4 legal pitfalls startup owners must face

4 legal pitfalls startup owners must face

Posted: 27 Jun 2011 06:00 AM PDT
(Editor’s note: Curtis Smolar is a partner at Ropers Majeski Kohn & Bentley. He submitted this column to VentureBeat.)

A reader asks: What types of legal issues do I need to consider when starting my company and how much will it cost?

Answer: As an entrepreneur you have your work cut out for you. There are many of legal pitfalls that you need to overcome, in addition to the day-to-day challenges. A lot, of course, will depend on the sort of business you plan on running. In general, though, there are five issues to keep in mind (detailed below). As far as cost, that’s often negotiable and many attorneys will agree to do these agreements at a reduced rate to get your business.

Business creation documents – No matter what kind of business you’re starting you’re going to have to decide on a type of corporate structure. Some of the basic types are partnerships, limited liability companies (LLCs), and corporations. Make sure you choose the appropriate corporate entity for your needs.

For example, if you want investors, but do not want to spend a lot of money on the formation, a standard corporation may be the best bet for your corporate structure. A basic corporation gives shareholders limited liability, but has two levels of taxation, one on the corporate level and one on the individual level.

The basic corporation, however, is easier to create share and capitalization tables from because the percentage ownership, or a “share”, is defined by individual state laws and exists without having to be defined by a contract.

A limited liability company, meanwhile, needs to have a detailed contract defining the percentage of ownership of the company. This contract will translate to more money for you, the entrepreneur.

HR employment agreements – Once the entity is created, you need to get people working. As discussed in previous columns, hiring and firing people has a lot of potential pitfalls. So it makes sense to plan for the worst in these situations.

Set up uniform employment contracts, which:

Do not discriminate against people based on any of the protected classes as defined by federal or state law;
Define the scope of the employment;
Say if the employment is for a term or “at will”;
Assign the pre-corporate formation intellectual property to the company;
Assign all subsequently created intellectual property to the company; and
Protect the corporate intellectual property from disclosure.
The last two categories of protecting intellectual property of the company can be accomplished by drafting non-disclosure agreements, and Proprietary Invention Assignment Agreements.

Insurance - Getting insurance for your company is a bet worth taking, given the potential unpleasant surprises of not being prepared. Again, your needs will vary depending on your company, but among the standard offerings are:

Comprehensive General Liability Policies (“CGL”) – A CGL policy is usually geared towards protecting a company from personal injury;
Directors and Officers (“D&O”) Insurance – D&O insurance may cover the wrongful acts of the officers and directors of a company;
Advertising Injury Insurance – Insurance that covers defamation, invasion of privacy, copyright infringement and other intellectual property injuries. (The advertising injury is usually a part of a larger policy, like a CGL, and not a policy onto itself.); and
Employment Practices Liability Insurance (“EPLI”) – The EPLI is a specialized insurance policy protecting companies against employment lawsuits.
Customer contracts – To be able to sell efficiently, a company needs to create agreements that explain to their customers the terms of the transaction. These types of agreements can take two forms:

Account Signup Pages –where you have the customer input all of their relevant information and agree to the terms of use. (This is also the place where you can monetize your venture by requesting credit card information.)
Terms of use – This is the place where you see all the legalese, the disclaimers and the choice of forum clauses. The Terms of Use create the stipulations of the contract with the customer, that often include a license or an assignment of a user’s content to a web site.
There is a careful balance you need to strike with the customer agreements. You want them to be comprehensive, but you also want to avoid the appearance of being unfair.

Intellectual property protection and agreements – Once you have your company up and running, protect your intellectual property through trademarks and copyrights. These will require you to work with someone who has filed a copyright or trademark in the past. This process is filled with potential risks, so a good attorney is essential.

Startup owners: Got a legal question about your business? Submit it in the comments below or email Curtis directly. It could end up in an upcoming “Ask the Attorney” column.

Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect. No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction. VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.



