Buying or Selling A Business in New York? Do Your “Due Diligence”

Before buying or selling a New Yorkbusiness, make sure you understand how to perform a “due diligence” for the business. This is essential for all businesses whether you are the buyer or a seller. A good motivated seller of a business will, usually, receive a better deal if pre-due diligence work is performed in order to satisfy the potential requests of a buyer – in a timely fashion. We often see a buyer questioning documents produced when the documents are not produced in a timely manner. Recently, I was approached by a prospective client about selling a small business, and I asked if she knew what performing a “due diligence” was. The blank stare on her face was all the answer I needed. Many small business owners have heard the term, but know nothing about what it means to properly carry out the due diligence process. “Due diligence” is a

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Understanding New York’s Business Judgment Rule

Officers and directors of start-up corporations are responsible for managing and directing the business’s affairs. As the business grows, so does the level of responsibility for officers and directors.  Under the “business judgment rule,” officers and directors of a corporation are immune from liability to the corporation for losses resulting from corporate decision making, within their authority, that were made in good faith and decided with reasonable skill and prudence. This is significant because the recovery of any successful claim against the company will be limited to the company’s assets only. Exceptions do exist. In my experience, matters where I would argue that the “business judgment rule” come up in the context of small businesses where there is a dispute between stakeholders and in homeowner’s associations and condominium/co-op boards where members dispute a decision. These kinds of cases turn on the facts of a case. So it is important that

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NY State and Federal Tax Exemption for your New York Nonprofit

Now that you created your New York nonprofit,  let’s discuss how your New York nonprofit can apply for state and federal tax exemption. After your New York nonprofit has held its first organizing meeting, you will need the continued assistance of an experienced attorney to file documents with the federal government and New York State. By this point, you should have already consulted an attorney about the formation of your organization and hopefully the attorney made sure that you have created an entity that the IRS will find qualifies for tax exemption. IRS Form 1023 (Federal Nonprofit) For the federal government, you will need to complete and file IRS Form 1023, which is a long and detailed form that asks for extensive information about your New York nonprofit’s organization, history, finances, structure, governance policies, operations and more. The IRS Form 1023 should be accompanied by appropriate supporting documents that your

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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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Suing New York Banks in Equity: New York Equitable Accounting Remedy

Recently, we discussed a case where we were able to hold JPMorgan Chase to their word with regards to a stipulation made in a New York court.  We represented a defunct New York corporation suing for the return of a substantial amount of funds that the bank allowed a co-owner to withdraw without the two-signature authorization required by the New York corporate resolution.   Our theory of recovery was sound.  The relationship between the bank and its depositor being that of debtor and creditor, the bank cannot charge the account of the depositor with moneys paid out without authority. Although research has failed to disclose any New York cases directly on point, it is obvious that a check signed by one of two depositors, where both signatures are required, is not authority for such payment. Our client had contracted their rights away when they established the account with JPMorgan Chase.  You see,

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When Must Your NY Business Agreements Be In Writing?

While it is always advisable to put all your New York business agreements in writing, there are special rules that govern whether a particular contract must be in writing.  The following is the basics of the New York’s Statute of Frauds Sales of goods Like most states, sales transactions are governed in New York by the Uniform Commercial Code, which has a specific section on when it is necessary for your agreement to be in writing.  The section is referred to as the Statute of Frauds.  The Statute of Frauds in New York states that contracts in New York for the price of $500 or more is not enforceable unless there is some writing sufficient to indicate that a contract has been made.Please note that this doesn’t necessarily require a formal long-form contract – only some writing proving there is a contract.  Of course, the UCC contains conditions and further

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Liability of New York Shareholders for Unpaid Debt of a New York Company

If you reside in New York or wish to run a business in New York , it may be convenient to incorporate a business in New York. But before you do so, you should know a major disadvantage of incorporating a business in New York. Business owners tend to desire the protection that incorporation gives to its shareholders’ personal assets. But you should know of a significant exception to that rule in New York. Under N.Y. Business Corporation Law § 630, the ten largest shareholders in any non-public company can be held liable for wage claims made by corporate employees. This includes salaries, overtime, vacation, holiday, severance pay and a whole host of other types of pay. To compound matters, liability under this law is “joint and several,” meaning that a claimant can enforce a judgment against just one of the ten largest shareholders, who would then have to seek

