Hot Topics for Small Businesses

What are some hot topics business lawyers are talking about? To quote Ben Franklin (and probably your grandma too), “ an ounce of prevention is worth a pound of cure.” Thinking ahead about these issues can help your business in the long run.

Do you have a standard contract, or standard terms on your estimate/invoice forms? They should include wording like this: “Interest at 18% per year accrues on balances unpaid more than 30 days. If we must take legal action to collect, customer will be liable for our attorney’s fees.” You can name an interest rate lower than 18% if you prefer. These sentences will allow you to do two important things. First, they allow you to begin collecting interest early, instead of waiting until after a judgment is entered. Second, if you have to sue to collect, they allow you to recover your attorney’s fees.Are your workers who get 1099s truly independent contractors, or are they really W-2 employees in disguise? The IRS cares about this because they receive employer withholding contributions on W-2 employees, but not on independent contractors paid with 1099s. Back taxes and penalties can result if an employer should be withholding taxes, but does not. The IRS has a number of factors to decide whether a worker is an employee or an independent contractor. For example, if you set your worker’s hours, control how he gets the job done, provide the tools he uses, and he works only for you, he is probably an employee. By comparison, if the person you hire works for various other employers too, has special skills, has his own tools, and has control over how he gets the job done, he is probably an independent contractor. Some factors can be more important than others in certain cases. If in doubt, consult your attorney or accountant.

Do you want your employees to sign non-compete agreements? In North Carolina, non-competes are valid only when:They are signed by a new employee as part of being hired, orFor an existing employee, the employee is paid something extra of value in exchange for signing the agreement, like a lump sum payment or a bonus she would not otherwise have received. It is not enough to tell an existing employee that she must sign the non-compete in order to keep her job, nor is it enough to give her a nominal sum of money.

Non-competes must be reasonable in duration and in how wide a geographic area they cover. This is a “pass-fail” test. If the court finds a non-compete is unreasonable, they will strike it down; they will not rewrite it to make it reasonable.Have you thought about succession planning? As baby boomer business owners get older, many are thinking about how to turn the reins over to a new generation. This may involve business planning and estate planning. It is easier to transition a corporation or an LLC to the next generation than it is a sole proprietorship. You may want to develop a plan to transfer ownership incrementally. That way you retain the controlling interest until you are sure they have gained the experience needed to be successful.

Remember that you, your attorney, and your accountant are a team. Relying upon the experience and expertise of your attorney and your accountant can prevent many expensive and time-consuming problems for your business.

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