Strong Entrepreneurs Avoid Unnecessary Legal Risks
By Thomas W. Hartmann
The Hartmann Law Firm LLC
[email protected]; 908 769 6888
It has become common place to see entrepreneurs as bold risk takers. But successful entrepreneurs know when to take risks and when to avoid them. Wise entrepreneurs carefully assess their core policies and procedures to insure that hidden traps are eradicated – often by uncomplicated and cost efficient steps. Here are a couple of examples.
Merging or Terminating Multiple Corporate Entities. You created three independent companies, but have found that, all the companies really support a single effort with the same internal staff, payroll, accountant and other support staff. Instead of tracking revenue and expenses for all three companies and preparing annual tax returns and state reports for all three, you decide to keep one company. The question is: do you simply terminate two of the three companies or do you merge them? If you terminate the companies, those companies might lose rights and claims they have against other companies – though you might also impact their ability to sue you. On the other hand, if you merge them, the surviving company retains all of the assets and liabilities of the company that is being merged. You must consider the longer term legal consequences of your actions, even if you think that you are only making a simple accounting change.
Sales Commission Plans. Suppose you are interested in hiring a sales staff to aggressively grow the business. How are you going to incentivize the team? What type of commission program are you to create? When you are hiring people, there will be a great deal of enthusiasm and a positive environment. But does your commission plan account for the end of the relationship? How long do commissions go on? What does the sales person really have to do to earn the commission? Have you carefully analyzed the words in the earning plan – such as “aid” or “support” or “assist in” business development? What is the baseline for calculating the commission: gross revenue or actual net income to the company? Is the commission earned on sale or on receipt of the proceeds of the sale? All of these issues are critical and can be solved by careful drafting. Sloppy drafting can lead to disputes, litigation, loss of productivity, and unnecessary expenditure.
Policies. You have successfully grown your company from two to 30. You pride yourself on being a gutsy entrepreneur who instinctively knows what is important and what is not. But, in the human resources policy area, for example, it is vital that you not take unnecessary risks. Setting up and implementing good human resources policies can usually be done cost efficiently, and this is extremely valuable to the long term sustainability of the company. For example, do you have an employee handbook? Does it spell out policies against discrimination, unfair practices, reporting of violations, use of the internet and email, vacation, overtime and sick leave? Is it signed by every employee with a copy of the acknowledgment in the employee's personnel file? Are people trained once a year, even if only for an hour or two, on company policies? If the answers are, yes, that is good. If not, it may be time to reassess these easily avoidable, but very hazardous risk areas.
Risk taking is a necessary element of wealth creation. But a forward-thinking business person eliminates unneeded risk so he or she can concentrate on those areas of the business that truly require vision, forethought and genius.
The Hartmann Law Firm LLC can assist in these compliance matters to insure your business and your assets are protected. Beyond this, we can help guide businesses through issues ahead of litigation or aggressively advocate in litigation and business disputes should the need arise.