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When A Career Veers Off Track

When A Career Veers Off Track

By CRAIG CHAPPELOW AND JEAN BRITTAIN LESLIE

Mid-career derailment can happen any time, but in today's economy there is no room for complacency. With job opportunities harder than ever to find, it's a particularly rough time to be fired or demoted or to hit a career plateau. You can reduce your risk for derailment by paying attention to your value and effectiveness and by focusing on interpersonal skills, adaptability, team leadership and bottom-line results.

Based on the Center for Creative Leadership's ongoing study of executive derailment with clients around the world, here are 10 ways to avoid these pitfalls:

Ask for instant feedback. When walking out of a meeting, ask a colleague, "I think that could have gone better – what could I have done differently?" Listen to the response. Don't defend or justify your actions and don't interrupt. Sean Fowler, assistant vice president with insurance company IAT Group in Cold Springs, Fla., uses feedback from his co-workers as a reality check. "You have to develop a bit of a thick skin," Mr. Fowler said. "Once you get past the initial shock, you really come to appreciate it. It's a long-term effort made up of small steps, not a leap."

Increase self-awareness. Become a student of your own behavior. Take stock of how you feel about your work and how you react when you are pushed outside your comfort zone. Explore the values that matter most to you and use them as an anchor during times of change, transition and stress. Amy Gillard, owner and operator of Gillard Enterprises, an event-management business notes that selecting work which is not the right fit will only create challenges with clients down the line. "Self-awareness is key in my business. You have to know who you are and what you have to offer," she said.

Pay attention to organizational culture. To stay aligned with your organization as it morphs and changes over time, you need a clear understanding of the prevailing culture. Analyze how decisions get made and think about the underlying assumptions that guide the organization as it responds to challenges and opportunities.

Use empathy. Your direct reports, your peers and even your bothersome boss are all human beings worthy of your respect. Listen without judging. Take the feelings and perspectives of others into account. Don't use humor inappropriately and always keep private conversations private. You'll end up with stronger relationships.

Learn to listen. Hearing isn't the same as listening. Turn away from your email and concentrate on the person talking to you. Don't be passive. Ask questions to make sure you understand. Stay in the moment and take notes to help you remember key points. Show people you're really hearing them. Air Force Col. Trent Edwards, Commander of the 28th Mission Support Group at Ellsworth Air Force Base, learned to listen differently in response to feedback from his team and his family. He realized he was using a "war zone" mentality in non-war zone settings. With tours in Afghanistan and Iraq, Edwards describes his previous approach as "very action-oriented. Everything was always go, go, go. Now I try to listen with more patience, with an open ear to try to hear what is being said and also what is not being said."

Collaborate. Try to not be the Lone Ranger. Be open and willing to disclose your decision-making process to others, along with important facts and feelings. Your influence and effectiveness will increase.

Deal with problem employees sooner rather than later. If a direct report's behavior or lack of skills threatens the success of your team, confront the problem head on. Don't let it fester. These kinds of problems almost never heal themselves. Document specific shortcomings and either dismiss the employee or create a development plan for improved performance. The cost of carrying poor performers can have a ripple effect across the organization – destroying morale and dragging down productivity.

Delegate authority. Don't keep your employees tied down and stuck in the same roles and responsibilities. Allow them to test their wings. Assign stretch projects you think they can handle. As they prove themselves, increase the complexity of the assignments. Give adequate guidance and follow up to see how they are doing. Debrief shortfalls and use them as a learning opportunity. Above all, acknowledge positive outcomes.

Focus on the task at hand. While it's great to have a development plan and to work on skills you will need down the road, don't forget that your main job is just that – your main job. Organizations value managers who get work done. Focus on what you need to accomplish each day. Bring jobs to a close. Tie up loose ends. Document outcomes. Get closure, and…

Break out of a rut. Learn from the mistakes that you and others make. Stop talking about how things were done in the past. Bring a new idea or solution to the table. Break away from your lunch cliques. Identify a rut you are in and get out of it.

Become known for your skill at adjusting to change, building strong relationships, leading effective teams and getting results. Your colleagues will appreciate it – and you'll reap the professional rewards.