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Factors to Consider When Forming a Corporation in New York

New York businesses are not bound to incorporate within the state to operate within New York State. In fact, start-up businesses in New York should consider incorporating outside of New York based on several factors for consideration. Some choose to keep things simple by incorporating or forming an LLC in New York, while others opt for more “business friendly” states and incorporate in Delaware, Nevada or Wyoming. In some cases, even if you wish to establish a business in New York, it is advisable to form a company outside New York and enter New York as a foreign business – one of the many reasons is the New York may impose liability on company shareholders.  Here are some of the more important factors to consider when choosing a state for incorporation: Setup & Recurring Fees While a minor consideration in the grand scheme of establishing and operating a business, you

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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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Foreign Nationals Can Work for Their Businesses in New York

If you are a foreign national living in New York, it is not impossible for you to start a business. Starting a business, in New York, does not, in most case, even require residing in New York or even having the legal ability to reside in New York. If you are looking to start a business in New York as a foreign national or resident alien, it may be advisable, however, to be aware of the immigration requirements before you get started, since you may wish to live, work and reside in New York in order to conduct your business. According to the U.S. Small Business Administration, aside from U.S. citizens or naturalized citizens, if you are an individual with the following immigration status, then you can work for your business in New York: Green Card Holders – Also known as “permanent residents,” green card holders can work, live and study

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New York Reverse Mergers Basics

If you are looking to take your New York private business public, consider the benefits and drawbacks of a New York 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.  However, of course risks abound. In a reverse merger in New York, 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 a 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

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Starting a Home-Based Food Business in New York

If you are looking to create a home-based food business in New York, then you should become familiar with what you can and cannot make, as well as other rules and regulations that exist. Before you even think about launching your home-based food business, check with your city or town to see if you will be able to comply with local zoning laws that govern where you can run a business and,thus, if you can run a business from your home. In many cases, there are limitations on the percentage of your square footage within your home that you may dedicate for a home business. There may even be a complete restriction on running certain businesses in your neighborhood. Obviously, this can only be addressed on a case-by-case basis, so consult with an NY attorney before taking any further steps. Also, before you can operate a home-based food business in

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NLRB Judge Rules Chipotle Is Liable For Labor Violation For Enforcing “Unlawful” Social Media Policy

This week, the National Labor Relations Board (NLRB) ruled that Chipotle Mexican Grill had an “unlawful” social media policy that violated the National Labor Relations Act (NLRA). According to published reports which detail the facts of this particular case, the dispute stems from charges filed on the worker’s behalf by the Pennsylvania Workers Organizing Committee regarding Chipotle’s social media policy and allegations that the employee was wrongfully terminated. Apparently, Chipotle sought to enforce an “oudated” social media policy that was not lawful under the NLRA. This policy had already been replaced, but supervisors sought to enforce the older policy against an employee who made postings on Twitter criticizing his employer about adverse working conditions. Since the outdated policy is what prompted Chipotle to act, the NLRB found that Chipotle was liable for violations that occurred resulting from enforcing that improper policy.   According to the NLRB’s website, the NLRA protects the

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Breach of the Duty of Care in New York -Say Out of the Strip Clubs if you are using Corporate Funds

A recent lawsuit makes allegations that, if true, shows what not to do if your New York startup business obtains investment funding. According to Business Insider, Marcus and Mitch Weller, the brothers who founded Skully, a company that designs next-generation “augmented reality” motorcycle helmets who raised millions in crowd-sourced funds, allegedly used those company funds for personal purposes The allegations include: Rent for a personal apartment in the Marina district of San Francisco, then the subsequent moving and painting expenses when they moved to the Dogpatch Restaurant meals and personal groceries charged to the company AMEX card A payout of $80,000 to an unnamed cofounder, which was recorded as a trip to China A $13,000 Mai Tai and Extreme Tech Challenge in Las Vegas A Lamborghini rental during a personal vacation A “world tour” trip that included $2,000 for limos in Florida, $2,000 for a strip club, and $2,345 worth of

