In January, the Secretary of State improved their website to allow business owners to create a password which will then be required to access their business account – e.g., to file periodic reports, to make changes to registered company information, etc. This new precaution will prevent unauthorized changes to your business’ records and act as a safeguard against business identity theft.

If you would like more information or if you need assistance establishing a password for your business, please contact Jodi Heltenberg via email at jodi@heltenberglaw.com or by phone at 720.635.3218.

Jodi Heltenberg’s list of “10 Tips to Drafting Effective Contracts” was recently published on the Colorado SBDC (Small Business Development Center) website.  You can find it here:  10 Tips for Drafting Effective Contracts.

No matter how well you know and trust the person you’re dealing with, when it comes to your business – ALWAYS get it in writing. Without a written agreement clearly setting forth each party’s obligations and expectations, when something goes wrong there is nothing but your word against someone else’s – which can ruin relationships and lead to time consuming and expensive court battles. The investment of a little extra time and effort to reduce your agreement to writing can save significant time, money, and headache in the long run. When drafting a written contract, keep the following tips in mind:

1. Clearly identify each party to the contract. Include the full legal name and address of each party. If you are contracting with a business, make sure that the business (not just the person signing on behalf of the company) is named as a party to the contract.

2. Include a detailed description of each party’s duties/obligations under the contract. You will want to clearly define each party’s duties, including the goods and/or services to be provided and a timetable for delivery/completion.

3. Include a Termination Clause. You should clearly specify which breach of contract events trigger a right to termination of the contract, how much notice is required prior to termination, and whether the breaching party is entitled to an opportunity to cure.

4. Include a Merger/Integration Clause. You should clearly state that the contract represents the entire agreement of the parties. This prevents a party from later claiming that the contract does not reflect their entire understanding, was changed by a subsequent oral agreement, etc. You should also include a requirement that all amendments to the contract be in writing and signed by all parties.

5. Clearly define all important terms. Don’t assume that all parties to the contract will have the same definition for important terms. For example, contracts often call for delivery to be made bi-weekly. What does that term mean? If you look up bi-weekly in the dictionary, “biweekly” can mean either twice per week or every two weeks. If the contract doesn’t clearly state which definition applies, conflict can result.

6. Anticipate Litigation. The contract should include provisions regarding choice of law, forum selection, and attorney’s fees. You may also want to require that alternative dispute resolution methods be utilized (mediation, arbitration) rather than litigation.

7. Include a Savings/Severability Clause. In the event that one provision of the contract is found to be unenforceable, this clause ensures that the rest of the contract will remain in force.

8. Number the pages of the contract. This avoids the possibility that additional pages may be unscrupulously added after signing.

9. Use exhibits to memorialize the specific terms of the agreement. This allows you to use the same base contract over and over again.

10. Consider including provisions regarding the following, if applicable: a. Remedies for nonpayment/late payment fees; b. Copyright ownership; c. “Time is of the Essence” clause; d. Assignability (can obligations under the contract be assigned to a third party?); e. Renewal terms; f. Return of property at expiration of contract; g. Confidentiality; and h. Limitation of Liability/Indemnification.

While the above tips provide basic guidance for drafting a generic contract, they are not tailored to your business’ specific circumstances and needs. It is good practice to consult with an attorney to draft or review all of your important business contracts. Jodi R. Heltenberg, Esq. of Heltenberg Law can help protect your business by ensuring that your contracts are drafted in your business’ best interests. She can be reached at jodi@heltenberglaw.com or 720.635.3218.

Jodi Heltenberg is excited to have recently been elected to the Board of Directors of the Mile High Business Alliance, a fantastic organization of local small businesses working together to bring awareness to the importance of buying local and to shape and strengthen business relationships.  You can read more about the MHBA by visiting their website at  http://milehighbiz.org/  .

Effective January 1, 2012, the Colorado  Secretary of State no longer sends postcard notifications to alert you when your business’ periodic report is due.  And, failure to timely file your period report can jeopardize your limited liability status.  You can sign up for an email reminder from the Secretary of State at http://www.sos.state.co.us/biz/businessFunctionsEmailNotification.do. 

