New York & New Jersey Business Lawyer Blog

Employees in a New Jersey Family Business May Not Be Relatives, but Should Be Part of the Business Family

Wed, 08 May 2013 13:03:52 -0500

"Family business" typically refers to a business owned by members of the same family, but it also often means that family members run the business. Many "family" businesses may need to take on some employees who are not family members, and these businesses should take care to treat family and non-family members of the business equally and fairly. This is important to a business' continued competitiveness and success, but also for compliance with federal and state employment laws. A recent column written by business journalist Randy Myers and published in Entrepreneur discusses how family businesses can take care of their unrelated employees.

"Part of the Family"

The culture of a family business is probably the most important element in attracting and retaining employees, or as Myers puts it, family businesses should make all employees "feel like part of the family." Family businesses can achieve this in any number of ways, from involving non-family employees in the central operations of the company, to offering benefits and other incentives that encourage employees to stay with the company. This keeps employees "energized," according to Myers, and allows the business to maintain the culture that the family had created while benefitting from the knowledge and skills of others.

Proposed State and Federal Legislation Offers Tax Incentives for Technology Investment, Job Creation, and More

Thu, 25 Apr 2013 17:13:11 -0500

Lawmakers often use state and federal tax laws to encourage certain types of business activity, or to discourage activities in lieu of banning them. Tax breaks often serve as incentives to investors and entrepreneurs to focus on a particular industry or market. Bills pending in the U.S. Congress and the New Jersey Legislature propose various tax incentives for businesses, including technology investments, infrastructure development, and hurricane relief. Supporters of these bills hope to promote job creation by spurring business activity. Critics contend, however, that similar New Jersey incentives have not had the desired impact on job creation in the past. New Jersey and New York businesses should be aware of pending legislation in order to take advantage of any tax breaks or tax incentives that might benefit them.

On April 9, 2013, a Democratic lawmaker from Maryland introduced H.R. 1415, the Innovative Technologies Investment Incentive Act of 2013 (ITIIA), in the U.S. House of Representatives. The bill would allow a tax credit for qualified investments in "high technology and biotechnology business concerns," H.R. 1415 § 2 (113th Cong.), equal to twenty-five percent of the investment amount. This would be a direct credit against the amount of tax owed by the investor, as opposed to a deduction from the investor's total taxable income. The total amount of the credit would be subject to a nationwide limit of $500 million per year, and the Small Business Administration (SBA) would be responsible for allocating credits among qualified investors. To qualify for the credit, the investment must be a stock purchase or other capital investment in a high-tech or biotechnology business with less than five hundred employees. Investors must hold onto their investments for at least three years. The purpose of the bill is to encourage investment in technology and biotechnology companies, which in turn will hopefully promote innovation and job creation.

Winding Up and Dissolving a New Jersey Business

Thu, 11 Apr 2013 18:28:45 -0500

Just as new businesses start every day, some businesses must cease activities, wind up their affairs, and dissolve. This can occur for any number of reasons, including bankruptcy or the decision of the owners to stop doing business. Any New Jersey business that must wind up and dissolve must follow procedures established by state law, which include notification of creditors, payment of debts, and disposition of other assets.

Reasons for Winding Up a New Jersey Business

Businesses may wind up voluntarily or involuntarily. An involuntary dissolution usually results from bankruptcy or a court order in some other legal matter. A court-appointed trustee may handle the dissolution of a business in a Chapter 7 or Chapter 11 bankruptcy case, but in other situations, the management of a business must handle the winding up process itself. Court-ordered dissolutions in non-bankruptcy cases are rare, but might occur in a dispute between partners in a joint venture or some other single- or limited-purpose business entity.

Shareholder or partnership agreements may include provisions for mandatory dissolution if certain events occur. Voluntary dissolution usually results from a decision by the business' owners, made according to the procedures established in a shareholder agreement, partnership agreement, or other management agreement.

