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Legal Insights

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Business Information:

How do I form or start a business?

Before starting or forming a business, you want to choose the entity type that is best for you. Once you make that decision by talking with a lawyer and likely a good tax advisor, then you will need to file with the state of choice to file the business entity type.

What is a business entity?

A business entity is a way of doing business that is recognized by the law as a separate (not natural) person, with its legal duties and obligations (e.g. paying taxes, complying with regulations, etc.).

What are the business entity types?

Some of the common business entity types include Corporation, Limited Liability Company, General Partnership, Limited Partnership, Limited Liability Partnership, Limited Liability Limited Partnership, and Nonprofit corporation. There are some less common types, such as Blockchain-Based Limited Liability Company, Low-profit Limited Liability Company, and Benefit Corporation. (Sole proprietorship and Joint Venture are not business entity types, although valid ways of business).

What is the difference between a Limited Liability Company (LLC) and a Limited Liability Partnership?

LLCs are for any type of business purpose, while LLPs are limited to certain professional services. They are also different entity types, with LLCs having more limited exposure.

Which state is best for anonymous ownership?

There is no true anonymous ownership. Even if the record owner on the document transfers funds to someone else (a beneficial owner), many states require annual filing of directors, officers, and beneficial owners; each entity is responsible for designating someone for when the government wants to know who the beneficial owners are. The closest state is Wyoming, which does allow a shareholder of a corporation to be identified by a blockchain key or private network key. (However, the SEC is requiring disclosure of private network keys on the OFAC Sanctions List).

When do securities laws apply to companies?

Securities laws apply when a business is preparing or offering to sell ownership interests in its business to investors.

Origins of the Legal System:

What is the significance of the Federalist Papers?

It was considered the "user manual" for the Constitution.

Who were the founders?

Lawyers, landholders, business owners, leaders, intellectuals.

What were some English influences on the US legal system?

Legal limitations on power of king, Magna Carta. Commonwealth as negative example; unbalanced power, can’t be solely by Parliament.

Financial Accounting and Tax Planning:

How much of one’s life earnings are dedicated to paying taxes?

The single largest expense of our life, the average American spends 20% to 35% of their life working solely to pay taxes to the government.

What types of taxes are there?

Taxes are divided into two major categories: state & local income tax and non-income tax, which includes FICA, estate and gift, sales and use taxes, and more. What are the Biden Tax Policies and at what stage are their actual implementation?

The Biden Tax Policies involve an increase in the rates of major taxes, such as corporate tax, capital gains tax, individual income tax, FICA tax, and estate tax. They are still at the stage of proposed policies, and must make it through the House of Representatives and the Senate before signed off by the President. More details will be provided when it enters the House and Senate for review and approval.

What is tax planning and preparation and why is it important?

Tax Planning is the process of looking at a person’s life, business, and regulatory requirements to legally reduce taxes. This gets one ready for tax preparation, the process of preparing tax returns for submission to the IRS. Tax planning is crucial since the vast majority of opportunities for minimizing taxes occurs during this phase. It directly shapes one’s tax liability.

How do qualified dividends differ from interest income in terms of tax?

Dividends yield much less tax than interest income. What are some general tax saving strategies?

Choosing the right tax entity, income shifting, setting up an Accountable Plan in one’s business to reimburse for personal expenses, incorporating the cost of health insurance as part of wages, converting one’s home into a “conference room” for tax-free board meetings.

Why should we have business financial statements?

To provide pertinent information on the financial position, profitability, and the operating, investing, and financing activities of a company with balance sheet, income statement, and cash flow statement, and statement of retained earnings. What is equity?

The value of the company remaining after you subtract the amount of liabilities the business owes from its total asset value.

What is the cost of goods sold?

In a service business, the cost of goods sold is considered to be the labor, payroll taxes, and benefits of those people who generate billable hours. It is also referred to as “Cost of Sales.” In a retail or wholesale business, the cost of goods sold is likely to be merchandise that was bought from a manufacturer, shipping costs related to moving product and quality control testing.

What are operating expenses?

An expense incurred in carrying out an organization’s day-to-day activities, but not directly associated with production of the item sold or service delivered.

What is a KPI?

Key Performance Indicators (or KPIs) are commonly described as a quantifiable measure used to evaluate the success of an organization, employee, etc., in meeting objectives for performance. Essentially, a KPI is created to measure the activity of a particular aspect of the organization and helps break down the success factors by certain activities or departments. This helps everyone understand the goals that need to be achieved and exactly what metrics will be measured to determine the success or failure of meeting that goal.


What’s the purpose of a contract?

The purpose of a contract is to guide performance, dispute resolution, and potential third party interference with the promises exchanged.

What are the basic elements of a contract?

The basic elements of a contract consist of an offer, an acceptance, mutual consideration, legal parties, and a legal purpose. The offer must be clear and definite and not simply an invitation to deal. An acceptance for an offer must also be clear and definite in order to form a contract.

What is Consideration?

A promise something bargained for and received by a promisor from a promise. Common types of consideration include real or personal property, a return promise, some act, or a forbearance. Moral consideration is not legal consideration that would qualify, like an exchange to be a “good person”. The exchange does not need equal exchange, but needs evidence of exchange (limitation on equality of exchange has to deal with unconscionability).

