The New York Law Blog

by Sean Hayes (NY Attorney-at-Law)

Types of Franchises Available To Entrepreneurs in New York

If you are serious about investing in a franchised business it best to consider the three basic type of franchises, typical, in the New York market. The following are the major types of New York Franchises. Business Format Franchises: In business format franchises, a company expands by supplying independent business owners with an established business, including its name, products, rules and trademarks.  The franchisor, generally, assists the independent owners in launching and running their businesses.  In return, the business owners pay fees and royalties to the franchisor.  In most cases, the franchisee also buys its business supplies from the franchiser or from approved vendors.  Fast food restaurants are good examples of this type of franchise. Product Franchises: Also called a “trade name franchise.”  Product franchises involve the sale and/ or manufacture of products.  The business model covers the overall management of the sale of these products.  A franchisor supplies a product

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Draft A Clear Statement of Work in New York

When hiring a business or individual in connection with a project, it is important that all parties create and agree to a clear and precise Statement of Work. A Statement of Work (SOW) is a formal document entered into by parties involved in a project that specifies in clear understandable terms the work to be completed.  A SOW should captures and defines the specific work to be performed for a client, deliverables, and a timeline that a vendor or contractor must execute – at a bare minimum. A SOW needs to contain the material terms of what needs to be done in as definitive and precise of a manner as possible. Generally, these are the three major types of SOWs: Design Based SOW – This type of SOW tells the supplier how to do the work. The statement of work defines buyer requirements that control the processes of the supplier.

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New York Shareholder, Member and Partnership Business Disputes In NY: New York Business Disputes & Litigation Basics

New York Business Disputes We handle numerous shareholder and member disputes.  The main reasons for these disputes are because of the lack of an adequate Shareholder, Operations or Partnership Agreement, the lack of due diligence or nefarious acts by a member, shareholder or controlling directors.  Analyzing whether to file a lawsuit is, often, a matter of economics. A civil law suit at the court of first instance may take over a year.  Your attorney in New York will need to file a complaint to in a NY court, file a reply to the defendant, depose witnesses, file pre-trial requests and make numerous appearances in court and at pre-trial conferences.  The process is cumbersome, time consuming and of course will not be cheap. Thus, we, always, sit down with our clients and do a detailed cost-benefit analyses.  Many New York law firms push to file a lawsuit for obvious reasons, however,

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Validity and Enforceability of Electronic Signatures in New York

Federal law governs, in most cases in New York, when the use of an electronic signature is valid and enforceable.  The U.S. Electronic Signatures in Global and National Commerce Act (also called ESIGN Act) defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with intent to sign the record.” This definition covers a broad scope, as businesses use different means, methods and technologies that create electronic signatures, including: Check boxes or buttons that state you agree to certain terms and conditions; PIN numbers or passwords; Signing an electronic keypad; or A graphical representation, image or a scan of a handwritten signature. The ESIGN Act protects the validity and enforceability of signatures made electronically, including: A signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or

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SEC Regulation D – Private Offerings: NY Startup Law

Start-ups in New York looking for investment capital should consider the classification of investors that can and cannot partake in private offerings.  Under the Securities and Exchange Commission’s Regulation D, an organization may issue a private offering of stock to raise funds without officially registering to “go public.” We discussed the nature of Regulation D offerings, which are also called “private placements” in an earlier blog post. Only certain types of investors may participate in a Regulation D offering.  To understand why the SEC encourages certain kinds of investors over others, it is important to understand the different types of investors in the market: Accredited Investor: This is defined as an individual that has earned US$200,000 or more on an annual basis for the past two out of the three years and is likely to make that same amount this year. Alternatively, an accredited investor can fail to meet the income threshold,

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Should I Purchase a Franchise Or Start My Own Business in New York: Six Factors For Your Consideration

Choosing between franchise or starting your own business in New York is an important choice that can have a major impact on your future.  The choice may, ultimately come down to your personality. Weighing the pros and cons of purchasing a franchise against starting a non-franchised business begins with some self-reflection.  If you are an independent person that likes to experiment or wants to blaze your own trail, a franchise with rigorous systems and proscribed rules is probably not for you.  If you want to run a business, but do not know where to begin, a franchise with its own established processes and IP may be the right choice for you.  Of course, your initial budget is another factor to weigh. Beyond the above introspection, the pros and cons of a franchised business versus a non-franchised business in terms of both investment and goals for starting a business should be

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Maximum Rates Of Interest Allowed On Private Loans In New York: New York Usury Law

Charging interest rates that exceed the state maximum allowed by law is called usury (also commonly referred to as “loansharking”), which is illegal.  When it comes to determining at what rate a particular interest charge becomes actionable on a civil basis (where a borrower can object to the terms of the loan), and at what rate the charge may actually expose the lender to criminal liability, New York Law can be a little complicated. Usury laws in New York, regulate the maximum interest rate a person or entity may be charged on a money loan.  The applicable laws are the General Obligations Law and the Banking Law, which set civil law limits, and the NY Penal Law, which sets criminal law limits.  Under these laws, if a private loan exceeds the maximum “civil” usury rate, then the entire loan is considered void, and the lender may be denied the right