Increasing Efficiency and Reducing Stress in Your Small Business

Thu, 28 Mar 2013 08:16:59 -0500

New York and New Jersey are among the best places in the country to start a small business--at least, that is what we believe. A wealth of talent in the tech sector means a wealth of tech startups in the Greater New York area. While a business needs support ranging from sound financial advisors to skilled business attorneys, entrepreneurs need support as well. Each and every business begins as a collection of people and ideas, and the people who give form to these ideas must care for themselves as well as their businesses. At a recent gathering of the NJ Tech Meetup, a group of "entrepreneurs, software developers and tech industry enthusiasts of all stripes," "serial entrepreneur" Ari Meisel described his efforts at improving efficiency and reducing stress in his own life, and how he turned that into a business. New Jersey Tech Weekly's Esther Surden reported on Meisel's advice, which provides useful guidance for New York and New Jersey businesses and business owners alike.

"Optimize, Automate, and Outsource"

Some tasks require the direct involvement of a business owner, director, or officer. Most do not. Identifying the tasks that do not require your constant attention is key to optimizing how your business runs. Meisel cautioned his audience, however, that outsourcing does not, by itself, increase efficiency, if the outsourced task is itself inefficient. His advice is to divide a business task into its fundamental parts, to determine which tasks are necessary, which are wasteful, and which are outsourceable. Meisel recommends the use of virtual assistants for routine tasks, many of which are available online.

If Social Media Can Bring Government and Citizens Together, Think What it Can Do for Small Business: Evaluating a New Jersey Mayor's Speech

Thu, 14 Mar 2013 16:01:09 -0500

Newark Mayor Cory Booker spoke at the South By Southwest (SXSW) Interactive Conference in Austin, Texas earlier this month about his involvement with social media and the potential for social media to help bring people and government together. Booker's SXSW session, titled "The New Media Politician," was a seated discussion with Steven James Snyder, an editor at TIME.com. The topics of discussion ranged from his experiences using social media in office to his future political plans. His remarks, which earned him the designation of "Speaker of the Event," are applicable to New Jersey businesses, which may also benefit from connecting with consumers and government alike via social media.

Reaching a Wider Audience

With around 1.3 million followers, Booker reaches a far wider audience on Twitter than Newark's population of around 280,000. This has allowed him to communicate with a broad range of people, and it has allowed news about issues facing Newark, and New Jersey in general, to gain a wide following. Issues like Hurricane Sandy relief have brought New Jersey to the forefront of the nation's attention in recent months, and social media has been a major driver of information. New Jersey businesses, even those that only do business within their community, can also reach a wider audience via services like Twitter or Facebook. This can lead to new markets, or merely to greater exposure for the company's product or brand.

Bills Passed by New Jersey Legislature Would Impact Shareholder Rights

Wed, 27 Feb 2013 15:56:56 -0500

A package of bills recently passed by the New Jersey Legislature include several amendments to the New Jersey Code affecting corporate shareholders. The bills are waiting for the governor's signature. One bill would amend the New Jersey Shareholders' Protection Act (SPA) to expand its coverage of corporations located in the state. Another bill would modernize the provisions for shareholder meetings by allowing appearances via electronic communication. Small and closely-held businesses may benefit from these bills, which would allow greater flexibility in shareholder votes and meetings.

Remote Participation by Shareholders

New Jersey law currently states that shareholder meetings must occur at a "place" provided in the corporation's bylaws or designated by the board of directors. N.J.S.A. § 14A:5-1. If neither the bylaws nor the board designates a location for a meeting, the statute requires it to take place at the corporation's registered office. The law as written does not take into account advances in communications technologies over the past several decades. While corporations have undoubtedly already allowed shareholders to participate remotely, via telephone or internet-based communications, this technically goes against state law.

New Jersey Offers Assistance to Small Businesses Selling Goods and Services Internationally, as India Opens Doors to Their Involvement

Thu, 14 Feb 2013 18:34:56 -0500

Businesses in New Jersey and New York have more opportunities now to do business internationally than, probably, at any other point in history. As massive amounts of commerce pass through the ports of New York and northern New Jersey, technology allows people to do business together almost anywhere in the world. New York has become one of the country's centers of technological innovation, so businesses looking to get involved in global commerce are well-positioned in New York or New Jersey. New Jersey's Department of State (DOS) has established programs to assist both domestic businesses that want to do business internationally and foreign companies that want to bring their goods or services here. Other nations have also reached out with possible opportunities for New Jersey businesses to go global.