What Types of Terms are there in a Contract?

There are factual, commercial and legal terms in contracts. Arguably one of the most important aspects of a contract, the better defined and communicated terms in a contract minimizes the risks associated with potential breaches of a contract.

What risks are associated with a lack of terms in a contract?

There can be a lack of specificity, lack of “what if” situations explained, lack of definitions, lack of consistency, or a lack of agreement. These different risks affect each contract differently, but it can lead to costly litigation or evidence of a contract that is not enforceable by the court. The more terms that are not a part of the contract increases the amount of risks associated with the Contract.

How does the Court deal with terms that are unspecific or limited?

The Court may look to other parts of the contract, or the course of dealing between the parties to define the unclear terms. If there are too many unclear terms the court can decide that there was no mutual assent (a meeting of the minds on the offer and acceptance of the contract) and therefore, no legally enforceable contract.

How does the Court deal with interpreting contracts?

If the court decides that there is a legal enforceable contract between two parties. Then the court often looks to reasonable tests in order to determine undefined aspects of a contract. Such as things like if the contract or aspects of it are unconscionable, impossible or impractical. The court may also consider things like bargaining power between the two parties in determining what parts of the contract should be legally enforceable.

Does a contract have to be in writing to be enforceable?

A contract does not have to be writing with the exceptions of. . .

  • Contracts to pay for someone else’s debts
  • Contracts made in consideration of marriage
  • Contracts for the sale of an interest in land
  • Contracts not to be performed within one year of the formation of the contract
  • Contracts for the sale of goods for $500 or more
  • While contracts do not necessarily have to be in writing, oral contracts are very difficult to prove in a court. Not putting a contract in any form of writing adds significant risks in case of a breach of the contract.

Who has the capacity to make a contract?

Pretty much anyone can make a legally binding contract except a person who is a minor or a person with a mental disability. There are exceptions to these exceptions such as a legally emancipated minor may enter a legally binding contract.

What is the UCC?

The Uniform Commercial Code is not federal law, but states have uniformly adopted parts of it into law. The Uniform Commercial Code was drafted in order to uniform contract law across the nation. Different articles deal with different aspects of business contracts (article 1-definition, article 2- sales, article 3- amendments, article 9-scope). The UCC is an important guide to forming business contracts and amending these contracts. Article 9 also provides details on how to properly add collateral to a contract.

Important tips to stay in compliance with the UCC. . .

One of the most important aspects of keeping a contract in alignment with UCC guidelines is to document any changes to an existing contract with the UCC. One should also carefully make sure they are filling out appropriate forms with the UCC when conducting transactions. Filing these forms with the appropriate agency (which can usually be done online) helps minimize risks in case of breach because there will be a written record of the contracts and modifications.

Any other important things to remember about modifying an existing contract?

When modifying a contract or amending it there needs to be new consideration for the changes. One can not rely on the original consideration of the original contract to transfer over because the court recognizes a pre-existing duty.

Labor and Employment:

Do I have to provide workers comp coverage?

No. Employers have the option to “go bare,” meaning a company may opt out of workers’ comp system. This entails that the employer open to personal injury lawsuits from employees who are injured on the job. Meanwhile, employers must notify employees at time of hiring of their right to opt out of worker’s comp system. A helpful resource: (Texas example)

What laws do I need to follow when I handle issues regarding paying my employees?

Employers need to follow both federal and state laws. The agencies in charge are Department of Labor and Texas Workforce Commission (Texas example).

What is FLSA exemption?

FLSA is the acronym of Fair Labor Standards Act. FLSA exemption is not just a salary vs. hourly test. A helpful resource:

Under what conditions would restriction on competition agreements be effective?

Three conditions must be met. Employee must be given something courts deem is worthy of the restriction on competition (i.e., confidential information), and the agreement must be signed before employee’s last day of work, and the agreement must be as narrow as possible to protect the employer’s interest (3 scopes: duration, scope, geography).

What is a typical duration of non-compete restriction agreement?

One to two years. The law frequently changes on this issue and is typically fact specific.

Legal Finance:

What are some things to be mindful of when using your company’s credit cards/lines of credit?

  • Some expenses cannot be deducted by the company.
  • Even though it’s your company’s card, your own credit may still be impacted by your spending activity.
  • You are a guarantor if the company cannot/does not pay

What is a SAFE (Simple Agreement for Future Equity)?

A promise to issue equity in the future at a certain price, a “handshake on paper” on the early Stages.

What are the advantages of convertible notes/debt?

One doesn’t need a real valuation to establish a price for one’s company stock.

What should one set their qualified financing to be? How does that work with money one needs in the future?

Using an application such as Carta in order to model how much funding one needs in the future in order to get where one’s company needs to be, clearance approval, and FDA

What is regulation CF and how do you gather funds?

Regulation CF gives you the ability to take in small dollar amounts in the hundreds or thousands of people. You need a community to have a successful raise of funds.

How to ensure that crowdfunding activities are well led?