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Partition Actions in New York: NY Real Estate Law Basics

When a dispute occurs with co-owners of real property in New York it is, often, advisable to initiate a partition action. Under New York’ Partition Law, a partition is a remedy available to any person who is a co-owner of New York real property.  Specifically, under N.Y. Real Prop. Acts. Law § 901, the following individuals with New York real property may lawfully apply for a partition of the NY property: A person holding and in possession of real property as joint tenant or tenant in common, in which he has an estate of inheritance, or for life, or for years, may maintain an action for the partition of the property, and for a sale if it appears that a partition cannot be made without great prejudice to the owners. A person holding a future estate as defined in sections forty, forty-a or forty-b of the real property law or a

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Private Placement Memos Get Start-Ups Moving

Recently, I wrote about the two tools available to small businesses to stir interest and investment – the business plan and the private placement memorandum.  Let’s focus on the private placement memorandum. A Private Placement Memorandum (or PPM for short) is a legal document that organized businesses provide to prospective private investors who may be interested in buying stock or some other kind of security in your business in some kind of private transaction. The PPM will put all of your cards on the table: 1.  Your company’s basics:  Who you are, what you are looking to accomplish and the nature of your business.  This can also include the description of your company and management structure. 2. Your terms:  First and foremost, you will need to identify the rights, restrictions and class of your securities.  This section includes the capitalization of your company before and after offering the securities or

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Terminating A Franchise Agreement In New York: NY Franchise Law Basics

The termination or cancellation of a New York franchise relationship requires planning, a thorough understanding of your particular New York franchise agreement and procedural formalities.  Typically, it is advisable to consult with your franchise lawyer. New York Franchise Terminations (Franchisee Considerations) For example, preparation should begin before signing a franchise agreement by a New York franchisee.  Before signing, a would-be franchisee should consider the written terms outlining the right to terminate the franchise agreement.  Other clauses, of course, should be reviewed.  This post, only, addresses one issue of many that a franchisee should consider. Typically, a franchisor shall lay out several conditions it would consider to be breaches of the franchise agreement that trigger termination.  These conditions will not afford an opportunity for either party to cure or correct the specific condition.  These incurable breaches are, typically, material breaches of franchise agreement and, often, New York law.  In some cases, a

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Prohibiting Dreadlocks Is Not Racial Discrimination: EEOC New York

The U.S. Court of Appeals for the 11th Circuit ruled that a company’s grooming policy prohibiting dreadlocks was not racial discrimination under federal employment law. In EEOC v. Castastophe Management Solutions, a female job seeker responded to an ad for a sales job. The applicant was qualified and interviewed well.  However, as a condition to hiring her, the business requested that she change her hairstyle from dreadlocks to a “professional-looking” haircut because part of her job duties would be selling the business to the public.  The job seeker refused and contacted the Equal Employment Opportunity Commission (EEOC) stating that the business discriminated against her on the basis of her race. T he EEOC then brought a claim for intentional racial discrimination. The EEOC argued that prohibition of dreadlocks in the workplace constitutes race discrimination because dreadlocks are a manner of wearing hair that is physiologically and culturally associated with people

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Merry Christmas and a Happy Holidays to all our Clients and Friends

_____ *Sean Hayes may be contacted at: SeanHayes@ipglegal.com. Sean Hayes is co-chair of the Korea Practice Team and Chair of International Practice Group at IPG Legal.  He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.  Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.  He has, also, received the highest rating by AVVO and other legal rating services.

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Franchisors Filing of NYS Tax Documents

With the new year fast approaching, franchisors in New York should begin focusing on updating their franchise disclosure documents, renewing their franchise registrations and preparing their New York state tax filing documents. Tax Filing Obligations of Franchisors in New York New York reporting requirement applies where the franchisor-franchisee relationship falls within the broad franchise definition under the New York franchise statute. The statute was created so that New York tax authorities can verify state tax filings submitted by New York franchisees so that the franchisor’s filing matches what the franchisee disclosed. Franchisors in New York that have at least one franchisee doing business in New York are required to register as a sales tax vendor and must file information returns with the New York State Department of Taxation and Finance. The reporting period is from March 1 to February 28 of the subsequent year – in most cases. The returns

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New York Franchisees Should Keep Franchisors In The Loop On Succession Planning

