officers)

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H. Contract Drafting & Review

• Commercial Property Leases• Equipment Leases• Agreements of Sale for Property• Loan Agreements• Sale of Goods (Supply Agreement, Distribution Agreement, Purchase

Order)• Engagement letters• Customer Contracts• Consignments• Management Agreement• Requirements and Outputs Contracts

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Contract Law Basics

• Basic elements (offer, acceptance, consideration)• UCC v. Common Law• Contract theories (breach of contract, unjust

enrichment, promissory estoppel, restitution)• Oral, written, implied• Statute of Frauds (goods over $500, real property,

contract longer than 1 years, pre-nup, assumption of debt)

• Remedies

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Remedies

• $ or Equitable (specific performance, injunction, recission)

• Expectation• Reliance• Restitution• Consequential (foreseeable)• Liquidation• Punitive

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Material Contract Terms

• Who are the parties?• Duties and Obligations• Payment Terms• Duration• Termination• Warranties and Representations• Indemnification• Boilerplate provisions

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Boilerplate Provisions

• Notice provisions• Governing Law• Waiver of Jury Trial• Amendment• Assignment• Attorneys’ Fees• Litigation v. Arbitration or Mediation

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Creditors’ Rights in Bankruptcy

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I. Product Liability, Warranties, Advertising

• Warranties (express (not puffing), implied warranty of merchantability, implied warranty of fitness for a particular purposes)– Limitation of Liability, AS IS clauses

• Products liability for defective products sold in dangerous or defective condition (strict liability, chain of distribution, design defect, warnings)

• False or Misleading Advertising• Successor Liability• Defenses (comparative fault, assumption of risk)

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J. Business Torts

• Negligence (duty of care, breach, cause, damages)

• Intentional Torts (false imprisonment, IIEM, defamation, appropriation, trespass, nuisance, fraud/misrep, conversion, interference with K’l relations, unfair competition)

• Vicarious Liability/respondeat superior• Strict Liability (ultrahazardous and products)• Toxic Torts (exposure to harmful substances)• Defenses, Damages, J/S Liability, Contribution

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K. E-Commerce

• Basic terms of use (favorable linking, information usage, disclaimers, liability limitation, dispute resolution and forum selection provisions)

• Clickwrap agreements• Passive or "brochureware" website vs. selling goods or

services online• Cookies Permission• Data security • Illustrations or photos• Restricted territories

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412.427.7075 phone, 412.221.3658 faxwww.mazurkraemer.com

salene@mazurkraemer.com