How to Start a Business With a Partner

It is impossible to overstate how carefully one must approach starting a business with a business partner.  First and foremost, there must be open and honest communication about each person’s vision for the business, goals and exit strategy, roles, abilities and limitations, and there must be appropriate documentation prepared setting out what the business relationship will look like.  This documentation usually takes the form of a shareholders’, operating, or partnership agreement.  The Wall Street Journal also prepared an insightful piece on the topic that is worth reading:

“Business partners often start businesses together with little planning and few ground rules. Sooner or later, they discover the hard way that what’s left unsaid or unplanned often leads to unmet expectations, anger and frustration. Partners can clash over countless things, including conflicting work ethics and financial goals, roles in the business and leadership styles. What follows is a primer on how to avoid that and set up — and sustain — a business partnership.

First, ask yourself: Do I really need a business partner to build a successful company? Taking on business partners should be reserved for when a partnership is critical to success — say, when the prospective partner has financial resources, connections or vital skills you lack. You may be better off hiring the other person as an employee or an independent contractor.

Communication is important at every stage of a partnership, and especially so at the outset. A common mistake business partners make is jumping into business before really getting to know each other. You must be able to connect to feel comfortable expressing your opinions, ideas and expectations.”  read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  Let us know how a Brooklyn business partnership lawyer can assist you.

Determining Whether You Must Pay Your Interns

Internships can be mutually beneficial, but not all internships may be unpaid, contrary to what it seems many believe. Set out below is guidance from the US Department of Labor on the issue:

Fact Sheet #71: Internship Programs Under The Fair Labor Standards Act

This fact sheet provides general information to help determine whether interns must be paid the minimum wage and overtime under the Fair Labor Standards Act for the services that they provide to “for-profit” private sector employers.

Background

The Fair Labor Standards Act (FLSA) defines the term “employ” very broadly as including to “suffer or permit to work.”  Covered and non-exempt individuals who are “suffered or permitted” to work must be compensated under the law for the services they perform for an employer.  Internships in the “for-profit” private sector will most often be viewed as employment, unless the test described below relating to trainees is met.  Interns in the “for-profit” private sector who qualify as employees rather than trainees typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a workweek.

The Test For Unpaid Interns

There are some circumstances under which individuals who participate in “for-profit” private sector internships or training programs may do so without compensation.  The Supreme Court has held that the term "suffer or permit to work" cannot be interpreted so as to make a person whose work serves only his or her own interest an employee of another who provides aid or instruction.  This may apply to interns who receive training for their own educational benefit if the training meets certain criteria.  The determination of whether an internship or training program meets this exclusion depends upon all of the facts and circumstances of each such program.

The following six criteria must be applied when making this determination:  read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.

Limited Liability Protection of NY LLCs Limited

On December 29, 2014, Assembly Bill 8106-C / Senate Bill 5885-B became the law in New York. In part, the new law makes the ten LLC members with the largest ownership interests in the LLC personally liable, jointly and severally, “for all debts, wages or salaries due and owing to any of [the LLC’s] * * * laborers, servants or employees, for services performed by them for” the LLC. The new law took effect on February 25, 2015.

This concept is not new to New York law, as it has been the case for quite some time that the ten largest shareholders of every privately held corporation in New York also have had the same obligation. Specifically, Section 630 of the New York Business Corporation Law makes every privately held corporation’s ten largest shareholders personally liable, jointly and severally, “for all debts, wages or salaries due and owing to any of [the corporation’s] . . . laborers, servants or employees other than contractors, for services performed by them for such corporation.”

Prior to the new law, members of a limited liability company generally would not be held personally liable for obligations of the LLC. But the new law creates a limitation to the limited liability protections of an LLC by essentially negating limited liability altogether with respect to workers’ claims for unpaid wages.

Under the new law, in order for a worker to hold the ten largest members of an LLC liable for compensation owed to the worker, the worker must, within 180 days after he or she stops working for the LLC, give notice to the members of the worker’s intention to hold them personally liable for the worker’s unpaid compensation. This notice requirement also parallels that set out in the Business Corporation Law.

Before a worker may hold the members with the largest ownership interests liable for the worker’s unpaid compensation, (i) the worker must recover a judgment against the LLC for the unpaid compensation, and (ii) an execution against the LLC for that judgment must be returned unsatisfied. Within 90 days of the return of the execution, the worker must then file a lawsuit against the members individually in order to obtain a judgment against them for the unpaid wages.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.

Your Initial Legal Obligations As A New Employer In New York

When hiring employees, businesses must comply with numerous filing, reporting and insurance requirements. In addition to federal requirements, New York requires businesses to report various types of information about their employees.  The New York State Department of Taxation and Finance has prepared a comprehensive guide to hiring employees in New York, which can be found here.  A bullet point list of the main items to be concerned with is also set out below.

Federal Forms

Before hiring any employees, a business owner must:

• Obtain a federal Employer Identification Number with the IRS by:  (1) sending a completed form SS 4 to the IRS; or (2) completing an online application.
• Require each new employee to complete and return an IRS Form W-4 to designate the appropriate amount of federal tax withholding.
• Retain each W-4 for at least four years.
• Comply with the Immigration Reform and Control Act of 1986 and have each new employee complete Section 1 of an employment eligibility verification form, known as Form I-9 by the first day of starting work and review associated original documentation.  Employers must strictly comply with I-9 requirements or risk penalties.