The following list of tips for small business owners was written by Jodi R. Heltenberg, Esq. and has been published on the Denver SBDC’s  webpage.  You can find it here : www.denversbdc.org/resources/10-tips-to or here www.denversbdc.org/resources/legal.

Ten Legal Tips All Small Business Owners Should Know

1. Choose the Proper Legal Structure for Your Business.  The type of entity you choose for your business will impact your personal liability and your business’s tax obligations.  A corporation/LLC is a separate legal entity and will shield you from personal liability for the corporation’s/LLC’s debts.  And, for some businesses, forming as a corporation can provide tax savings.  Your attorney and/or accountant can assist you in selecting the best legal structure for your business.
2. Maintain Your Limited Liability Status.  Certain steps must be taken to protect your limited liability status, including but not limited to: ensuring that all necessary formation documents have been properly prepared and executed; adequately capitalizing your business; preventing any commingling of business and personal assets; holding your business out to the public as a limited liability entity (e.g., including the LLC/Inc. designation on all marketing materials, signing contracts as an agent of the company, etc.); conducting regular meetings; and filing all required annual reports.
3. Get it in Writing.  Without a written agreement clearly setting forth each party’s obligations, when something goes wrong, there is only your word against someone else’s – which can ruin relationships and lead to time consuming and expensive court battles. All business agreements (sales contracts, service agreements, employment agreements, leases, etc.) should be put in writing.
4. Protect your business’s name/slogan/logo.   Did you spend long hours trying to come up with an original name for your business?  Do you have a company logo that you love?  Do you use a creative slogan that customers identify with your products/services?  If so, wouldn’t you hate for someone else to start using your company’s name, logo, or slogan as their own?  Federal trademark registration gives you the exclusive right to use your company name/slogan/logo in connection with the goods or services listed in the registration.
5. Protect your business’s trade secrets/confidential info.  Your customer lists, supplier lists, company handbook, methods of practice, etc. are all important and valuable assets of your business.  Requiring an NDA and/or non-compete agreement from anyone permitted access to your company’s confidential information will ensure that a disgruntled employee or unscrupulous contractor does not use the information for their personal gain.
6. Don’t promise employees continued employment.  Colorado is an “at will” employment state – this means that employees can be let go at any time, for any reason.  However, if you promise your employees that they “will always have a job” or otherwise guarantee long-term employment, they may legally be considered “just cause” employees – which means that they can only be let go if you have a legitimate reason to terminate them (e.g., they stole company property, used drugs while on the job, etc.)… and, beware, a lull in business does not constitute just cause.
7. Properly categorize your workers.  Improperly classifying an employee as an independent contractor can result in a fine of $5,000 for the first offense, up to $25,000 for each subsequent offense, and the imposition of interest and back taxes.  All independent contractors should sign an independent contractor agreement setting forth their roles and explicitly stating their status.  And, even more importantly, make sure that all independent contractors are treated as such.  The Colorado Department of Revenue and the IRS both have tests to determine whether a worker is an employee or an independent contractor – familiarize yourself with them.
8. Treat litigation seriously…and avoid it whenever possible. Failure to respond to a complaint may result in a default judgment against your business.  In the event you are sued, take immediate action.  However, before you engage in a court battle when a claim is filed against you or before you file suit against someone else, consider all other options.  Even though it may not be ideal, a quick settlement will often save your company both time and money in the long run.
9. Have a business succession plan in place. Every business should have a succession plan in place – this plan determines the fate of your business after your death.  Who will gain ownership of your business?  How will the transfer happen?  Planning for these events will help to ensure that your intended successors are well-prepared to run the business and that the transfer will occur with minimal tax ramifications.
10. Know the law.  We are all familiar with the old adage, “Ignorance of the law is no excuse,” and for good reason – it’s true.  While the tips above are a good starting point, there are a number of other laws and legal pointers that small business owners should be aware of.  It is a good idea to develop a relationship with qualified legal counsel early on so that they can provide you with guidance throughout the course of your business.  If hiring an attorney is not within your budget, however, there are many small business legal handbooks out there which provide a good source of basic information.

