A trade secret is a form of intellectual property. As the name implies, it is ‘secret’ information that gives a business a competitive advantage. Trade secrets can come in a wide range of different forms. Some of the most common examples include formulas, practices, designs, patterns, processes, commercial methods, and any combination of the above. Trade secrets are protected under both state and federal law, including the Florida Uniform Trade Secrets Act (Florida Statutes § 688.001) and the federal Defend Trade Secrets Act (DTSA). In this article, our Orlando intellectual property attorneys explain the most important things that you need to know about trade secret misappropriation claims in Florida. What is a Trade Secret? A trade secret is a confidential device, technique, or strategy that a business uses, in some manner, to obtain a commercial benefit. To qualify for trade secret protection under state and federal regulations, information must be truly secret, it must offer a tangible competitive advantage, and the trade secret holder must take reasonable steps to protect their confidential information. If any of those criteria are not met, then legal protection may not apply. More specifically, the three key elements of a trade secret are: Actual Secrecy: Information that is already known or that is readily discoverable by competitors is, by definition, not a trade secret. Actual secrecy is required. Economic Value: You cannot obtain trade secret protection for just any information. In order to qualify for protection, the information must have actual commercial value to the company. If no competitive advantage is offered, then it is not a trade secret. Active Protection: Finally, Florida companies must be making active efforts to protect their trade secrets. If a company fails to try to secure information, then it may lose its ability to seek trade secret protection. What Remedies are Available in a Trade Secret Misappropriation Claim? There are a number of different remedies that may be available through a trade secret misappropriation claim. At BrewerLong, our Orlando trade secret misappropriation attorneys are strong, effective advocates for our clients. We are committed to helping companies protect their sensitive and confidential information and, when trade secret misappropriation does occur, recover the maximum available compensation for any damages. Depending on the specific nature of the trade secret misappropriation, the following remedies may be available: Injunctive Relief: Injunctive relief (an injunction) is a court order compelling a party to refrain from a specific action or, alternatively, to take a specific action. In the context of trade secret misappropriation, injunctive relief can sometimes be used to stop continued misappropriation and to preserve the secrecy of the sensitive information. It is one of the most important tools in a trade secret misappropriation lawsuit. Actual Damages: State and federal courts have the authority to award plaintiffs financial compensation for their actual economic damages. These damages can come in a wide range of different forms, from a company’s direct financial losses to the illicit profits that they were denied. Calculating damages in a trade secret misappropriation is notoriously challenging. Companies should be represented by an experienced Florida IP lawyer who can help them recover the full and fair financial damages that they rightfully deserve. Attorneys’ Fees/Legal Costs: In some cases, courts may award victims of trade secret misappropriation attorneys’ fees or court costs. Though, this is not required under the law. Generally speaking, Florida courts typically only award in this remedy when the defendant is determined to have acted willfully or maliciously in violating the plaintiff’s intellectual property rights. Punitive Damages: Finally, in some limited cases, courts may award punitive damages. As described by the Cornell Legal Information Institute, punitive damages are meant to punish the wrongful actions of the defendant. Generally, punitive damages will only be awarded if the defendant is deemed to have acted in bad faith or if they made significant profits because of the trade secret misappropriation. Four Tips Florida Companies Protect their Trade Secrets 1. Know What Needs to Be Protected As a starting point, Florida companies seeking to protect their trade secrets need to know exactly what they have to protect. As was mentioned, state and federal regulations require companies to take proactive measures to keep their trade secrets confidential. Failure to do so could potentially prevent a company from pursuing a trade secret misappropriation claim. 2. Use Written Agreements With Employees and Contractors If employees, independent contractors, or other outside parties have access to trade secrets, the companies should require them to sign a written agreement. Among other things, the agreement should include a strict confidentiality or nondisclosure agreement. In the unfortunate event that trade secret misappropriation does occur, a well-drafted agreement will make it far easier to take legal action. 3. Limit Access Whenever Possible Ideally, companies can avoid dealing with issues of trade secret misappropriation altogether. One of the keys to protecting trade secrets is to limit unnecessary access to sensitive, confidential information. If an employee does not actually need to know the trade secret to perform their job, then they probably should not be given access to it at all. The fewer people that have access to trade secrets, the better. 