News and Articles

July 2015 NEWSLETTER

Yogi Patel - Tuesday, June 30, 2015

Dear valued clients and supporters: This month's newsletter will focus on: (1) proposed changes to the overtime rules by the U.S. Department of Labor that could potentially extend overtime protection to 5 million white collar workers; (2) New York City's passage of the The Fair Chance Act impacting an employers ability to inquire about a job applicants criminal history prior to hiring and (3) a closer look at selling a company or buying back shares in the context of our continuing series of articles on start-up entrepreneurs.

Proposed changes to overtime rules

The U.S. Department of Labor announced today that it was proposing a rule change that would effectively make millions of white collar employees who are currently considered "exempt" from over-time - eligible for overtime. One of the many factors that currently determines whether an employee is exempt or not from overtime is the total amount of wages earned annually. Today, certain professionals and managers are exempt from overtime if they make more than $23,660 a year and perform specific duties. The proposed rule would now set the overtime threshold to $50,440.00. Additionally, the proposed rule would simplify the identification of nonexempt employees, thus making the executive, administrative and professional employee exemption easier for employers and workers to understand and apply. Both employers and employees are advised to consider the implications of these changes in the event the rule is adopted and implemented as proposed.

The Fair Chance Act

New York City's newly passed Fair Chance Act (the “Act”), which will go into effect on October 27, 2015, prohibits employers from inquiring about a job applicant’s criminal history, including arrest and conviction records, during interviews before a conditional offer of employment is made. In addition, the Act prohibits employers from conducting pre-offer searches of public records and certain consumer reports that contain criminal conviction information. Once a job applicant is given a conditional offer of employment, the employer can do a background check and ask for information about convictions that may be relevant to the job. For more information about the Act, please visit our article here.

Start-up ventures and selling or expanding the business

We invite you to read our last article in the three-part series of articles on start-up ventures and entrepreneurs now posted here. The last article focuses on decisions an entrepreneur who has successfully grown a company and is looking to retire, cash-out, or start a new venture may make. The entrepreneur who is looking to sell should consideration whether the sale should be structured as a stock sale or an asset sale. There are tax and control ramifications that the seller must consider, depending on what they decide to do. The entrepreneur may also decide to buy back the shares that are were issued during the capital raising stage and consolidate control before selling to a third party or simply holding on to the company for a future sale after the buy-back occurs. We invite you to read the full series of articles: Attracting Investment for the Amateur Entrepreneur Part IAttracting Investment for the Amateur Entrepreneur Part II: Additional Capital, and Attracting Investment for the Amateur Entrepreneur Part III: Selling the Business or Buying Back Stock

June 2015 NEWSLETTER

Yogi Patel - Thursday, June 04, 2015

Dear valued clients and supporters: This month's newsletter will focus on: (1) the treatment of household employees under Internal Revenue Code and state statutes; and (2) a closer look at raising capital through preferred shares in the context of our continuing series of articles on start-up entrepreneurs.

Household Employees


While it is not impossible to lawfully employ a household employee, it can be tricky. A household employee is a person who generally does such domestic work as housecleaning, cooking and/or child care. The implications of hiring a household employee often surface when the employee files for unemployment or disability insurance or if the employee simply goes to a reputable accountant to file their yearly income taxes - thereby triggering what is known as the "nanny audit" in the accounting and legal industries. Employers should be mindful that the Internal Revenue Code requires a household employee to be treated similarly to any other employee. Thus, besides the wages paid to the employee, the employer is also responsible for social security, medicare, and unemployment insurance (under both State and Federal Law) contributions on the employee's behalf. The employer must also withhold taxes and pay the employee as a W-2 employee and make timely payments to the IRS for any withholdings. In addition, New York law requires employers to obtain a Workers' Compensation policy as well as a disability policy. Employers are also advised to comply with the minimum wage and overtime provisions of the labor law as household employees are not exempt from these laws. Failure to adhere to these regulations under Federal and State law subject the employer to personal liability. Both employers and employees are advised to consider the exposure in back-taxes to the IRS, as well as the possibility of criminal prosecution for willful failure to comply. 