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New NLRB Labor Rules Negatively Impact U.S. Franchises

Revised federal rules from the National Labor Relations Board that give employees more leverage in settling workplace disputes are negatively impacting franchisors and franchisees, leaving them with higher costs and forcing them to scale back plans for future expansion. The new policy adopted by the National Labor Relations Board (NLRB) broadens the circumstances in which two businesses can be deemed as employers of the same pool of workers. This means trouble for fast-food, construction and other industries reliant on contract workers and employees of franchisees, who will now be exposed to increased labor disputes before the NLRB, which adjudicates workplace disputes and oversees union-organizing. The intention behind the NLRB’s revision is to ensure workers can unionize and collectively bargain with businesses that help control their fates.  As things stand now, the NLRB will review “test cases” in the franchising industry to further define what critics have called a vague and

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Business Groups Sue Over U.S. Government Crackdown on Corporate Inversions

Two business groups have sued the Obama administration over the government’s crackdown on U.S. companies moving abroad to reduce their tax burden.  The process is known as a corporate inversion. Also called a tax inversion, a corporate inversion is the practice of a corporation relocating its legal domicile to a nation with lower taxes like Ireland, Britain and Canada, while retaining its material operations in its higher-tax country of origin. Such a process is legal, but has drawn criticism from some politicians who say U.S. companies engaged in corporate inversions are avoiding their tax obligations. Inverting U.S. companies usually leave their core U.S. operations intact domestically, but transfer their legal tax domiciles abroad to the country of the acquired company. In April, the U.S. Treasury Department unveiled a package of rules intended to discourage inversions, and were specifically aimed at transactions involving non-U.S. companies. In creating these new rules, the

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Filing a DBA Name In New York

If you want to conduct business under a trade name that is different from the name used to form your New York business, then you need to file a DBA, or a “doing business as” name, in New York. DBAs are useful for a number of reasons. They allow a business to open a bank account under a different name. They also allow a business to build a brand or product in a name other than the legal name of the business itself. Perhaps the most well-known example of a company using a “DBA” is Doctor’s Associates Inc., which is doing business under the well-known brand “Subway.” As the story goes, Doctor’s Associates Inc., which derives its name from the principal owner’s initial goal to earn enough money to pay for school tuition, was created for the operations of “Subway.” There are different requirements for different entities wishing to create a

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NY Franchising Red Flags

If you are thinking about entering into a franchise agreement in New York, please consider these New York Franchise Warning Signs.  All of the laws in New York that are intended to protect potential investors in franchises are not meant to act as a substitute for good business sense, so be aware of these common red flags, do your due diligence and hire a New York franchise lawyer to assist in the negotiation and evaluation of the franchise opportunity. Failure to Disclose Legally Necessary Details to Franchisees Under New York law, no offer or sale of a franchise can take place until the franchisor has registered franchise disclosure documents (FDD) with the state of New York.  Sometimes called a prospectus, the FDD contains 20+ different items of information about the franchise including the the history of the fanchisor, required fees and investment costs – among other things.If you do not receive

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IRS 501(c)(3) Organizations vs. IRS 501(c)(4) Organizations: New York Non-Profit Law Basics

We have clients at our law firm in New York operating non-profit businesses in New York that require advice on IRS 501(c)(3) vs. IRS 501(c)(4) organizations. We hope this and a few other articles we have will be useful for the reader. Whether your New York nonprofit should apply for tax exemption under IRS 501(c)(4) depends upon the type of organization you have and the political activities it may be undertaking. New York nonprofits that are civil leagues and local associations that further a social welfare objective, but do not quite meet the level of a charitable organization (religious, educational, charitable purposes), may pursue exemption under 501(c)(3).  For example, a local civic association, homeowner’s association, or the local Lions Club, are organizations that meet this description. New York nonprofits that wish to freely conduct political or lobbying efforts, gain support or opposition for political candidates or take action to pass or

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