The DOS's Business Action Center (BAC) offers programs to support and assist New Jersey businesses. Its Office of International Business Development & Protocol (IBDP), launched in the summer of 2012, assists New Jersey companies with import and export regulations and helps them find international markets and business partners. Its outreach efforts focus on countries described as "New Jersey's top investor nations," including Canada, France, Germany, Japan, and the United Kingdom, as well as "countries where New Jersey enjoys rich relationships," including India and Taiwan. The BAC expanded its call center in August 2012 to include Spanish-speaking representatives, reportedly in order to improve outreach to New Jersey's Latino-owned businesses and to foster relations with businesses in Spanish-speaking countries like Mexico.

Five Tips for Preserving Your New York or New Jersey Business' Legacy

Tue, 29 Jan 2013 13:23:18 -0500

Sole proprietorships, closely-held businesses, and family businesses are often the product of years of hard work, investment, and sacrifice. To call such businesses a "labor of love" would be no exaggeration, because starting a business is like taking in a family member who needs constant care and attention to grow and thrive. Business entities in New York and New Jersey law will continue to exist after their owners are no longer able to run them. It is therefore critical for small business owners, shareholders, members, or partners to plan ahead for contingencies that might prevent them from working, and for succession of the business when the owner or owners are gone.

The preservation of a business' legacy requires the anticipation of reasonably possible events that could severely impact a business owner, and therefore the business, and preparation for how the business may continue. The death or long-term disability of an owner can make future governance of the business uncertain. If a business owner's spouse or child becomes disabled, that could cause the owner to need to withdraw or retire from the business. An owner's divorce could lead to the inclusion of the owner's business equity in a property division. Other events, such as a partner's bankruptcy, could trigger a sale of equity in the business. Not all contingencies are entirely negative, of course, such as if an owner finds sudden fortune and wishes to leave the business behind.

Planning for legacy preservation ideally begins when the business itself begins, with planning for one's exit from a business included in planning for one's entrance. Here are five tips to help business owners plan ahead:

When Might a Corporate Officer Owe a Fiduciary Duty to a Corporate Creditor? - Workforce Solutions v. Urban Services of America

Fri, 11 Jan 2013 17:17:30 -0500

The officers of a corporation, such as the chief executive officer, president, or treasurer, owe a fiduciary duty to the corporation and its shareholders. This generally means a duty of loyalty and care in executing the officer's duties, using good faith and reasonable care to advance the corporation's best interests. It also means avoiding "self-dealing," or acting in a way that benefits the individual officer to the detriment, or merely the missed opportunity, of the corporation. In limited circumstances, corporate officers owe similar fiduciary duties to corporate creditors when a corporation is insolvent or otherwise in financial distress. An Illinois appellate court recently considered the extent of this fiduciary duty to creditors in Workforce Solutions v. Urban Services of America, Inc., Nos. 1-11-1410 and 1-11-3046, slip op. (Ill. App., Aug. 28, 2012). The court reversed a trial court's dismissal of a corporate creditor's claim for breach of fiduciary duty against a debtor corporation and its officers and directors.

The plaintiff and creditor, Workforce Solutions (WS), entered into a contract with the defendant, Urban Services of America (USA), in 2003, in which WS would provide contract employees to operate USA-run recycling facilities. WS sued USA in 2006 for breach of contract after attempting to collect past-due fees, and it obtained default judgments against USA in 2008 totaling more than $1 million. It filed a separate action later in 2008 against USA and various related third-party companies under Illinois' Uniform Fraudulent Transfer Act, seeking an order to turn over assets from the third-parties to satisfy the judgments against USA. Finally, in 2010, WS filed suit against USA, other related companies, and their officers and directors, asserting seven causes of action including breach of fiduciary duty and breach of the duty of disclosure and candor, related to alleged transactions between USA and the other entities intended to conceal assets. The circuit court denied WS's turnover motion, and it later dismissed all of the claims in the latest lawsuit. WS appealed both rulings, and the appellate court consolidated the two appeals into the present case.

Corporate Directors, Even Though Acting in Subjective Good Faith, May Breach Fiduciary Duties to the Corporation, According to Delaware Court

Fri, 28 Dec 2012 20:15:09 -0500

A Delaware court found that a corporate director breached the fiduciary duty of loyalty, despite the director's subjective good faith, in Shocking Technologies, Inc. v. Michael, C.A. No. 7164-VCN (Del. Ch., Sept. 28, 2012). The plaintiff company filed suit against one of its directors, who was also an equity owner of a shareholder. Although this may have created some conflict for the defendant himself, the court held that his duty to the company as director were clear. Even though the defendant believed he was acting in the company's best interest, the court found that he breached his fiduciary duty of loyalty largely because of the risk his actions posed to the company.