Executive Coaching with  Executive Leadership, LLC specializes in helping executives get their career back on track. Contact CB Bowman @ 908 822-9655 or cb@exec-leadershipllc.com,
www.exec-leadershipllc.com

Why You Work More, Enjoy It Less

MAY 8, 2011


Why You Work More, Enjoy It Less


By ANNE KADET

Businesses expect a lot more out of their employees these days, as a visit to Rioja, the top-rated Denver restaurant, can demonstrate. If you like Rioja's hazelnut tortamisu, thank pastry chef Eric Dale. And if you happen to pop your head into the bakery room and admire the tile job on the floor, you can thank him for that, too.


Ever since his boss, chef Jen Jasinski, discovered that Mr. Dale is handy, she's had him doing double duty as the maintenance man. He has spent hours repainting the oven, fixing the plumbing and installing a garbage disposal. And that's just the start. He used to manage the dessert operation at one of Ms. Jasinski's restaurants; now he's up to three. All told, Mr. Dale says, his hours have expanded to more than 60 a week.


SmartMoney's Anne Kadet explains why tough economic times are vastly expanding the role of some jobs, without the benefit of additional pay.

In this new era of the superjob, everyone does windows, and anyone who gripes about working too hard will hear an even hairier tale from the exec on the next bar stool. Emboldened by an unemployment crisis that's only now easing up, businesses of all sizes have asked employees to take on extra tasks that have little to do with their primary roles and expertise -- with engineers going on sales calls, accountants pitching in on customer service and chief financial officers running a division on the side. And some believe this shift is permanent, as the quickening pace of change demands more flexibility from everyone at the office.


Management consultant Rich Moran, whose clients have included Apple and AT&T, says employees will do whatever it takes to help their company compete: "Job descriptions are written in sand, and the wind is blowing."

Some workplace experts say the superjob is the logical next step in management's quest to make the workplace more cost efficient. The latest shift started when businesses redistributed the workload during the recession; last year's nascent recovery intensified the process. In a recent survey by Spherion Staffing, 53% of workers surveyed said they've taken on new roles, most of them without extra pay (just 7% got a raise or a bonus). Now that sales are picking up, there's even more work to do, but companies are reluctant to hire, say human-resources experts. Some are anxious about what the economic future holds, while others are seeing their profits increase now that their work forces are leaner.


CEO pay rose last year by about 11%, according to the Wall Street Journal's annual CEO pay survey. Kelsey Hubbard talks with WSJ's Erin White about the results.

As hard as it can be to keep up, employees can benefit from the trend. Research shows that many successful leaders grew the most through "stretch experiences," says Seymour Adler, a senior vice president at Aon Hewitt's talent-and-rewards practice. Still, even the most hard-nosed bosses know workers can be stretched only so far. Indeed, a recent survey from the Conference Board found that just 43% of Americans are satisfied with their job -- a record low.


Assigning new roles to existing employees can be a smart move, says Debbie Zmorenski, a productivity consultant at LSA Partners in Orlando. But during the recession, instead of thoughtfully reassigning tasks based on a careful assessment of employees' skills, many companies redistributed the workload willy-nilly and provided little training. When you send a talented but shy IT specialist out to do sales, says Ms. Zmorenski, "you're setting him up to fail."

Taking on extra work doesn't necessarily mean a promotion. Some executives find themselves spending time on chores that used to be handled by junior staff. When Philadelphia-area copywriting and marketing consultant Carolyn Frith served as a marketing head for a home-fixtures manufacturer, she didn't mind proofing the price book while her product manager went on maternity leave. And when the security guard got laid off, and it fell on her to dial in the security codes for the parking-lot gates? Well, why not? The only problem: "It was hard to find time to plan strategy and meet with customers," she says.


Phil Foster
If you're wondering why it's hard to juggle new roles, ask a neuroscientist. Recent research suggests that multitasking can reduce productivity, because it takes a ton of mental energy to switch from one task to the next. The sheer number of hours demanded by the superjob also can impair your performance as your brain gets fatigued, says Susan Koen, an organizational psychologist and consultant whose clients include Pfizer, Alcoa and Procter & Gamble.