New York Form and Obligations

In New York, for each new employee, employers must:

• complete and send to the NYS Department of Labor a NYS registration Form 100 or register online;
• report certain identifying information about employees to the New York State Department of Taxation and Finance within 20 calendar days from the hiring date, similar to the information contained in an IRS Form W-4; and
• comply with wage and hour law wage notice requirements, which can be found here.

Employment-related Insurance Requirements

In New York, employers must maintain:

• Workers’ compensation insurance.
• Unemployment insurance.
• Disability insurance.

Workplace postings

Employers must notify employees of their rights under many federal, state and local employment statutes.  You can learn which state posters you need here which federal posters you need here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Things Entrepreneurs Never Should Say

We regularly advise entrepreneurs about how to start out properly and how to deal with particular issues that are likely to arise, and this piece by small business expert Rhonda Abrams could not have said some things better. Below are seven things that she says entrepreneurs should never say, and we agree:

I have come up with seven things I have heard entrepreneurs say over the years that make experienced entrepreneurs and investors wince.

1. “I have no competition.” OK, let’s get this one out of the way right now. You’ve got a novel product or innovative service and you think no one has ever done something like this before. But whatever you’re trying to sell, you (and investors) need to know that customers have a proven need or desire for what you’re selling — even if they currently settle for inferior solutions.

The first Apple iPod was groundbreaking, but it still competed with lower quality, less expensive MP3 players; people wanted music. When the first automobile hit the assembly line, it competed against horse and buggies; people needed transportation. If you truly don’t have any competition, there’s no market for what you’re selling — or you just don’t understand what your competition is.

2. “We don’t need a partnership agreement.” Lawyers have gotten rich as a result of people thinking this. A business partnership is like a marriage — at the beginning, it’s natural to think everything will always stay rosy. But people change and things happen. Sooner or later, most partnerships hit a rough patch.

Having a clear agreement makes it much easier (and cheaper) to deal with disagreements. Write up an agreement spelling out roles and responsibilities, ownership and how to split up or end the company if necessary.

3. “I can do everything myself.” Entrepreneurs are extremely self-sufficient — often too self-sufficient. But you can’t grow alone. Even if you’re not ready to hire employees, team up with consultants, advisers and strategic partners. They can balance your skill sets, give you guidance, serve as a sounding board and give your company more horsepower than you can achieve on your own.

4. “If I build a better product, customers will come.” Remember the old saying, “If you build a better mousetrap, the world will beat a path to your door?” Well, it’s only true if you have an effective marketing plan in place to let the world know about your mousetrap. Most entrepreneurs are driven by their desire to create a great product or service. But marketing — how you’re going to get and keep customers — is absolutely critical for small business success.

5. “There’s no need for lawyers.” No one likes having to use — and pay — attorneys. And let’s be honest, sometimes, lawyers seem to make simple agreements more complicated. But often, a few hundred dollars spent on a lawyer at the beginning of a business or an important deal can save you thousands of dollars and loads of headaches later on.

6. “I work smarter, not harder.” Sure, it’s definitely possible — and desirable — to work smarter. One way is to streamline your business processes so you spend less time on administrative tasks and repetitive work. Another is to go to the cloud, so you can manage things wherever you are, any time. But when most people hear someone say that they work smarter, not harder, it will probably be taken as an admission that you just work less.

7. “This is a sure thing; it can’t fail.” New ventures always come with a high degree of risk. Sophisticated investors and lenders will quickly shy away from anyone who doesn’t comprehend the risks involved with their new undertaking.

If you’re raising funds from friends and family, you need to make sure they understand there’s a real possibility they could lose their money — even though you’re going to work hard, and smart, to make sure you succeed.

Source: http://www.poughkeepsiejournal.com/story/money/2015/04/26/abrams-seven-things-avoid/26417593/

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Do Not Expect an Internet Operating Agreement To Do The Trick

I come across this issue so often, I have decided that I am going to write about it often with the hope that I can assist some people with avoiding a potentially critical early stage mistake. Every time that I have a discussion with someone who had a bad partnership agreement (this is just a general reference to an agreement among owners and the specific type relates to the type of entity), it is always heartbreaking because by that time, they are in crisis and a review of the document that they were working with usually indicates several areas where they needed the advice of a lawyer.

Do not pull a partnership agreement off the internet or for that matter Legalzoom, read it, and agree with your business partners that ‘it works’ and expect that some issue is not going to come up that you did not think about. With all due respect, you and your partners probably are not business lawyers, and whether you like or trust lawyers or not, there is a reason that we go to school for a long time for this stuff. And just because you are now going into business with your great friend for decades (or someone you really respect, etc.), you cannot assume that everything is going to work out great because you know each other so well.

A well drafted partnership agreement will address legal concepts that will matter in the event of a dispute, but that people who are not professionals simply cannot anticipate. For example, what if this business does well and you decide to sell it, will you be certain about exactly how much equity each partner holds despite the fact that they contributed more money to the entity after the agreement was signed and operations began? Did you write that down and specify whether such contributions would increase equity or be deemed loans? What about periodic distributions to cover tax obligations of partners who have a positive capital account balance, but who do not want to take a distribution? What about management responsibilities? Does everyone get a say in everything? And who owns the company’s logo?