4. Take Immediate Action to Address Violations If you believe that trade secret misappropriation has occurred, it is imperative that you take immediate action to protect your rights. When trade secret misappropriation is allowed to linger, a company may eventually lose its right to take action. Beyond that, the sensitive information may be shared with an ever expanding number of parties. The bottom line: Contact an experienced Orlando, FL intellectual property lawyer right away. Speak to an Orlando, FL Trade Secret Misappropriation Attorney Today At BrewerLong, our top-rated Florida intellectual property lawyers have deep experience handling the full range of trade secret misappropriation claims. If your company is considering filing a claim for trade secret misappropriation or if you are facing a lawsuit for alleged trade secret misappropriation, we are available to help. 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When work is performed or services are provided by an outside party, it is often done under a vendor services agreement. Business owners and individuals in need of services from a third party— whether as a one-time thing or on an ongoing basis — should use a vendor services agreement. With a clear and professionally drafted vendor services agreement in place, your company can dramatically reduce the risk of conflict or confusion. In this article, our top-rated Orlando, FL contract lawyers explain the most important things that you need to include in your vendor agreement for services. The Key Provisions in a Vendor Services Agreement There is tremendous value to having a properly crafted vendor services agreement. Similar to other commercial contracts, a vendor services agreement will control much of the relationship between a company and its outside contractor(s). Not only will a clear and well-constructed vendor services agreement reduce the risk of a dispute, but it will also protect the legal rights and financial interests of your company. A good vendor services agreement should be comprehensive — it should address a wide range of different issues. Some of the key provisions that should be included within a vendor agreement for services include: A Description of Services: First and foremost, a vendor services agreement should provide a clear overview of the nature and scope of the services that are to be offered under the contract. In some cases, a statement of work will be included with the agreement. The more detailed description of the services is, the better — as it is crucial that all parties understand their duties. The Terms for Payment: Certainly, an effective vendor services agreement should have a clear explanation of the terms for payment. Among other things, the contract should address how much will be paid, when it will be paid, and how it will be paid. Often, the vendor is paid partially upfront and partially upon completion of the agreement. Term of the Agreement: How long will the vendor services agreement last? Make sure that you clearly define the term of the relationship. Whether your company is hiring a vendor for a single event or to provide ongoing services, it is essential that the term of the contract is understood by all parties. Limitation of Liability: Many vendor services agreements contain a limited liability clause or an indemnification clause. If you are entering into a vendor services agreement in Central Florida, be sure to carefully review the liability provisions. A lawyer can help you understand if the limitations on liability are fair, reasonable, and in your best interests. Restrictive Covenants: Depending on the nature of your relationship with the vendor, you may be interested in seeking a restrictive covenant. A common example of this is a non-compete agreement. For a number of different reasons, you may not want to work with a vendor that provides similar services to direct competitors. Notably, under Florida law (Florida Statutes § 542.335), there are very strict regulations regarding restrictive covenants. In order to be legally enforceable, non-compete agreements must be carefully drafted. Confidentiality Clause: A confidentiality clause is a contract provision that requires parties to refrain from disclosing certain information. Often, vendors receive access to some sensitive internal information. With a non-disclosure provision, parties may be able to make sure that key information is kept strictly confidential. Renewal/Termination Clause: Finally, it is generally recommended that parties address issues of renewal and termination when negotiating a vendor services agreement. If the commercial relationship works well, parties may want an opportunity to ensure that they can keep moving forward with similar contract terms. Of course, there is always the possibility that, for whatever reason, a business relationship with a vendor may simply not work out. To prepare for this scenario, companies want to consider including some type of early termination option within the vendor services agreement. Every commercial agreement is unique. Businesses should reach a vendor services agreement that suits their specific needs. Some provisions may simply not be relevant to your company. For example, your company may have little to no interest in bargaining for a non-compete clause. On the other hand, there are undoubtedly certain issues that will be extremely important to your business. By working with an experienced Orlando, FL contract lawyer, you can be sure that your vendor services agreement will be right for the needs of your company. Get Help From Our Orlando, FL Contract Attorneys Today At BrewerLong, our Florida contract law attorneys have the skills and experience to assist clients with the full range of issues related to vendor service agreements. We work tirelessly to protect the legal rights and commercial interests of our clients. If you or your company needs help negotiating, drafting, reviewing, or litigating a vendor services agreement, we are here to help. To set up a free, strictly confidential introductory phone call, please do not hesitate to contact our law firm today. With an office in Maitland, we represent companies throughout Central Florida, including in Orlando, Sanford, Deltona, Apopka, Winter Park, and Lake Buena Vista.