To their credit, some employers are doing more to help their superstars. And companies that saw a rebound in 2010 are helping executives with time management and delegation.

Another popular tactic: recognition programs that reward employees for taking on extra work. Major companies are turning to software "wizards" that dole out laurels on preset, automated schedules, says Adrian Gostick, a co-author of "The Carrot Principle" and a former vice president at employee-recognition consultancy O.C. Tanner.

Of course, the ultimate responsibility for workload management falls to the employee. Experts say that in many cases, employers have no idea how many tasks they've loaded on one person, so workers have to "manage up."

Chris Perry, a Parsippany, N.J.-based brand manager responsible for a $65 million product line, says he's thriving after a recent promotion, thanks to his careful efforts to set limits. In order to spend evenings with his wife, he starts his workday early -- and often sends a few morning emails to make sure the effort gets noticed. When he's overwhelmed with projects, he asks top brass to clarify their priorities.

Still, Mr. Perry admits he's often tempted to work late when he sees his co-workers doing so. "It's hard to play that game of impression versus reality," he says.


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Retirement Plans Make Comeback, With Limits

Retirement Plans Make Comeback, With Limits

By KELLY GREENE

Many U.S. companies that during the recession cut 401(k) matching contributions—one of the most valuable employee benefits—are beginning to restore them.

In an effort to retain top employees, many U.S. companies that cut back on one of the most valuable employee benefits during the recession, the 401(k) matching contribution, are beginning to restore it. Kelly Greene has details.

But a number of firms are contributing less than before, are linking contributions to profits or are making workers save more on their own before kicking in, say benefits consultants.

United Parcel Service reinstated its 401(k) match in January after having suspended it in 2009. But the delivery giant changed the way it doles out the benefit: Instead of matching what employees defer up to 3% of eligible pay, UPS will now match half of what they defer, up to 5%. Its top contribution is now 2.5% of pay, compared with 3% in 2008.
From SmartMoney

Use the SmartMoney Retirement Planner to see how your 401(k) match adds to your assets.

"The match did change slightly, to encourage employees to defer a larger percentage of their own pay," said Norman Black, a UPS spokesman.

Some UPS employees were grateful to be getting anything. "I was absolutely delighted when it was reinstated," said Peggy Gardner, UPS's director of customer communications. "I know it was very important to the employees in my group."

Employers of all sizes are moving to "a smaller, discretionary match" to save money, said Jeanne Thompson, a vice president at Fidelity Investments, which is the custodian for 11 million employee accounts.

MGM Resorts International Inc. suspended its 401(k) match for 2009 and 2010. In February, the casino operator reinstated part of it, but with less-generous terms. Now, employees are eligible to receive 50% of what they contribute up to the first 6% of eligible pay, with a maximum match of $500 for the year, said an MGM spokeswoman.
[401kmatch]

Before the suspension, the company matched dollar for dollar up to 6% of eligible compensation, says the spokeswoman. MGM hasn't determined how long the $500 cap will remain in place, she says.

The 401(k) is a tax-deferred account that allows workers to save for retirement, with companies often matching workers' savings up to a certain level. During the recent recession, almost one in five U.S. companies with at least 1,000 workers suspended matching contributions, according to consulting firm Towers Watson.

With traditional pension plans being phased out and concerns mounting over the long-term viability of Social Security, Americans increasingly view 401(k) accounts as crucial. A BlackRock Inc. survey last year found that 401(k) plan participants considered the employer match more of an influence on their savings rate than their household budget was.

Companies are keenly aware of the importance of 401(k) plans. A survey of 600 human-resource professionals by the Society for Human Resource Management, set to be released June 26, has found a significant increase in the number of employers that offer 401(k)s—93% this year, up from 83% in 2008.

Meanwhile, according to a June 8 survey by Duke University and CFO Magazine of about 500 chief financial officers, 43% of businesses that had slashed their 401(k) matches expect to restore them in the next 12 months, or already have done so, compared with 12% at the same time last year.