There are many tricky issues that can come up when drafting an agreement among co-owners of a business. If you decide to do this without the assistance of a lawyer, you do it at your own risk, hoping that you did not miss something. It is much better to spend a few dollars early to work with a professional than to feel the extreme pain that can result from bad planning.

We are happy to help if you are facing this issue and you should feel free to give us a call.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Protect Your Liquor License: Food, Hours, and Drink Specials

Holders of a New York liquor license permitting the consumption of alcohol on premises should note the following rules related to food, hours, and drink specials:

Food

All on-premises retail licensees are required to have food available for purchase and consumption by patrons. Where the licensee will not be preparing the food but will enter into an agreement with another to do so, the licensee or applicant shall notify the Authority that the licensee will be contracting with a food concessionaire. The licensee shall provide the Authority with the food concessionaire’s name, business address and certificate of authority, and the names and residence addresses of the concessionaire’s principals, as more particularly set forth in the attached revised petition for approval of food concession. Fingerprints shall not be required.

Hours

The hours of operation are set by state law but many counties outside of New York City have adopted more restricted hours. A listing of each county and the permitted hours of sale for each type of license is available here. The text of the relevant Alcohol and Beverage Control Law provisions is set out below:

Sec. 105.14 – Provisions governing licensees to sell at retail for consumption off the premises.
(a) No premises licensed to sell liquor and/or wine for off-premises consumption shall be permitted to remain open:
(i) On Sunday before twelve o’clock post meridian and after nine o’clock post meridian.
(ii) On any day between midnight and eight o’clock antemeridian.
(iii) On the twenty-fifth day of December, known as Christmas Day.
In any community where daylight savings time is in effect, such time shall be deemed the standard time for the purpose of this subdivision.
(b) This subdivision shall not be interpreted to prohibit the owner or his or her employees from entering or occupying the premises when it is closed to the public.

Sec. 105-a – Sale of beer at retail on Sunday. No person, firm or corporation holding any license or permit issued under this chapter shall sell, offer for sale or give away beer at retail on Sunday between three antemeridian and eight antemeridian. Persons, firms or corporations holding licenses and/or permits issued under the provisions of the Alcoholic Beverage Control Law permitting the sale of beer at retail may sell such beverages at retail on Sunday before three antemeridian and after eight antemeridian for off-premises consumption to persons making purchases at the licensed premises to be taken by them from the licensed premises.

Sec. 106.5 – Provisions governing licensees to sell at retail for consumption on the premises. No alcoholic beverages shall be sold, offered for sale, or given away upon any premises licensed to sell alcoholic beverages at retail for on-premises consumption during the following hours:
Sunday, from four antemeridian to twelve Noon
On any other day between four antemeridian and eight antemeridian
Nor shall any person be permitted to consume any alcoholic beverages upon any such premises later than one-half hour after the start of the prohibited hours of sale provided for in this section.

Drink Specials

The ABC Law prohibits from selling, serving, delivering or offering to patrons an unlimited number of drinks during any set period of time for a fixed price. The law also requires that licensees prohibit party organizers, promoters, etc., from engaging in this conduct in the licensees’ establishment. The statute also prohibits licensees from creating drink specials which, in the judgment of the Authority, are attempts to circumvent the law. This includes offerings of free drinks, or multiple drinks for free or for the price of a single drink, or for a low initial price followed by a price increment per hour or other period of time. The SLA does allow 2 for 1, half price and other such specials where the price of a drink is not lower than one-half of the premise’s normal or regular price for the same drink. Section 117-a does not apply to private functions not opened to the public, such as weddings, banquets, or receptions, or other similar functions or to a package of food and beverages where the service of alcoholic beverages is incidental to the event or function. If you have questions about whether a particular drink special would be a violation of Section 117-a, or whether a particular event is exempt from the statute, please contact the Authority’s Office of Counsel.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

8 Things Entrepreneurial People Do Differently

- They never give up;

- They do instead of fantasizing about “one day”;

- They’re brave enough to commit to their dreams;

- They think of their customers more than themselves;

- They never stop learning;

- They find and fill a need of the world;

- They take old ideas and make them way, way better;

- They can accept and appreciate failure.

read more

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

3 steps for dousing the flames of job burnout

When deadlines seem out of reach, meetings are nonstop and requests from clients and colleagues are overwhelming, it can frustrate even the most upbeat employee.

Nearly everyone has experienced a bad day at the office. But for some employees, that bad day can extend for weeks or even months and may result in motivational and productivity issues that can directly impact a businesses’ bottom line.

Read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Have Your Contracts Reviewed

If you have not had your business contracts reviewed by an NYC business lawyer for a while (over a year), you should seriously consider doing so now.

First, even if you had your current lawyer (with whom you no doubt have an excellent working relationship and whose expertise and advice you trust without question) prepare those contracts, your current lawyer could have a slightly different perspective today than they did a year ago and they may think that certain important things should be added or removed.