No matter how well you think you know and trust the person you’re dealing with, when it comes to your business – ALWAYS get it in writing.   Without a written agreement clearly setting forth each party’s obligations and expectations, when something goes wrong there is nothing but your word against someone else’s – which can ruin relationships and lead to time consuming and expensive court battles.

While it is smart business practice to put all agreements in writing, certain agreements must be in writing to be enforceable, including:  agreements involving interests in real estate, agreements which can’t be performed within one (1) year, and agreements for the sale of goods with a purchase price of $500.00 or more.  Although a written agreement may not be mandatory in other situations, it is one of the most effective ways of protecting your interests.  The investment of a little extra time and effort to reduce your agreement to writing can save you significant time, money, and headache in the long run.

The following are some helpful pointers to consider when drafting your written contracts:

• Clearly identify each party (including the company represented, not just the name of the person signing) and list the address where legal notice can be sent to each party;
• Make sure that the person signing has the authority to do so;
• Anticipate litigation – include provisions re: venue, choice of law, and attorney’s fees;
• Clearly define important terms – don’t assume that each party will have the same definition;
• Include an “Integration Clause” – a clause which states that the contract contains all representations, warranties, and agreements of the parties;
• Specifically set forth all of the obligations of the parties;
• If applicable, include provisions regarding:
  • Remedies for nonpayment/late payment fees
  • Copyright ownership
  • “Time is of the Essence” clause
  • Assignment (can obligations under the contract be assigned to a third party?)
  • Renewal terms
  • Return of property at expiration of contract
  • Confidentiality/Nondisclosure Agreement
  • Limitation of Liability/Indemnification;
• Use exhibits to memorialize the specific terms of the agreement –then you can use the same base contract over and over again;
• Number the pages – This avoids the possibility that additional pages may be unscrupulously added after signing;
• Include a dispute resolution clause;
• Set forth the circumstances in which contract may be validly terminated;
• Include a requirement that all amendments to the contract must be made in writing; and
• Always keep a signed copy of the contract for your records.

While these tips provide a good starting point for drafting your written contracts, for important matters, complex situations, and/or agreements dealing with sizable sums of money, it is a good idea to consult with an attorney to ensure that your interests are adequately protected.

Last week, the Colorado Secretary of State and the Attorney General’s office issued a joint press release warning Colorado business owners about a recent scam targeting the state’s businesses.  Criminals have accessed the Secretary of State’s website to change the address and contact information for registered companies in order to open fraudulent lines of credit.  Thus far, the losses from this scam total more than $750,000.00.

The Colorado Bureau of Investigation, the Secretary of State’s office, the Attorney General’s office, and the U.S. Secret Service are all working together to track down the suspects of this crime and are taking measures to prevent similar crimes in the future.  However, it is important that you are proactive in protecting your own business.  To ensure that your business was not a target in this scam, you should check your company’s records on the Colorado Secretary of State website and verify that the listed contact information is correct.  Then, you should register for email notifications for your business so that you will immediately be contacted via email whenever a change is made to your business’ records.  Here are the steps you will need to take:

1. Go to http://www.sos.state.co.us/pubs/business/main.htm;
2. Click on “Search Business Database”;
3. On the “Records Search” page, enter the name of your business in the search box;
4. On the “Business Search Results” page, click on the ID Number for your business;
5. Review the information listed on the “Summary” page to verify it is correct;
6. In the taskbar on the left hand side of the page, click “Subscribe Email Notification”; and
7. Enter your email address and click “subscribe.”

If you have any reason to believe that your business has been the victim of identity theft, you should immediately contact your local law enforcement agency or the Colorado Bureau of Investigation Identity Theft Unit at (303) 239-4211.

Does your business classify any of its workers as independent contractors?  If so, it is more important than ever to ensure that these workers are properly classified. Both the federal and state governments are cracking down on the misclassification of workers as independent contractors.  Under President Obama’s proposed 2011 budget, the chances of your business being audited with regard to worker classification are greatly increased.  Likewise, Colorado recently passed new legislation which significantly increases the penalties for misclassification of workers.