For example, Columbus, Ohio-based Pinnacle Data Systems Inc., which designs, builds and services high-end computer and telecom gear, reinstated its 401(k) match last year after dropping it in 2009.

"Our people are valuable resources to us," says Nick Tomashot, chief financial officer. "Anything we can do to encourage retention is something we want to do."

Eclipse Inc., a Rockford, Ill. , industrial-heating equipment manufacturer with 700 employees, suspended its match in early 2009 and restored it, at the full prior level, in April 2010. The big reason: It worried about losing highly skilled welders and machinists to other nearby aviation-industry suppliers. "There is quite a bit of competition for a skilled work force," said Gregory Bubp, Eclipse's chief financial officer.

FedEx Corp. suspended its 401(k) match in February 2009. Later that year, it said it would reinstate half of the match, and it restored the rest on Jan. 1, 2011. "We restored it to the original," a spokesman said.

Yet many companies, facing a slowly improving job market, seek to balance the need to retain highly skilled workers with the need to limit costs.

"A few have made [their matches] discretionary," says Robyn Credico, a senior consultant at Towers Watson. "That's so you don't get into trouble if the economy falls apart again."

Shawn Fegley, a research analyst with the Society for Human Resource Management in Alexandria, Va., expects more employers to consider basing their 401(k) matches on profitability in coming years, in part to avoid cutting benefits in the future.

"Employers don't want to make commitments and then remove them," he said. "If they have a terrible 2011 and have to take away matching contributions again, it doesn't send a good message to the work force."

Some companies still don't feel financially able to restore the match—and are losing employees as a result. Woodgrain Millwork Inc., a Fruitland, Idaho, maker of windows, doors and moldings, has reversed a 5% wage reduction to salaried employees but hasn't yet restored its former 401(k) match of 50% of up to 6% of pay.

"It's a regular conversation topic both within ownership and among employees," said Chief Financial Officer Greg Easton. "Our biggest challenges are in the accounting and information-technology pieces, because those skills are transferrable. There are a few select areas where we've lost a couple people as a result."

Getting the calculation right has been challenging for some companies. Rudolph Libbe Cos., a Walbridge, Ohio, building and maintenance contractor that has 360 workers covered by a 401(k) plan, suspended its match in 2009 amid three rounds of staff furloughs and buyouts.

After landing three big projects last year, its management is debating whether and how to restore the match, said Chief Financial Officer Robert Pruger. The company is considering enrolling workers automatically, and is exploring the possibly of linking any match to profits to cut back on "absolute costs we know we'd have to pay," he said.
—Dana Mattioli, Joann S. Lublin and Anne Tergesen contributed to this article.

Write to Kelly Greene at kelly.greene@wsj.com

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The Race for Africa: Investment and Job Opportunity

The Race for Africa: Investment and Job Opportunity

By: Peter Felix Date: Wednesday, June 08, 2011
The previous use of that phrase referred to a dash for African land by European nations at the end of the 19th Century. Colonial Africa became the bastion of white planters, hunters, miners, railway builders and bankers. Yet the continent remained essentially poor, its riches enjoyed by the foreigner but hardly by the local inhabitants.
Then came independence from foreign rule and a period of, in some countries, almost 50 years during which Africa has languished in a mire of political instability, corruption and civil wars. Only the gambler or the foolish were prepared to invest when they might have little control over the outcome.

Today, however, Africa is experiencing a second metamorphosis, this time hopefully much more to local advantage and in the long term interest of the continent. Foreign investors have woken up the realization that not only is Africa rich in commodities, it also represents a huge market of potential consumers.

The Wall Street Journal article, U.S. Companies Race to Catch Up in Africa, reminded me how much the situation has changed since I spent time working in North Africa during the 70s. The whole continent seems to have come alive with possibilities, just as in Latin America, the former "banana republics" are giving way to prosperity and development.

Now American, European and especially Chinese companies are investing to engage in massive development and natural resource projects. All the major brand names are to be found not just in South Africa but in the lesser known countries of Mozambique, Bortswana, Senegal, Ghana and Togo. GE is now running its African operations out of Kenya whereas Google has established a new office in Uganda.