Second, if you do not presently have an ongoing relationship with the lawyer who drafted those contracts, you should definitely consider having that lawyer or a new lawyer review the contracts for the same reasons as stated above, and because it may be that the lawyer who drafted your contracts did not draft them as well as they could have been, particularly if that lawyer does not specialize in business transactions.

It is impossible for me to state how many times I have looked at clients’ existing boiler plates and noted missing provisions, extraneous provisions, and internal inconsistencies, among other things.  And, regardless, it is simply important to go back and review to ensure that your contracts are consistent with the present state of the law and with the present needs of your business.

Should you have questions or need assistance, you should not hesitate to call us.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

How to get a liquor license in New York

Preliminarily, there are many different types of liquor licenses that one can obtain in New York. This article focuses on licenses for retail sales for on or off premises consumption.

Obtaining a liquor license in New York is no easy task. Although the state liquor authority maintains a general policy of wanting to promote business and to issue licenses, the process is long. It begins with you (hopefully) hiring a lawyer. While I am certain that you can probably complete the application and submit it on your own successfully, it is unlikely that a person who is not familiar with the ins and outs of the liquor authority can go through this process efficiently and without significant frustration.

Fundamentally, the licensing process is one of fitness review and information gathering. The liquor authority is attempting to determine whether the applicant or principals of the applicant are persons to whom they are willing to entrust the liquor license (there is a list of specific persons not eligible, but the liquor authority also has significant discretion), and whether the premises themselves are fit to house a business with a liquor license.  While engaging in that inquiry, the liquor authority gathers a substantial amount of information from applicants.

The process for obtaining a liquor license depends on the type of applicant that will hold the license.  An applicant that desire to sells liquor for off premises consumption will have different licensing requirements than an applicant that desire to sells liquor for on premises consumption.  For applicants that desire to sell liquor for off premises consumption, the application process begins with the state liquor authority to which the applicant must submit all information requested in the appropriate application (there are different applications depending on the type of premises). For applicants that desire to sell liquor for consumption on premises, the application process begins with the local community board, to which a 30-day notice of intention to file an application for a liquor license must be sent before the application may even be sent to the liquor authority.  Oftentimes, the community board is the most important player with respect to applicants desiring to sell liquor for on premises consumption, because the liquor authority will respect whatever the community board says with respect to whether they recommend approval of the liquor license or not.  Some community boards do not participate in the process at all, in which case the entire decision whether to grant the license falls squarely on the SLA’s shoulders.

Even though the liquor authority gathers a substantial amount of information about the applicant, there are aspects of the application that are particularly important to the SLA, two of which are the financial disclosure and the personal questionnaire (you may consider going to the liquor authority’s website and looking at one of the retail applications to see what I am referring to).  These forms seem rather simple and straightforward, but the liquor authority is extremely serious about collecting thorough and complete responses with respect to both forms. Both need to be reviewed and completed very carefully. This is one reason why you really should work with a legal professional in obtaining your liquor license.

All applicants should plan to submit with their application materials letters of support from the community. These are letters from individuals who live nearby or in the same building and from local community organizations, including churches. These letters substantially bolster your likelihood of obtaining the license.

After the application is submitted, it is reviewed for completeness by SLA employees.  If there is information missing, they will request it in writing and require that it be submitted by a set deadline, which if not met may result in denial of the application.  Then there is a lot of waiting.

Applicants seeking to sell liquor for off premises consumption experience scrutiny similar to applicants seeking to sell liquor for on premises consumption, but are not subject to the more stringent inquiry that may occur with an applicant seeking to sell liquor for on premises consumption if the premises are located within 500 feet of three or more establishments with the same type of license (this does not apply to applicants for beer and wine licenses). If an applicant seeking to sell liquor for on premises consumption is within 500 feet of three or more establishments with the same type of license, then they will need to plan to attend a “500 foot hearing” with the liquor authority explaining why it is in the public interest to issue the license (the statute prohibits the issuance of a license if there are three or more establishments with the same license sought by the applicant located within 500 feet of the applicant’s proposed premises). This hearing is relatively straightforward, but it requires substantial preparation in order for it to go smoothly.

No license can be granted to an applicant whose premises is located within 200 feet of a school or church that has its main entrance on the same street as the applicant’s premises, and the liquor authority has no discretion with respect to that rule.

As a general matter, the customer service representatives and examiners for the liquor authority are very professional and helpful, but the process of obtaining the license can be very slow, particularly if the entity for which you are applying is one with many principals.  The process, however, will go substantially faster with the assistance of a competent legal professional.

If you are interested in obtaining a liquor license in New York and you need assistance or have additional questions, please do not hesitate to contact us.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Why Many Small Businesses Cannot Be Sold

Many business owners have a dream of selling their business some day. But many of those businesses will never be sold. You can see this simply by reviewing the number of businesses listed for sale each month on the websiteBizBuySell.com.

If you look at the site, you’ll see it offers listings for about 30,000 businesses at any one time. But according to BizBuySell’s recent Insight Report, there have been 1,650 to 1,890 transactions closed per quarter over the last five quarters. This means that only about 4 or 5 percent of the businesses listed on the site are being sold in any one quarter.