The leader, usually well-known Angel LPs, will run an SPV to ensure competency, and investment size and who invests will matter. SPVs (special purpose vehicles) are legal entities created for one specific purpose, on which company representatives will be the liaison between investors and company to maintain a good relationship.

How does a company qualify to be a good revenue based financing company?

By having hybrid loan/equity investment based on revenues, inconstant and solid monthly revenue with strong gross margins, fixed percentage of ongoing revenues. High growth companies are the most scalable.

What do investors and lenders perceive as risks?

No exit strategy, founder/co-founders not vesting, or use of funds and unsound projections

What are some key contract provisions to look out for?

Provisions include “fully diluted,” “qualified financing” and “sale transaction.”

Litigation and Risk Management:

When should I (as a business owner) contact a lawyer?

Before starting a business; before annual checkups or having required filings; when sued; when selling/closing a business.

What are the major sources of potential risks?

Employees, investors, officers & directors & managers, competitors, vendors, family members…

How to prevent litigation with employees?

Business owners should create strong bonds with employees, handle issues timely, take an active approach to performance issues and document any steps taken, be sure to follow all applicable laws, and have an employee handbook that contains the policies and the business.

What should business owners do when sued?

Pay attention to the deadline to respond to the lawsuit, analyze case and assess risk, preserve and organize of evidence, identify if insurance coverage is available, communicate with opposing party.

Data Security and Privacy:

How does COPPA (Children’s Online Privacy Protection Act) apply in the EU? More broadly, how does the regulatory landscape differ across the EU and The US?

The EU operates on a comprehensive model, so COPPA related concerns are addressed through the GDPR. Conversely, the US operates on a sectoral model, so different laws apply to different sectors; COPPA is the specific law regulating businesses who collect information from Minors.

If a company pays a third-party vendor for cloud storage of customer data, and the vendor faces a data breach, is the company liable under the law?

If there is a contract between the company and the third-party vendor (and the company is not aware that the vendor is in violation of the regulations prior to the contract) that satisfies the requirements of the statute, then the company is not responsible for the data breach. (But it is common for the contract to not satisfy the requirements / there is no contract at all between the company and the vendor).

Are recipes of a restaurant covered under copyright?

No, recipes are not typically covered under copyright, and operate more commonly as a trade secret (e.g. Coca-Cola).

Is it necessary to register a trademark under U.S. law to obtain legal protection for a trademark?

No. Common law protects actual use (of the trademark).

HR Perspective on Labor & Employment:

What does HR involve?

The type of culture one’s company has and/or wants, the building and maintaining of the desired culture, who drives company culture, and the impact of mainstream culture.

How do you identify the business needs for a position?

Be aware of the culture, expectations and needs of different groups of potential employees.

When’s the best time to hire?

Early in the year (January, February). Avoid holidays.

How do employees differ from independent contractors?

An employee is expected to get benefits (paid over time), have consistent work, and be managed by someone in the office. Contractors are not managed and are not expected to get benefits; they are asked to use things at their own disposal to achieve the result that signees of contractors paid for.

What are some of the key practices to avoid issues for hiring?

Keeping good pay records, consistency, respecting people’s perspectives and values by finding the right fit.

White Collar Crime:

What is White Collar Crime?

It refers to crimes involving fraudulent activities that are non-violent, deceptive, and aiming at financial gain and causing financial loss. Some examples are public corruption, health care fraud, and money laundering.

What are the risks and rewards of self-disclosure?

Risks include disclosure of violations that otherwise would not be discovered, open organization up to further scrutiny from law enforcement and government agencies, high costs. Rewards include presumption of declination of prosecution, decreased civil and criminal penalties, and avoidance of appointment of expensive monitors.

How to self-disclose violations of law to DOJ or other agencies?

The report must be timely; the investigation complete with full cooperation; remediation must be timely and appropriate.

What are the general steps of internal investigations?

Define scope – identify information sources – document preservation – investigation – report of findings – employee discipline considerations – remedial/defensive measures.

What should you do after being investigated?

Retaining outside counsel, internal investigation by outside counsel, and considering a communications plan.

What if you’re subpoenaed?

You will be required to either offer tangible evidence or testimony before the grand jury. You’re also required to comply with the subpoena. After court, DOJ may seize or freeze property/bank accounts where probable cause exists that property or bank accounts are proceeds of the alleged crime.

What is an in-person visit on white collar crime like, and what should individuals do?

The visit is unannounced, takes place at individuals’ homes, and there is no warrant required. Also, agents will try to get you to talk, but you are not obliged to talk. You should ask for agent’s ID and contact information and say that you’ll need to speak with a lawyer before talking.

What activities trigger jurisdiction of the DOJ on white collar crimes and who can be investigated and prosecuted by the DOJ?

The activities involve two factors to qualify to trigger jurisdiction.

  1. “US nexus”: refers to activities that occur on US soil or directed toward US, or ones that impact US, its citizens, or its business interests.
  2. “means of interstate commerce”: activities involve the use of email, US mail, bank transaction, and money wiring.
Everyone can be prosecuted (individuals, corporations & non-profits, or both)

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