If the new federal budget is approved, the I.R.S. plans to expend $25 million to hire 100 new personnel to more strictly enforce the federal and agency laws relating to classification of workers.  Furthermore, this month marks the beginning of a three-year audit by the IRS of 6,000 companies to determine whether workers are being properly classified.  And, it is not just large companies or those whose returns raise red flags that are at risk – the businesses being audited are selected by statistical sampling – it’s just luck of the draw.

The federal government isn’t the only one getting strict with regard to worker misclassification enforcement.  Recently, Governor Ritter signed into law House Bill No. 1310 which increases the penalty for misclassifying workers as independent contractors.  Under this law, for each misclassified independent contractor (i.e., a worker that the State finds to be an employee), a business may be fined up to $5,000 for the first offense and up to $25,000 for each subsequent offense if the misclassification is found to be willful.  This penalty is in addition to any back taxes or interest that the State may impose.  Furthermore, if there is a second misclassification, the business may be prohibited from contracting with the State for up to 2 years.

The heightened governmental attention to the issue of worker misclassification will likely also lead to an increase in court scrutiny and an increased potential for private civil lawsuits.  As more workers become aware of the damages available to them if they can prove that they have been misclassified, more lawsuits against the allegedly offending businesses will be brought.

Given the likelihood of audit and the severe consequences of misclassification, it is essential that your business properly classify its workers.  A worker is not an independent contractor merely because you categorize them as such or because they sign a piece of paper stating that they are working as an independent contractor.  Although the State/IRS may consider the terms of a written agreement when determining the status of a worker, by itself, the written agreement is not enough.  If, despite a written declaration that a worker is an independent contractor, the business directs and controls or has the right to control the worker as to how the work is performed, the worker will be found to be an employee.  Also, in order for the written agreement to be effective, there are specific provisions which must be included and certain formalities must be taken.

To ensure that your business is protected, the terms of your relationship with your workers should be properly documented in a written contract AND you must carefully examine your treatment of independent contractors to ensure compliance with state and federal laws regarding worker classification.  If you would like more information regarding the factors considered by the State and the IRS to determine whether you have properly classified your workers or for assistance in drafting an effective independent contractor agreement, please feel free to contact me.

Disclaimer: This case study is based on real life events but the names have been changed to protect attorney-client privilege.

Dave and Katy are a married couple in their mid-50’s.  This is the second marriage for each and both have children from their previous marriage.  Although Dave and Katy had discussed creating an estate plan on numerous occasions, they kept putting it off; they thought that an estate plan was something that you only need when you die and, because they are both relatively young, they assumed they would have many years before an estate plan would be necessary. What the couple did not realize, however, is that an estate plan includes more than just planning for your death – it also includes planning for incapacity during your lifetime.

Last month, Dave and Katy went out to dinner to celebrate their fifth wedding anniversary.  While driving home from the restaurant, Dave and Katy’s car was struck by an SUV which had run a stop sign.  Katy escaped with only minor injuries, but Dave suffered massive brain damage and has remained in intensive care since the accident.

Due to the seriousness of his brain injury, Dave is unable to make medical and/or financial decisions on his own behalf.  Had Dave executed a durable medical power of attorney and a general/financial power of attorney appointing Katy as his agent, Katy would now merely need to present these documents to Dave’s doctors and financial institutions.  She would then have the authority to make medical decisions on Dave’s behalf, access his accounts, pay his bills, etc.  Unfortunately, Dave and Katy were unaware of this element of estate planning and have no powers of attorney in place.  As a result, on top of the emotional burden Dave’s current condition has placed on Katy, she has also had to undertake legal proceedings to be appointed as Dave’s legal guardian (to make decisions regarding his treatment and care) and his conservator (to handle his financial affairs).