Buying an established business can be a great way to hit the ground running. More people are pursuing this path than ever before — according to data from Small Business Trends, the total number of companies bought and sold in the United States hit a record level in 2018. As lucrative as buying a business can be, it is worth noting that, if proper precautions are not taken, purchasing an established company can be a major mistake. This is a complicated transaction. Before you take the plunge, you should consult with an experienced buying a business lawyer in Orlando. Four Reasons You Need an Attorney When Purchasing a Business 1. Conducting Due Diligence Review Are there hidden liability landmines in the business? A comprehensive due diligence review is the only way to know for sure. All of the company’s contracts agreements, warranties, and past business practices must be carefully examined. An experienced Florida business law attorney will help you with his critical step. 2. Negotiation of the Sale Once you have a clear understanding of the strength and weaknesses of the company, you will be in a position to negotiate the best possible deal. Effective negotiation is key. Remember, buying the best business in the world is still a mistake if you get a bad price. You do not have to go through negotiation alone. A top-rated Orlando, FL buying a business lawyer — a professional who has been through the process many times before — will represent your interest during negotiation of the agreement. 3. Structuring the Transaction Buying a business is a complex process. Even if you and the other party are essentially on the same page, you can still run into major problems if you do not know how to properly structure the transaction. Our Florida business lawyers can help you find a structure for the purchase agreement that best protects your interests. 4. Drafting and Executing the Business Purchase Agreement Finally, the purchase agreement must be drafted and carried out. Of course, buying the business is only the first step of the process. When you are making such a significant transaction, you need to make sure that get everything right. With a well-drafted, business purchase agreement, you will be in the best position to build a thriving and successful company. Discuss Your Case With Our Buying a Business Lawyer in Central Florida At BrewerLong, our skilled Florida commercial law attorneys have extensive experience representing clients who are preparing to purchase a business. We are proud to be diligent, sophisticated advocates for our clients. We are here to protect your interests. To arrange a free, completely confidential introductory phone call with our attorneys, please contact our legal team right away. With a law office in Maitland, we represent clients throughout Central Florida, including in Orange County, Osceola County, Brevard County, and Seminole County.
According to the most recent data published by the United States Patent and Trademark Office (USPTO), there are more than 600,000 patent applications filed every year. For many businesses in Florida, patents are a key part of their overall assets. When patent rights are infringed upon, it can cause tremendous financial damage to the business — companies need to be ready to take immediate action to protect their interests. This raises an important question: What constitutes patent infringement? It is not an easy question to answer. Indeed, many complex disputes arise of what is and what is not patent infringement. We want to make sure that you have the tools and information that you need to protect your rights. Here, Orlando, FL intellectual property attorneys provide an overview of the standard for proving patent infringement. Patent Infringement: Understanding the Basics A patent is a type of intellectual property that grants the owner (the patent holder) the legal authority to exclude other parties from making, using, or selling an invention for a predetermined number of years. In exchange, the patent holder will publicly disclose some information regarding the invention. Specifically, this will include the information contained within the patent. Under United States law, individuals and companies can obtain a patent for a wide range of different inventions — from physical objects and industrial machines to software code and business processes. Patent infringement occurs when the exclusive rights granted by an approved patent are violated by an unauthorized party. Patent infringement comes in many different forms, including: Direct infringement; Indirect infringement; Contributory infringement; and Induced infringement. If you believe that another party has infringed upon your protected patent, you must take swift action. With patent infringement claims, a company’s failure to take action to protect its rights can make it more difficult to get the other party to stop from using the patent and it can make it more difficult to recover financial damages. How to Prove Patent Infringement In order to enforce a patent against a competitor, you must present a well-documented and compelling claim that proves that your patent rights have been violated. More specifically, plaintiffs in a patent infringement claim are required to prove the following three things: Ownership of a Valid Patent: As a starting point, a plaintiff in a patent infringement claim must be able to prove that they actually have a valid patent. Of course, this is not necessarily a difficult step. In many cases, ownership of a patent can easily be shown through a written assignment. That being said, there are some circumstances in which disputes arise over the validity of patent ownership. An Act of Infringement Occurred: The next step is to prove that the defendant engaged in an act of infringement. One of the keys to stopping patent infringement is to identify the defendant that infringed upon the patent. This can be more challenging than it might initially seem. When multiple entities collaborate to make a good or service, there may be some