New York franchisees interested in succession planning must be made aware of the effect a lifetime transfer of a business has on estate planning. Transfers without consideration during one’s lifetime are considered gifts under federal and state tax law. From an estate tax perspective, gifts reduce the estate tax threshold of the person making the gift and after death, that person’s estate would have to pay taxes on the amount of the estate that exceeds the estate tax threshold. However, with advanced preparation, a franchisee interested in succession planning can implement a plan to minimize tax burdens. Franchisees are responsible for finding a buyer when they want to sell their franchises. Succession planning may involve a franchisee identifying a successor such as a family member or key employee. In these circumstances, and depending upon the terms and conditions of the particular franchise agreement, the franchisor may be granted limited time

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Successor Liability Pitfalls in New York

When buying or selling a New York business or any of a business’s assets under NY law, potential successor liability of the buyer is of primary concern.  New York Successor Liability Law is complex and the following is, only, intended as a brief overview of the matter. Successor liability in New York is liability that the buyer of a New York company’s assets may have for the liabilities of the seller of those assets performed prior to the purchase.  Essentially, a buyer would be compelled to pay off debt that the seller accumulated prior to completion of the transaction. The general rule in New York is that the buyer of company assets does not assume and is not liable for the seller’s liabilities unless otherwise expressly stated in the asset purchase agreement.  However, exceptions exist. New York Successor Liability Exception to General Rule Express or Implied Assumption by Buyer. This exception

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U.S. Patents for New York businesses

The common types of U.S. patents that are available to innovative New York entrepreneurs seeking to protect their  intellectual property falls into three common categories based on the type of invention in question: design, utility and plant patents. Utility patents are chiefly concerned with how an invention functions.  A utility patent may be applied to a wide range of unique and innovative new products or processes. It prevents others from manufacturing, selling, using or distributing your invention.  Utility patents last for 20 years running from the date that the patent application was filed.  In addition to the initial patent filing fees, inventors must submit maintenance fees throughout the life of the patent in order to keep the patent’s protection. Design patents are any enhancement or adornment applied to an existing item or the design for a new product. It protects the aesthetic appearance and can be issued for the appearance, design,

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New York Non-Compete & Confidentiality Agreements

Business in New York can be highly competitive, and relies, in part, upon a business’s ability to protect valuable information disclosed to current and past employees. Many NY companies feel that implementing non-compete agreements and other contractual obligations will encourage employee retention overall and protect information should an employee leave. It is important for New York businesses to understand, however, that there are restrictions to when and how non-compete agreements can be enforced. Traditionally, non-compete agreements in New York are used in companies and industries involving sensitive proprietary information and/or trade secrets. Non-compete agreements are commonly found across many industries regardless of size or products or services offered. They can take many forms depending on the information to be protected, including confidentiality agreements (prohibiting use or revealing information) and non-solicitation agreements (prohibiting approaching customers, poaching employees or contacting vendors). New York Courts consider the enforcement of a specific non-compete agreement

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Buy-Sell Agreements for Multi-owner Businesses in New York: New York Buyout Agreement Basics

When there is more than one owner of a New York business, creating a New York-tailored buy-sell agreement can save time and money if a change of ownership occurs in the future. New York business owners know that circumstances can change at a moment’s notice.  That is why ensuring that your business is prepared for whatever waits around the corner is crucial.  Part of being fully prepared is having a New York law compliant buy-sell agreement in place. New York businesses of all forms and sizes with more than one owner should create a solid buy-sell agreement in anticipation of potentialities in many cases. A buy-sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner chooses to leave the business, is forced to leave the business or passes away.  If the triggering event occurs, the other

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Recommended Steps For Acquiring Small Businesses in New York

When acquiring a small business, we recommend a more nuanced approach that contemplates matters beyond cost analysis and dollars and sense. Small businesses are the engine of American enterprise and continue to play a vital role in the economy of the United States. According to a 2012 Small Business Administration report, small businesses “produced 46 percent of the private non-farm GDP in 2008 (the most recent year for which the source data are available), compared with 48 percent in 2002.” Small businesses are also unique in that they engender loyalty from employees who take greater pride in building a business and who are personally invested in the business’s success than if they worked for a larger company. Customers can also be more loyal to smaller businesses for reasons beyond price. Given the above, here are a few of the important steps involved in purchasing a small business. What’s The Plan?

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Benefits And Drawbacks Of A Reverse Merger For New York Businesses

If you are looking to take your New York private business public, consider the benefits and drawbacks of a reverse merger. Often, executives and owners of successful New York businesses may wish to capitalize on that success by making shares of the business’s stock available to the public. Having a public company provides additional benefits to businesses, including expansion of  business dealings and attracting highly talented hires with offers of stock options. In a reverse merger, investors of a privately-held company acquire a majority of the shares of a publicly-held “shell company,” which is then merged with the privately-held company. To consummate the deal, the private company trades shares with the public shell in exchange for the shell company’s stock, transforming the acquiring private company into a public company. An advantage of undertaking a reverse merger is the comparative ease of transitioning into a public company. Typically, shell companies are

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