And that means that a lot of business owners are struggling to find a buyer who’s willing to pay anything close to asking price. If you are one of these struggling owners, you might want to consider the following questions.  Read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

How to Pick the Right NYC Business Lawyer for Your Startup

This is a great and very scary story that teaches an important lesson about choosing the right NYC business lawyer:

Picking the right attorney in your startup is as important as picking the right business partner. You can’t underestimate the importance of selecting an attorney who “gets” your business model, your market opportunity, and most importantly, your fundraising and exit strategy.

My business partner and I made many mistakes in our first tech startup, and so many of them were the result of choosing a lawyer who was a terrible fit.

Let me paint the picture for you: We were about two months into our startup idea. We had stars in our eyes and excitement in our bellies. Both my business partner and I were “green”—meaning, this was our first startup venture, and we had no idea what we were about to get ourselves into on that warm fall day when we walked into the office of our soon-to-be attorney…

Read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

No BYOB If You Do Not Have A Liquor License

A common misconception that I often hear about the need to obtain a New York liquor license is usually stated something like: “Well I don’t really need the liquor license if I let them bring their own alcohol anyway.”  In New York, that is dead wrong and will cause you many problems if you are discovered operating in that fashion.  First, it is a misdemeanor and could cause you to have to close your doors for a time while the assistant DA in the particular county resolves the matter with you.  Second, your chances of getting an actual license will be substantially diminished.  As set out on the liquor authority’s website, here is the their official policy on BYOB:

“BYOB, or ‘Bring Your Own Bottle,’ where owners of establishments allow their customers to bring alcoholic beverages to their premises to be consumed on site, is NOT PERMITTED in unlicensed businesses in New York State.  You MUST have a license or permit to sell/serve beer, wine or liquor to the public. Venues without a license or permit may not allow patrons to ‘bring their own’ alcoholic beverages for consumption.  In addition, owners of businesses may not give away alcoholic beverages to their patrons.  Those that do are in violation of the NYS Alcoholic Beverage Control Law.

Applicants should be aware that allowing BYOB without a license may jeopardize their chances for approval of their license.”

Take them seriously.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

New York Liquor Licensing: The 200 and 500 Foot Rules

If you have thought about obtaining a New York Liquor License, I am sure that you have heard, at the very least in passing, meanderings about the 200 and 500 foot rules and how they apply.  Here is how they work in a nutshell (a more detailed explanation can be found here).

• The 200 foot rule applies to any retail establishment where liquor will be sold for on premises consumption; and any retail establishment where liquor or wine will be sold for consumption off the premises.
• The 200 foot rule prohibits certain licenses from being issued if the location of the establishment is on the same street and within 200 feet of a building that is used exclusively as a school, church, synagogue or other place of worship. “School, church, synagogue or other place of worship” are not clearly defined terms, but the courts have adopted a test that looks to whether the building is used primarily as a school or place of worship. The building will still be considered a school or place of worship as long as any other use is only incidental to, and is not inconsistent with or detracting from the predominant character of the building as a school or place of worship.
• The 500 foot rule applies only in cities, towns or villages with a population of 20,000 or more.
• The 500 foot rule applies to applicants for “full” (liquor, wine and beer) liquor licenses for on-premises consumption.
• The 500 foot rule refers to a statutory restriction on the approval of certain on-premises liquor licenses if the location is within a 500 foot radius of three or more establishments with the same class of liquor license.  Despite the restriction, the SLA may grant the license after inquiry into whether it would be in the public interest to issue the license.  As part of this inquiry, the SLA reaches out to other businesses with liquor licenses for on premises consumption in the area for their comment, the SLA encourages the applicant to obtain tangible proof of community support (letters usually), and the SLA holds a hearing on the matter.

Inquiry into these rules and how they might apply to your premises is essential once you begin thinking about obtaining a liquor license for your establishment.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

How Rent Control Works in New York City

Legal Foundation

The “local emergency housing rent control act” provides authority for “the city rent and rehabilitation law”, which governs rent control in New York City. The Division of Housing and Community Renewal (DHCR) in turn has promulgated regulations pursuant to the city rent and rehabilitation law that govern rent control in New York City. Those regulations are known as the New York City Rent and Eviction Regulations (DHCR regulations).

Rent control covers units constructed before February 1st, 1947, and continuously occupied by the same tenant, or the tenant’s legal successor, since July 1, 1971.

“Statutory Lease”

The city rent and rehabilitation law and the DHCR regulations make up the “statutory lease” between the owner of a property subject to the rent control laws and a tenant who qualifies for the protection of the rent control laws, but who does not have a previously existing lease between himself or herself and the landlord before the rent control laws went into effect. In the event the tenant did have such a lease between himself or herself and the landlord, the terms of that lease would govern the relationship between the tenant and the landlord even though the tenant would still qualify for protections from rent increases and eviction provided by the rent control law and associated regulations.

(1) Termination of Tenancy

As long as the rent control tenant continues to pay the regulated rent, the tenancy cannot be terminated at will by the landlord.

(2) Termination of Rent Control Status

When a rent controlled apartment becomes vacant, it either becomes rent stabilized, or, if it is in a building with fewer than six units, it is generally removed from regulation and no longer subject to rent control.

