New Law Provides Needed Help to Small Businesses Now and For a Limited Time

After the last couple years of bailouts for financial firms and large manufacturing companies, small business is finally getting some much needed direct relief.  President Obama signed into law this week the Small Business Jobs & Credit Act of 2010, which aims to loosen up credit for small businesses and provide immediate tax breaks to help these companies.  But many of the law's provisions are short-term measures that businesses need to understand now if they are to enjoy the benefits. Here are five provisions that may be immediately useful for your business:

1. Money to Lenders:  The law authorizes $30 billion of funds to be directed to small businesses through community banks and additional funds to state lending institutions.  This is intended to get more capital flowing and allow small businesses to borrow needed capital at reduced rates.  Check with your local bank to find out more.
2. Start Up Expense Deduction:  For startup expenses of new companies, the maximum allowable business tax deduction of $5,000 is doubled to $10,000.  But this increase is only applicable in tax year 2010.
3. Qualified Small Business Stock Deduction:  If your small business has investors looking for liquidity, now is a good time to act.  A holder of qualified small business stock can exclude 100% of the gain on the sale of stock through the end of 2010.  This was increased from the 75% exclusion that was enacted as part of the stimulus in 2009 (the normal exclusion prior to 2009 was 50%).  This provisions is also only available to Subchapter C corporations (S corporations and LLCs do not qualify).
4. Capital Expenditure Limits.  Businesses that acquire capital equipment any time through 2011 can write off up to $500,000, which is double the $250,000 available under the 2009 stimulus.
5. Health Premium Deduction.  Anyone who is self-employed can deduct as a business expense the amount of health care premiums paid in 2010 from the amount of income that is subject to self-employment tax.  Again, this provision is limited to one year.

These are just a few of the provisions intended to help small businesses.  If you own a small business, which do you think will be most beneficial to you?

Can a Confidentiality Agreement Trump a Non-Compete Law? HP Thinks So.

Some very interesting legal news sparked up in the tech world this week, as recently-fired HP CEO, Mark Hurd, on Monday became the newly-hired president of Oracle, a major HP competitor.  HP almost immediately filed a suit in California to prevent that from happening.  The issue raised is whether HP can stop Mr. Hurd from working at a competitor based on his confidentiality agreements with the company. In many states, parties can agree to restrict a former employee from working for certain competitors in a limited geographic area (for example, a baker who can't work for any other bakeries within 20 miles for one year after termination).  Such non-compete agreements are generally enforceable if the duration and geographic limitation are reasonable.  The court aims to strike a balance between protecting legitimate business interests of the company with the ability of the employee to earn a living.

But California is one state that automatically voids the enforcement of non-competes (outside of certain transactions like the sale of a business) in order to promote open competition and support the employee's freedom of contract.  Other states have adopted similar laws, and even Massachusetts is considering changing its laws to be closer to California's.

In its complaint, HP is seeking what is called "injunctive relief" (in non-legal speak, they want the court to block his hiring at Oracle).  HP's complaint centers around the succinctly-named "Agreement Regarding Confidential Information and Proprietary Developments With Protective Covenants Relating to Post-Employment Activity for Incumbent Employee Working in California", and the later and much more appropriately titled "HP Agreement Regarding Confidential Information and Proprietary Developments", which Mr. Hurd signed on three different occasions.  The agreements restrict Mr. Hurd from performing job duties that are the same or similar to the job duties he had at HP only if that results in the unauthorized use or disclosure of HP's confidential information.  HP claims that Mr. Hurd simply can't do that at Oracle.

So the question for the court to decide is whether HP's confidentiality agreement is an appropriate restriction and not just a backdoor subversion of California's non-compete restriction, or whether Mr. Hurd can perform his duties at Oracle or anywhere else without using or divulging HP's confidential information.  The answer set an important example for how companies should handle agreements with their employees, particularly if they live in California.

Lexis Nexis Has Nominated The Business Law Blog as a Top 25 Blog Candidate and You Can Help

Okay, everyone - it is time to get interactive!  I received an email this week that Lexis Nexis has selected my blog as a nominee for one of the top 25 blogs in the Business Community.  First of all, I am very excited and humbled to be selected.  I, of course, know many of the other blogs on the list because I am a regular reader.  So to be nominated in that group is truly an honor. I started The Business Law Blog to help educate startups, small businesses, investors, and other interested readers.  As a practicing business law attorney, I help my clients on a daily basis to demystify the legal hurdles that their businesses face and help them navigate the path from startup to exit.  I share many of those insights regularly on this blog to help entrepreneurs and companies focus less on the law and more on minding their business.