 

Start-up ventures, raising money and legal obligations


Last month's newsletter rolled out the first article of a three-part series on start-up ventures and capital. The first article, focuses on corporate structures, corporate formalities and applying for securities registrations exemption prior to the "seed" money or "friends and family" stage of raising capital. The second article , focuses on issues faced by a start-up entrepreneur that has already used the initial “seed” money to start the business, but is now at the stage requiring additional capital infusion to fuel the company’s growth. While there are many avenues through which additional capital can be raised, the second article in the series considers the issuing of preferred shares of stock in the company as the mechanism for raising capital. 
      

Preferred stock is a class of shares that by definition entitle their holders to priority payment on dividends and their asset value in the event of liquidation over holders of common stock. Preferred stock typically give investors a fixed, prioritized return, but they do not necessarily come with voting rights or a proportional share in the value of a company when it is sold. However, the specific attributes of the preferred shares that a company sells are variable, and a major aspect of negotiations with investors is designing the shares in a way that meets the needs of both parties. 

The article on our site  discusses three of the most important negotiable attributes of preferred stock: liquidation preferences, conversion rights, and voting rights. The article also briefly discusses the federal and state registration requirements entrepreneurs must follow when executing such transactions.

May 2015 NEWSLETTER

Yogi Patel - Friday, May 01, 2015

Dear valued clients and supporters: This month's newsletter will focus on (1) recent developments in the law with regards to the use of LinkedIn by ex-employees and violations of a pre-existing non-compete or non-solicitation agreements and (2) legal considerations for start-up ventures that are raising money.

LinkedIn and Violation of Separation Agreements

It is not uncommon for employers to require an employee to enter into a separation agreement upon termination or resignation of their employment in exchange for a severance payout. The benefit to the employer in entering such an agreement often includes clauses restricting who that employee works for (competitor, etc) and who they can take with them to the new employer (co-workers, clients, etc.), among other benefits. And the reality now is that many employees maintain social media accounts such as LinkedIn that includes professional connections made through their employment, whether it is co-workers or clients/vendors of the employer. The question that has arisen in several jurisdictions is whether an employee who signs such an agreement and then announces that they are leaving the employer on LinkedIn has breached the non-solicitation and non-competition clauses. Courts have found both ways on this issue in different jurisdictions. And the analysis Courts appear to be engaging in when presented with this question is focused on a few factors. First, what was the exact content of the message by the employer on the social media site. Did it encourage defection or competition? Second, what policies did the employer maintain regarding the use or restriction of social media during the course of employment and did the separation agreement specifically make reference to the use of social media with regards to non-solicition and non-compete clauses? Ex-employees subject to such clauses are advised to tailor the message about their departure or future plans on social media sites with this in mind. Employers that have concerns about how their businesses might be impacted as a result of the use of social media by an ex-employee are advised to implement policies restriction the use of social media, while keeping in mind federal labor law protections protecting employees' ability to engage in concerted activity, should they impose such restrictions.

Start-up ventures, raising money and legal obligations

The current state of the capital markets appears to have set the stage for entrepreneurs to start their own businesses. But entrepreneurs are cautioned to take steps to ensure that they are in compliance with all applicable federal and state laws, particularly those that govern the sale of securities. For any transaction in which a business is accepting money as an investment, there are registration requirements and other restrictions imposed by both the Securities Exchange Commission (SEC) and state law. There are even actions that a business owner must take before even offering securities or other equity in exchange for capital, and a failure to comply with federal and state requirements could leave the uninformed entrepreneur inadvertently facing charges as serious as security fraud. Over the course of the next several months, we intend to post a series of articles on our website intended to provide the start-up entrepreneur with some general guidance on issues related to business formation, accepting investment capital at various stages of growth, and ultimately selling the company and distributing the profits, if that should be the desired outcome of the venture. Please see our series of articles here: I, II, and III .


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