Succession Rights

Family members of a rent-controlled tenant have succession rights to the rent-controlled apartment and cannot be evicted when the main tenant dies or otherwise permanently vacates the apartment. “Family member” includes a spouse, son, daughter, stepchild, father, mother, stepparents, brother, sister, grandparents, grandchildren, in-laws, and any other person residing with the tenant who can prove emotional and financial commitment and interdependence between the person and the tenant. Emotional and financial commitment is proven by consideration of various factors set out in DHCR Fact Sheet #30.

In order to succeed to a rent-controlled apartment, the family member must have resided with the tenant as a primary resident in the apartment for at least two years immediately prior to the death of, or other permanent departure from the apartment by, the tenant. Protection also exists for family members who reside with the tenant from the inception of the tenancy or the commencement of the relationship.

Indications of residency include: placing a name on a mailbox, advising the landlord of the tenancy, leaving personal property on the premises, leaving furniture on the premises, maintaining a telephone number on the premises, and being present on the premises on a regular basis.

A lease (including a statutory lease) for residential premises permits occupancy by the tenant, immediate family of the tenant, one additional occupant, and dependent children of the occupant provided that the tenant or the tenant’s spouse occupies the premises as his or her primary residence. Under the rent control laws, “immediate family” includes siblings. It would therefore be unlawful to try to preclude “immediate family” members from moving in with a tenant with rights to a rent-controlled apartment.

Rent Increases

When the initial rent-controlled tenant transfers occupancy to a successor, that successor takes the premises at the same rent paid by the first tenant. However, if the second tenant transfers the premises to a subsequent legal successor, that successor takes the premises subject to a 20 percent increase in rent, and possibly to an additional 24 percent increase (44 percent total) if it has been 40 years since the last vacancy increase. Subsequently, the landlord can increase the rent up to 7.5 percent each year as long as, every two years, the landlord completes a Maximum Base Rent (MBR) Application that is approved by DHCR.

Pursuant to the MBR system, a maximum base rent is established for each apartment and adjusted every two years to reflect changes in operating costs. Owners, who certify that they are providing essential services and have removed violations, are entitled to raise rents up to 7.5 percent each year until they reach the MBR. Rents can also be increased because of increases in fuel costs and to cover higher labor costs.

DHCR Fact Sheet #22 describes the MBR rent increase system as working the following way:

The rent that rent controlled tenants actually pay is called the Maximum Collectible Rent (MCR). The MCR generally is less than the MBR. By law, the MCR cannot be increased by more than 7.5% per year for each year of the two year MBR cycle unless there are Major Capital Improvements or individual apartment rent increases. For example, if a tenant’s rent (MCR) on 12/31/01 was $600, and the MBR was $700, then on 1/1/02 (effective date of MBR) the rent (MCR) would rise 7.5% to $645 and the MBR ceiling would rise by 10.5% (the 2002-03 MBR factor) to $773.50. On 1/1/03, the MBR would remain the same (since MBRs cover a two-year period), but the MCR would rise by another 7.5% to $693.38.

Tenants may challenge the proposed increase on the grounds that the building has violations or that the owner’s expenses do not warrant an increase.

Rents can also be increased: (1) with the written consent of the tenant in occupancy, if the owner increases services or equipment, or makes improvements to an apartment; (2) with DHCR approval, if the owner installs a building-wide-major capital improvement; or (3) in cases of hardship with DHCR approval.

Contact an NYC business lawyer at Hendricks Law Firm PLLC to see how we can assist you.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

7 Steps to Starting Your Own Business

We’ve compiled a detailed list of steps for forming a business in New York, which you can findhere, but this article is more broadly applicable and sets out a great roadmap:

People are always asking for a list of fundamentals, a checklist they can use to start their own businesses. From your business type to your business model to your physical location, there are so many variables it’s not easy to come up with a list that will work for everybody. The key, regardless of what type of business you’re starting, is to be flexible!

1. Personal evaluation

 “Know yourself, and work in a job that caters to your strengths. This knowledge will make you happier” – Sabrina Parsons

Begin by taking stock of yourself and your situation. Why do you want to start a business? Is it money, freedom, creativity, or some other reason? What skills do you have? What industries do you know about? Would you want to provide a service or a product? What do you like to do? How much capital do you have to risk? Will it be a full-time or a part-time venture? Your answers to these types of questions will help you narrow your focus.

Read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Stay Focused and Run Like Heck: Some Thoughts About Crisis Management For Entrepreneurs

Being an entrepreneur is not easy; there will be great days and there will be terrible ones.  Even with all the best and thorough planning in the world, there will be events that occur that were not in the plan that we must be able to deal with in a focused, decisive, and winning way. Defeat can never be an option even if there comes a day when forces beyond our control require us to perhaps explore newer and better opportunities.

While I am not an expert in crisis management, I am no stranger to assisting clients and myself in this realm. And there are a few things that every successful entrepreneur must be prepared to do when, not if, a crisis occurs in your business. I have my own suggestions and I have quoted below the text of a great piece that also lays out some important ideas.

My suggestions:

• Remember who you are and why you started on this path in the first place;
• Recognize your responsibility;
• Break the problem apart into manageable pieces and prioritize;
• Shut out all the noise;
• Stay the course and believe in yourself and what you are trying to do no matter how unmanageable the crisis may seem;
• Do your best not to make the situation worse;
• Maintain normalcy to every extent possible; and
• Make peace with it.