Here is how you can help.

The Lexis Nexis folks have set up a site with links to all of the nominees (or see the logo on the right side of this page).  You can vote for your favorites by adding a comment to the bottom of that page.  In order to comment, you have to register, but (i) you don't have to be a lawyer, (ii) it is free, and (iii) they have adamantly assured us that there will be no solicitations.  So you have nothing to lose and you can rest easy knowing that your vote helped this blog reach a broader audience.  It should only take you a couple of minutes.

The initial voting period for the Top 25 blogs is open until October 8, 2010.  After the top 25 blogs have been announced, a Top Business Law Blog of the Year winner will then be chosen by the voters and by a select panel of judges ("Idol"-style).  So vote for your favorites, and if Daniel J. Ryan's The Business Law Blog is one of them, I will be ever so grateful.

And while you are at it, take a moment to post a quick comment here or send me an email with topics that you would like to see addressed, because I am always here to serve.  Have you been wrestling with a particular legal problem?  What issues is your business facing?

Could the Recent Financial Reform Make it Harder for Your Company to Raise Funds

The recently enacted financial reform law (the "Dodd-Frank Wall Street Reform and Consumer Protection Act" for the sticklers out there) impacts a range of financial services and companies in the way they do business.  For startups and small businesses, it may just make it harder for you to raise funds.  That's because the Act changes the definition of "accredited investor" under the federal securities laws. For a bit of background, the securities laws were originally established in the 1930s amidst the Great Depression as a consumer protection initiative against excesses and fraud in the sale of securities.  Under the Securities Act of 1933, any stock or other securities sold by a company have to either be publicly registered or qualify under one of the limited exemptions.  Which means that companies can conduct limited offerings of stock to certain purchasers, and "accredited investors" fall into a special category with fewer requirements.  The logic being that they are more "sophisticated" than an average investor and can make more educated investment decisions (ed. note: this is regardless of what the last couple of years have shown).

For the past three decades, an accredited investor was any individual with a net worth of at least $1,000,000 - including the value of a primary residence - or who earned a personal income of $200,000 in the past two years (or $300,000 with a spouse) and with a reasonable expectation to repeat this year.  While the income test levels remain the same for now under the new law, the net worth test now excludes the value of the investor's primary residence. In addition, the SEC will have the authority - actually, the obligation - to revisit these amounts periodically in the future.

What does this mean for your company? From a practical standpoint, the new law means companies will need to revisit their subscription agreements and investor representations in offering documents to make any necessary changes before making any further offerings.  This should be done with the help of your company's attorney.

But the net effect is to make it harder to qualify as an accredited investor, which means that there will be fewer of them.  Since the income and net worth tests have remained at the same amounts since 1982, the effect of inflation means that many more people would qualify as accredited investors now than when these rules were adopted.  So this new law ameliorates that change to a certain extent.

But at the same time, it cuts down the available pool of potential investors in startups and small businesses.  That is a good thing in order to protect those people that technically meet the requirements but are otherwise unsophisticated investors.  But it could also result in an impediment to companies who need outside investors to grow, but won't or can't tap the more expensive institutional money available.

Turning up the (Flame-Broiled) Heat: How an effective franchise organization should NOT be run

I have commented previously on the ongoing feud between Burger King management and its franchisee association, which represents most of the franchisees in the Burger King system.  It appears they have not learned their lesson and are still going at it. According to a report in the Wall Street Journal, the leaders of the franchisee association sent a blistering rebuke to BK management over $1 double cheeseburgers, soda revenue sharing, and other things. The relationship is sour enough that management retorted not to the association itself, but directly to the franchisees in the system.  In fact, it seems that the only communication that is occurring between the company and the association is through a number of law suits that are currently being traded back and forth.

Franchisee associations are designed to be powerful allies in growing a brand and strengthening the system.  They serve as the common voice of the franchisees, collaborate on national advertising funds, and help guide effective franchise policy, which overall encourages more franchisees and adds to a stronger bottom line for all of its independent owners.

But in the Burger King example, their ongoing disputes have actually had the opposite effect and are now harming the business.  The WSJ noted that Credit Suisse and Oppenheimer & Co. have both downgraded BK stock over these squabbles. And the company had better hope that prospective franchisees are not turned off by the dispute since franchisees account for 90% of the Burger King restaurants.

Clearly this is a topic that stresses the terms of a franchise contract as others have noted.

So much for havin' it your way.