The defendant, Simon J. Michael, was the manager of Balch Hill Capital, LLC (BHC). BHC, in turn, was the general partner of Balch Hill Partners, L.P. (BHP). Both BHC and BHP are named as defendants in the case as well. Michael, through BHP, made three separate investments in the plaintiff, Shocking Technologies, Inc. Michael also became BHP's designee to the board of directors.

Although the bylaws allowed for six directors, Shocking only had four during the summer of 2011. One of the directors was also the founder, president, and chief executive officer of the corporation, and the other two were shareholder-directors. Michael, as the fourth director, allegedly felt that the other directors were acting in concert and not in the company's best interests. Communications between the other three directors and Michael broke down, according to the court's ruling, leading to the alleged acts that formed the basis of Shocking's lawsuit.

New Jersey Strips Contractor of Authority to Own or Run a Business for Alleged Consumer Fraud

Fri, 14 Dec 2012 16:56:23 -0500

The New Jersey Attorney General's office and the Division of Consumer Affairs (DCA) recently announced a $7.7 million judgment against a contractor in a lawsuit alleging multiple violations of New Jersey consumer protection statutes. The lawsuit named the contractor individually and various businesses that he owns as defendants. In addition to the monetary judgment, the contractor is permanently barred from owning or managing a business, or from performing home improvement services, in the state of New Jersey. A co-defendant reached a separate settlement with the state. According to the Attorney General, complaints involving home-improvement services accounted for the largest share of consumer complaints received by the state in 2011.

The state reportedly received around seventy complaints from consumers against two contractors, John Kot and Gabriel R. DaSilva, Jr., and companies owned jointly or individually by them. The New Jersey Attorney General's April 23, 2012 press release announcing the lawsuit alleged that the defendants held themselves out as "home improvement contractors" and performed home improvement services without registering with the DCA. The defendants also allegedly performed substandard work, and failed to make repairs or remedies despite guarantees or warranties. One of the businesses, Roofing Police, Inc., reportedly used vehicles painted to resemble police cruisers. The Attorney General alleged that they used multiple business entities and assumed business names, but that all business entities and names had common addresses in Fair Lawn, Garwood, Hackensack, and Maywood.

Hurricane Sandy and Force Majeure for New Jersey Businesses

Fri, 30 Nov 2012 08:54:47 -0500

Hurricane Sandy caused massive devastation across the eastern United States, destroying property, displacing people, and disrupting communications and transportation from Pennsylvania up to New England. New Jersey and New York were particularly hard-hit. Dozens of people lost their lives because of the storm in New Jersey, with even more fatalities in New York. Millions more lost electrical power and other services. Businesses that are trying to rebuild after the storm may face difficulties with insurers, who may contest claims for damages, and suppliers, who may have suffered their own losses. An often overlooked feature in many contracts is the force majeure clause, which businesses may be able to invoke to delay or excuse obligations they cannot fulfill. They should also be on guard, however, for attempts by others Behring Intern. v. Imperial Iranian Air Force, 475 F.Supp. 396, 401 (D.N.J. 1979). It typically refers to a "natural cause without the intervention of man." Id. The Behring case involved a breach of contract claim between an American company and the Iranian government, with the Iranian government claiming that the unrest of the 1979 Iranian Revolution constituted force majeure excusing it from performance. The court found that this was clearly "within the control of human agencies" and therefore could not justify non-performance.

New Jersey Offers Support to Businesses Damaged by Hurricane Sandy

Fri, 16 Nov 2012 19:06:17 -0500

Hurricane Sandy, also known as Superstorm Sandy, hit the east coast of the U.S. on October 29, 2012, causing catastrophic damage across the eastern seaboard, particularly in New Jersey and New York. After touring damaged areas several days after the storm made landfall, Governor Chris Christie called the damage "unthinkable." The state's death toll in early November stood at twenty-three, and power outages affected up to 2.7 million people. Estimates of total damages went above $20 billion, making Sandy one of the most brutal and damaging storms in U.S. history.