Additionally, the following, which is quoted from from Entrepreneur and is titled “Turning Crisis Into Opportunity:  5 Ways to Deal With Hardship” explains in a rather meaningful way how to deal with the inevitable obstacles, some of which may appear to be business-ending:

Entrepreneurs face obstacles from the moment they wake up in the morning, whether they’re trying to satisfy investors, struggling to meet payroll, dealing with unexpected complications or delivering a new product to market.

Of course, not everyone is cut out for these rough seas. But some individuals stand out as being particularly well-suited for dealing with what investor and advisor Ben Horowitz calls the “hard things.”

It’s these entrepreneurs who turn what seems to be an unending stream of difficulty into advantage. They emerge from obstacles stronger and more successful. While others lose their heads (or their shirts), they not only remain calm but seize the offensive and the opportunities. Subjected to such obstacles, these entrepreneurs are transformed much in the way that Andy Grove, former Intel CEO, observed, “Bad companies are destroyed by crisis. Good companies survive them. Great companies are improved by them.”

As it turns out, there is a method for understanding and acting upon the obstacles that life throws at us. There is a way to be improved by them. Roman Emperor Marcus Aurelius forged this formula centuries ago and wrote it to himself as a daily reminder:

• “Objective judgment, now at this very moment.
• Unselfish action, now at this very moment.
• Willing acceptance — now at this very moment — of all external events.
• That’s all you need.”

Iconic entrepreneurs like John D. Rockefeller, Thomas Edison and Steve Jobs all used this same formula when obstacles confronted them, even using the situation to fuel their immense ambitions. For them, the obstacle was the way.

What follows are five strategies born of this ancient maxim. Forged over centuries, this framework contains timeless wisdom that we all can use to turn the challenges we face into great triumphs for ourselves and our companies. It’s the one thing that all great entrepreneurs have in common.

Keep a cool head. John D. Rockefeller was barely two years into his first job when the Panic of 1857 struck. Rockefeller could have become depressed and paralyzed by the unfortunate circumstances he faced. But instead of bemoaning the timing of the economic upheaval, he chose to perceive events differently than his peers. He looked at them as an opportunity to learn, to experience a baptism by the market. He was inclined to see opportunity in every disaster, as he once put it.

Within 20 years of that first crisis, Rockefeller alone controlled 90 percent of the oil market.

Like Rockefeller, today’s entrepreneurs live in turbulent times. Instead of letting our perception of events cloud our judgment, we can look to companies like LinkedIn and Microsoft, that were both founded during times of economic crisis. When others become lost worrying about a competitor’s latest acquisition or an investor having a fit, we can channel Rockefeller’s coolness under pressure and look for the opportunity in a crisis.

Think differently. Steve Jobs was famous for what observers called his “reality distortion field,” which made him dismissive of phrases like “It can’t be done.” When he ordered a special kind of glass for the first iPhone, manufacturers were aghast at the aggressive deadline. “Don’t be afraid,” Jobs said. “You can do it. Get your mind around it. You can do it.”

Nearly overnight, manufacturers transformed their facilities into glassmaking behemoths, and within six months they had made enough for the whole first run of the phone. His insistence pushed them past what they thought was possible.

We can choose to reject our first judgments and the objections that spring out of them by insisting that obstacles are in fact malleable not concrete. Like Apple’s leader we must have faith in our ability to make something where there was nothing before. To companies like Facebook and Google in their startup years, the idea that no one had ever done something was a good thing. It meant there was an opportunity to own it themselves.

Ignore the rules. Samuel Zemurray, the owner of a small upstart fruit company, was once told he couldn’t build the bridge he needed across the river in Central America. This was because government officials had been bribed by United Fruit, one of the most powerful companies in the United States at the time.

So Zemurray had his engineers build two long piers that reached far into the center of the river instead. When needed they strung a temporary pontoon that could connect them in a matter of hours. When United Fruit complained, Zemurray simply laughed and replied, “Why, that’s no bridge. It’s just a couple old wharfs.” We can see this type of stoic ingenuity in startups like Uber and Tesla. There are times that we must take bold action that requires ignorance of outdated or oppressive regulations to accomplish our business goals. What’s right is what works.

Anticipate (think negatively). There is a popular technique being used by individuals at startups and Fortune 500 companies that the Harvard Business Review has called the pre-mortem. This premortem technique, designed by psychologist Gary Klein, is an exercise in practicing hindsight in advance. But like all great ideas, it’s actually nothing new. The credit goes to the ancient Stoics. They even had a better name for it: premeditatio malorum (premeditation of evils).

Our plans rarely resemble the way things turn out. But as stoic entrepreneurs, we can rehearse in our minds what could go wrong and not be caught by surprise. Using this process, we surpass our competitors who are shocked and fall back, devastated by what they did not imagine coming.

Amor fati  (or love your fate). When Thomas Edison’s entire research and production campus burned to the ground, he didn’t get angry or become despondent. Instead, he became energized and invigorated. In only three weeks the factory was partially back up and running, all because Edison practiced what the ancient Stoics calledamor fati,love of fate.