Progress doesn’t come overnight but if Africa today is where India and China were 10-15 years ago then the opportunities should be vast. For executive search consultants servicing executive demand from 54 disparate African countries the challenge will be very real. For ambitious and adventurous executives Africa beckons once again.

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How to Enter Foreign Markets: A Strategy Overview

How to Enter Foreign Markets: A Strategy Overview

By: Ian Swanson Date: Thursday, June 02, 2011
When entering new markets you have to start with a clearly defined strategy and an honest assessment of your organization's capabilities. Without this, any path forward is flawed.

I have seen too many businesses say they are expanding into international markets, without clearly defined objectives and processes to achieve success, 'well these are big emerging markets, with a lot of people, and there is not much growth in our home market...' Hardly a strategy.

The next step is to thoroughly assess the demand and competitive landscape for your product or service; is the product or offering that you have unique in some way, are consumers already aware of your product (and do they like it), and if there are competitors, are there barriers to consumers switching or barriers to entry, etc.? You will begin to see the picture, and the decision tree continues.

Capability and Partnerships

The second important consideration when entering foreign markets is to complete an assessment of the skills and capabilities available to your organization. Do you have experience of moving into international markets previously, is your product accepted in that country or are there cultural or other barriers to entry?

A great example of this type of issue was when big box stores (also known as superstores, such as Walmart and Target) moved into Asia 20 years ago. They came with the usual large family size packs that offered a month's supply for a good price. Two immediate problems were that a) consumers lived in small homes and did not have room to store such items (or freezers...), and b) most didn't own a car and so getting to these stores which were built on the outskirts of town was also a problem. As you can see, an assessment of the service and local environment becomes critical.

From this you will then be able to develop a detailed entry strategy. Most likely this will, at least initially, entail working with a local partner or distributor. While this means sharing in the revenue, it involves the least risk. The relationship can be expanded or terminated as you develop your product locally. This is the approach I would recommend if you have a small budget. Just make sure you have someone on your team who knows the market and can manage the relationships!

At the other extreme, if you have some unique, possibly patented product, and the demand is significant, then you may go with a more aggressive investment model to protect your IP and maximize earnings (though the start-up costs can be high). In such cases you may set up a local business unit directly, or form a Joint Venture which gives you some control over the direction of the business.

Local Knowledge

In all these cases, local knowledge is imperative. And when I say local knowledge, this means culture, relationships and industry. The upfront investment in time and effort to understand the marketplace, while it may seem to slow the process down, will pay big dividends down the road. This process should not be circumvented or short changed.

Equally, you need to make sure that the source of this insight is on your payroll and not someone else’s. In that regard, bringing in the services of someone who has been there, done that (if it does not exist internally) and has existing relationships is the only way to go.

Expat vs. Local vs. HQ

The context of the expat has changed a lot over the last two decades. Many of the people who play these roles today are either a) paid locally as locals and are living in the country, or b) are based in HQ and then travel to the markets on extended trips. Having followed both approaches in my past, there are pros and cons to both.

Personally, with air travel improvements, and the cost of relocating families, etc., I see that the approach of extended trips to markets is perhaps getting more common. After all, you can now fly non-stop from New York to Singapore in 18 hours...

Another benefit to being based in HQ, is that assuming the company is making a significant investment in these markets, you probably don't want this person sitting thousands of miles away where management and support staff can't meet face to face to discuss the business and issues that will arise. One way or another, this person will spend a lot of time in HQ.

However, eventually it will be imperative to hire local permanent staff to run operations following initial entry, and managing the talent pipeline will become equally important to a well formed long-term strategy.



BlueSteps Executive Guest Writer

Ian Swanson is a senior global operations and finance leader with a track record of success who can help build, strengthen and drive business results across international markets. Having lived and worked on three continents, Ian possesses broad expertise in driving and supporting business growth in emerging international markets within the consumer products and healthcare industries, and has a proven track record of adding value to growing organizations through improved systems, operational efficiencies, restructuring and acquisitions, contact Ian at iswanson@optonline.net.