To be appointed as Dave’s guardian/conservator, Katy retained me to file the necessary legal pleadings on her behalf and to represent her at the mandatory Court hearing.  By law, Katy was required to send copies of all pleadings filed in this matter to Dave’s children from his first marriage (as interested persons)–with whom she has never had a good relationship.  At the hearing, Dave’s children were given the opportunity to object to Katy’s appointment.  This was an emotionally-charged and difficult event for all parties involved, and private family matters were put on display in open court.  Fortunately, in looking out for Dave’s best interests, the Court ultimately determined that Katy was best suited to be his guardian/conservator and appointed her as such.   Now, as Guardian, Katy must file an initial Guardian’s report with the Court within 30 days and, as Conservator, she must also file an initial inventory and financial plan.  Then, Katy must file similar annual reports with the Court each year that she serves as Guardian/Conservator.  And, again, Dave’s children must be provided copies of each of these reports.  So, now, not only is the Court involved in Dave and Katy’s private affairs, but Katy must also endure Dave’s children watching and questioning her every move.  This has created significant stress for Katy.

Creating a health care power of attorney and financial power of attorney would have cost Dave and Katy a few hundred dollars and about an hour of their time.  Instead, Katy has already spent thousands of dollars on legal fees and court costs and has had to invest countless hours, hours which she would much rather be spending at Dave’s bedside. By executing medical and financial powers of attorney, you can avoid the stress, expense, and lost time that Katy has suffered.

The current state of the economy has left many individuals and businesses looking for ways to cut costs. Likely, you are no different. As a result, when it comes to your personal or business legal needs, you may be tempted to forego the advice/services of an attorney in favor of a seemingly less expensive online legal service company. A quick internet search uncovers a wide variety of legal service websites promising to create your estate plan or form your corporation at a fraction of the cost an attorney would charge. Before you get drawn in by these websites, however, remember those time-trusted adages: “BUYER BEWARE.” “YOU GET WHAT YOU PAY FOR.” “IF IT SOUNDS TOO GOOD TO BE TRUE, IT PROBABLY IS.”

While these online legal service providers (“online providers”) may be less expensive initially, they could end up costing you much more (both in money and in time) than you would spend to hire an attorney. Here are some important drawbacks to consider:

• Where to Start? All too often, online providers skip over many important steps. They do not help you to select which form of legal entity is best suited for your business, nor do they adequately explain the various estate planning tools. Instead, they expect you to know the difference between a corporation and LLC, or between a Will and a Trust. Choosing the wrong business structure or estate planning vehicle can have serious consequences, and making the wrong choice may end up being more expensive than if you had hired an attorney in the first place. Moreover, in many instances, you will need an attorney later to resolve business disputes that the corporation’s bylaws or LLC’s operating agreement should have covered or to handle issues created by a poorly drafted Will.

• One-Size Does NOT Fit All. Everyone’s business and family matters are unique – and your business formation and estate planning documents should be as well. Online providers are able to offer such seemingly inexpensive prices for their documents because they are simply providing a generalized form document with your information inserted… a “fill in the blank” process. They do not take into account your business’ specialized needs and goals or your particular family situation. In fact, the disclaimer on one such online provider’s websites warns that the online provider “is not permitted to engage in the practice of law” and “is prohibited from providing any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options, selection of forms or strategies.” The disclaimer of another online provider states: “legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional assurance that our information, and your interpretation of it, is appropriate to your particular situation.” Even the online providers themselves recognize that they cannot replace the expertise and personalized service an attorney can offer.

• Impersonal service vs. Trusted Advisor. With many online providers, their service begins and ends with the production of your documents. They do not provide guidance as your business grows or as your family situation changes. They are not there to answer questions you may have, to remind you to file your business’ required annual reports or to update your estate plan, or to assist your business successors or heirs in the event of your death or incapacity. An attorney, on the other hand, will offer personalized long term service. When you develop a relationship with an attorney at the time of forming your business or creating your estate plan, you will have a trusted advisor that you can call on in the years to come, whenever you have a question or need additional legal services.

Do not make the mistake of trusting your business’ or family’s future to an impersonal online legal service provider. Please contact me to schedule a free 1 hour consultation to discuss your specific legal needs and goals.