In our own lives, we can follow Edison’s example when we lose an investor or an employee unexpectedly leaves our startup. When Jack Dorsey was replaced as CEO at Twitter, he didn’t become paralyzed or depressed. Instead he accepted it and went on to found Square, one of the largest payment-processing startups in the world. We don’t benefit from tears, anger or despair. We always get something out of passionate intensity and energy.

These great entrepreneurs all used strategies from the ancient Stoics to flip obstacles upside and find opportunities within them. They lived out the axioms of Marcus Aurelius and followed a group that Cicero called the only “real philosophers” — the ancient Stoics — even if they had never read them.

You might not see yourself as a “philosopher,” but then again neither did most of these men and women. They were not academics, but men of action. But the essence of philosophy is action, making good on the ability to turn the obstacle upside down with our minds. Today, author and investor Tim Ferriss refers to Stoicism as his “operating system” — and, in the tradition of those who came before him, he has successfully driven its adoption throughout Silicon Valley. We too can follow his example and use what others see as roadblocks as fuel for our ambitions and inevitable success.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

Why Well Drafted Partnership Documents Matter: Court Holds that Funds Paid to LLC By Members After Initial Capital Contributions are Loans by Default

The following illustrates why well drafted operating, partnership, or shareholder agreements among business partners (the type of agreement is related to the type of entity) are essential.  And it is substantially more cost effective to pay a professional to properly draft these documents up front as opposed to litigating the matter later.

As the New York Law Journal wrote recently, on February 18, 2015, the Second Department issued a decision in Chiu v. Chiu, 2015 NY Slip Op. 01427, holding that funds paid by a member to an LLC should be treated as loans, rather than contributions to capital, in the absence of evidence that the parties intended them to be capital contributions.  This matters because capital contributions dictate equity and initial payments of cash to an LLC are generally treated as capital contributions.  After that, however, things can get murky as occurred in this case because subsequent payments typically will be assumed to be loans unless a specific intention that the payment should be treated as a capital contribution is set out in the operating agreement.

In Chiu, two members of an LLC litigated their respective ownership shares and the value of those shares. Reversing a trial court decision after trial that one of the members had only a 10 percent ownership interest, the Second Department explained:

“After a joint nonjury trial, the Supreme Court issued a decision finding that although Winston Chiu initially had a 25% membership interest in the LLC, subsequent capital contributions by Man Choi Chiu had the effect of reducing Winston Chiu’s membership interest to 10% and increasing Man Choi Chiu’s membership interest to 90%. . . . Here, the Supreme Court properly determined that the LLC’s records, which included the LLC’s tax returns for the years 1999 and 2000, established that Winston Chiu’s initial membership interest was 25%. Although Man Choi Chiu contends that the LLC’s records were incorrect, he cannot subsequently take a position contrary to that taken in the income tax returns which he admitted that he signed. However, the Supreme Court incorrectly determined that the subsequent contributions by Man Choi Chiu should be treated as capital contributions, and not as loans, as the record was bereft of any evidence of an agreement between the members to such treatment. Accordingly, on the date of his withdrawal, Winston Chiu’s membership interest remained at 25%.”

(Internal quotations and citations omitted) (emphasis added).

Had these individuals simply added a provision to their operating agreement stating how subsequent contributions or payments to the LLC would be treated, they would not have had any confusion about the effect of the additional payments by one partner.

Portions of this post were taken from “Recent New York Decisions Regarding Defamation and Business Divorce”, NYLJ, 3/23/15

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.  

What To Do With Your Liquor License if Your Business Closes

Your business has a liquor license, but you are contemplating closing, selling the business, or even just closing temporarily (more than two weeks) to do renovations or for some other reason.  What do you do with your liquor license?  Well, if you would like to remain in good standing with the State Liquor Authority, you cannot simply ignore the liquor license.  Instead, you need to determine whether you will need to put your license in safekeeping or surrender it to the liquor authority.  This issue comes up quite often when businesses are sold.  And it can be tricky to determine whether and when to place the license in safekeeping or to surrender the license during that process.  You should always consult a professional if you are unsure.  Recently, the State Liquor Authority issued Advisory 2015-5 in which it explains the difference between safekeeping and surrender and the circumstances under which one or the other must occur.  Careful review of this bulletin is important because the mishandling of a liquor license will subject the licensee to disciplinary action.  Note also that it is unlawful to permit someone else to operate their business using your liquor license.

As stated in Advisory 2015-5, “[p]ursuant to Section 53.1(d) of the Rules of the Authority, a licensee may be subject to disciplinary action if the ‘licensed premises ceases to be operated as a bona fide premises within the contemplation of the license issued for such premises, in the judgment of the Authority.’ It has long been the position of the Authority that, when a licensed business is closed, either temporarily or permanently, or the licensee has otherwise ceased conducting licensed activities, the premises is no longer ‘bona fide.’ This Advisory is intended to provide guidance to licensees with respect to actions that must be taken if the licensed business is closed, either temporarily or permanently, or the licensee has otherwise ceased conducting licensed activities.”  Read more here.

This blog post is not intended to consist of legal advice and you should always consult with a lawyer before acting on anything you find on the Internet.  If you have questions or comments about this post, about the topic, or if you need legal assistance, you should feel free to give us a call or send us an email.