confusion over which specific firm was responsible for the infringement. Incorporation of All Distinguishing Features: Finally, plaintiffs should know that it is not sufficient to broadly claim that patent infringement has occurred. Quite the contrary, plaintiffs in patent infringement claims must be able to present a detailed and comprehensive analysis that clearly explains precisely why the defendant’s product or service violates the patent. All of the distinguishing features that are listed in the patent registration should be addressed. Proving patent infringement can be a complicated and highly technical process. If you have any questions or concerns about patent infringement — whether your company is considering filing a patent infringement lawsuit or your firm is preparing to defend an infringement action — it is imperative that you contact an experienced Orlando intellectual property lawyer. An attorney will be able to review your case and take action to protect your rights and interests. Discuss Your Case to Our Orlando, FL Patent Infringement Lawyers Today At BrewerLong, our Florida intellectual property attorneys have the skills and experience needed to handle the full range of patent infringement claims. If you are considering filing a patent infringement claim or if you are facing litigation over alleged patent infringement, we are here to help. To set up a free, strictly confidential introductory phone call with our IP lawyers, please do not hesitate to contact us right away. From our law office in Maitland, we handle patent infringement claims throughout Orange County, including in Orlando, Ocoee, Apopka, Bay Lake, Belle Isle, and Edgewood.
Going into business with one or more other people can be exciting, but it can also be a stressful experience when one or more of your partners does not live up to the terms of the partnership agreement. When one or more of the partners fails to abide by the terms of the partnership agreement, this is known as a breach of the agreement, or a breach of contract. In such situations, the remaining partner(s) want to know about options that may be available with a breach of partnership agreement. We want to provide you with more information about partnerships generally and the importance of partnership agreements, and then to provide you with options that may be available to you if one of your partners breaches the partnership agreement. What is a Partnership? The U.S. Small Business Administration (SBA) explains that partnerships are the most basic business structure available to two or more people who want to go into business together. If two or more people decide on a partnership, they have to decide between one of two options: a limited partnership (LP) or a limited liability partnership (LLP). A limited partnership, or LP, is a business structure in which one general partner has unlimited liability while the other partner(s) have limited liability. The general partner with unlimited liability tends to have greater control over the company, while the remaining partners with limited liability often have less control over the company. A limited liability partnership, or LLP, is a business structure in which all partners or owners of the business have limited liability and share generally in control over the business. Limited liability means that you are not responsible for the actions of any of your other partners, and you are not responsible personally for debts associated with the partnership. In both LPs and LLPs, profits are passed through to personal tax returns. What Should Go Into a Partnership Agreement? Whether you have an LP or an LLP should be outlined clearly in a partnership agreement. In addition to clarifying whether you have an LP or LLP, the partnership agreement is also an important tool for handling breaches by one or more of the partners. An article in Forbes explains that the following elements should go into every partnership agreement. While the agreement need not necessarily be in writing, having a written partnership agreement can be extremely helpful: Each partner’s financial contributions; How the partners will split the profits; What will happen if one partner leaves the business or dies; What will happen if you need to close the business; What will happen in the event of bankruptcy; How partners will share in decision-making; How partners will resolve disputes (e.g., mediation, arbitration, lawsuits); Liquidated damages in the event of a partnership breach; and Dissolution of the business. Handling a Breach of the Partnership Agreement Generally speaking, the best scenario for handling a breach of a partnership agreement is if your partnership agreement specifically outlines your options in such a situation. If your partnership agreement requires mediation or arbitration in the event of a dispute, you should speak with a lawyer about moving forward with mediation or arbitration. However, your partnership agreement also could make clear that you are able to file a lawsuit against the other partner for your losses. In addition, your partnership agreement also might make clear whether you can seek liquidated damages and the amount available. If your partnership agreement does not specify what to do in the event of a dispute or a breach, then you may have one of several options available to you with the help of a business lawyer: Expel the partner from the partnership; File a lawsuit against the partner for the breach; Seek liquidated damages from the partner; and/or Negotiate a settlement. The above options need not be mutually exclusive. For example, you may be able to expel the partner from the business and file a lawsuit against that partner. Depending upon the terms of your partnership agreement, you also may be able to seek liquidated damages for actual or anticipated damages in your lawsuit. Contact a Florida Business Lawyer If you need help handling a partnership dispute, you should speak with a Florida business lawyer about your case. Contact BrewerLong today for more information.