New York and northern New Jersey suffered significant damage to buildings and infrastructure. The storm had a drastic impact on New Jersey small businesses, with power, transportation, and communications disrupted throughout the state. Local, state, and federal government assistance has become available to help businesses regain their feet as the state rebuilds. Businesses should also review their insurance coverage and business contracts to see how the storm has affected their rights and obligations.

New Jersey has made a "Business Recovery Check List" available on its website to assist businesses in assessing damages, making repairs, and getting business operations started again. It includes tasks like contacting the business' insurance representative, filing claims, and assessing structural damage and infrastructure losses. New Jersey's Business Action Center has a hotline and website to assist businesses with disaster loans, disaster unemployment benefits, building inspections, and other disaster relief. The New Jersey Governor's Office has announced multiple programs to provide micro-loans and additional insurance coverage to businesses affected by Sandy. REBUILD New Jersey, for example, is a program operated by New Jersey Community Capital that can provide loans between $10,000 and $30,000 to assist businesses with repairs and replacement of inventory or equipment.

New Limited Liability Company Act to Take Effect in New Jersey in 2013

Fri, 26 Oct 2012 21:38:57 -0500

The New Jersey Legislature passed sweeping reforms of the laws governing limited liability companies (LLC) in September 2012. The changes to the Limited Liability Company Act will take effect in March 2013, affecting newly-formed companies immediately. LLCs already in existence will continue to be governed by current LLC law until March 2014, when the new law becomes applicable to all LLCs in the state. The new law represents a major departure from current law, which is based on Delaware's LLC laws. The Revised Uniform Limited Liability Company Act (RULLCA) forms the basis for the new law.

The new law began in the Assembly as AB 1542, where the RULLCA was introduced in January 2012. The Assembly passed it on May 24, 2012 by a vote of 77 to 1. The Senate passed a counterpart, SB 742, on June 21, 38 to 0. The Governor signed it into law as P.L. 2012 on September 19.

The RULLCA is the work of the National Conference of Commissioners on Uniform State Laws, commonly known as the Uniform Law Commission (ULC). The ULC prepares model statutes for a variety of purposes and proposes them to state legislatures in an effort to develop a standardized set of laws. It first developed the RULLCA in 1996, when LLCs were still a relatively new idea, and modified it in 2006. The New Jersey law is largely based on the 2006 version.

Statute of Limitations for Civil Suits by the SEC is on the Supreme Court's Docket: Gabelli v. Securities and Exchange Commission

Fri, 12 Oct 2012 19:58:14 -0500

The U.S. Supreme Court will review the Securities and Exchange Commission's (SEC's) five-year statute of limitations for civil actions to recover penalties. The question before the Court in Gabelli v. SEC, Docket No. 11-1274, is precisely when the statute begins to run. The SEC contends that the statute begins to run when it actually learns of an alleged violation, a position that the Second Circuit Court of Appeals affirmed in SEC v. Gabelli, 653 F.3d 49 (2nd Cir. 2011). Marc Gabelli, who petitioned the Court for certiorari, argues that the statute should have begun when the SEC's cause of action actually accrued, i.e. when the alleged violation occurred. For small businesses and startups pursuing financing options, this case could have important implications for how the SEC investigates and prosecutes alleged wrongdoing.

Gabelli was the portfolio manager of a mutual fund known as Gabelli Global Growth Fund (GGGF). The SEC filed a complaint against him and Bruce Alpert, who was the chief operating officer of GGGF's adviser Gabelli Funds, LLC, accusing them of engaging in a practice called "market timing" in a way that preferred certain GGGF investors over others. The practice involves making rapid trades in order to exploit short-term inefficiencies in pricing. It is not illegal per se, but it can be detrimental to a fund's long-term investors by, for example, affecting transaction costs and disrupting the overall management of the fund.

The SEC alleged that Gabelli and Alpert allowed a form of market timing in GGGF between 1999 and the spring of 2002. While the market timing was taking place, the SEC claimed, the defendants did not notify the fund's board, nor did they disclose the activity to the fund's other investors. The SEC argued that this was "materially misleading" to the fund and its investors. SEC v. Gabelli, 653 F.3d at 55.