If you are thinking about starting a business, there are many things you need to know about the importance of hiring a lawyer. Many entrepreneurs in Florida have exciting and innovative ideas for creating a new business venture or running a business, but they may not have experience choosing a business structure. Also, they may not have experience handling day-to-day issues that impact a business, incorporating a business and obtaining licenses and other necessary documents, and managing other legal issues associated with a new company. When you are considering a startup, you may be searching for information with terms like “lawyer for business startup.” The following are some reasons from articles in The Muse and Entrepreneur about why you might need a business lawyer for your startup. Choosing Your Business Structure When you are thinking about starting a new business, one of the first things you will need to do is decide on the best structure for your business. While you might be using the term “startup” to describe your business, as an article in Forbes makes clear, a “startup” is not a business structure. Rather, it is a term that is typically used to describe plans for starting a new business that is “working to solve a problem where the solution is not obvious and success is not guaranteed.” Others might describe a startup business in terms of culture as opposed to business structure, in which you engage in “a culture and mentality of innovating on existing ideas to solve critical pain points,” or when people agree to go into business with you with the implicit acknowledgement that they will “forgo stability in exchange for the promise of tremendous growth and the excitement of making immediate impact.” Accordingly, if you are thinking about a startup, you should begin working with a business lawyer to determine what type of business structure is best for you. The following are among the most common options for businesses: Sole proprietorship: This is the simplest type of business structure, and it is the most common for individuals who plan to go into business solo. If you are thinking about a startup and want to own the business yourself—and to hire employees who will not necessarily have a stake in the business—then a sole proprietorship usually is best. With a sole proprietorship, any expenses and income go through your personal tax return. For legal purposes, you and your business are, in effect, the same entity. This means you are responsible personally for any of the company’s liabilities. Partnership: You can choose between a general partnership where all partners have limited liability (an LLP) or a limited partnership (LP) in which a general partner has unlimited liability and all other partners have limited liability. This is a low-cost type of business structure that is relatively simple, and all profits and losses go through your personal tax return. Partnerships typically are best when two—or only a few—people want to go into business together. Corporation: There are a number of different types of corporations, including the common S-corp and the C-corp. Corporations are much more complicated than sole proprietorships or partnerships, and they cost more to create and to run. Corporations always are separate legal entities, which means that individuals are not personally accountable for the corporation’s liabilities (in most situations), and there is the possibility of higher rewards. Corporations also offer flexibility for companies that may grow substantially. Limited liability company (LLC): An LLC has some benefits of a corporation (liability protection) but without double taxation since earnings and losses pass through to the owners through individual income tax returns. LLCs are also relatively flexible and typically are best for businesses that are just starting out. LLCs can be especially popular for startups. Managing Situations That Require Legal Counsel In addition to choosing a business structure, there may be many legal issues that you have not yet even considered. The following kinds of legal issues may need attention when you are starting out with your startup: State and federal laws: There are numerous Florida state and federal laws that govern businesses in a variety of ways, including taxation. It is important to make sure that you engage in appropriate tax planning, and that you pay careful attention to the state and federal laws that may govern your startup. Managing risk: Whenever you create a startup that involves engagement with third parties (people beyond your business partners, such as employees or suppliers) and members of the public (such as customers), it is important to ensure that you know your rights and responsibilities under state and federal law. For example, you will need to be aware of rights and responsibilities under the Fair Labor Standards Act (FLSA), Title VII of the Civil Rights Act of 1964, and various other laws. Creating a business agreement: Whether you are forming a partnership and need to create a partnership agreement or need assistance with bylaws, it is important to work with a lawyer to ensure that you have methods in place for handling business disputes, unexpected situations, and the possibility of dissolution. Incorporation: If you need to incorporate your business, you will need help from a lawyer to ensure that you provide the necessary documentation for your startup. Employment contracts and hiring employees: When you hire employees, it is essential to understand an employer’s rights and responsibilities, as well as to understand the rights that employees have under state and federal law. We can help you to draft employment contracts, to develop an employee handbook, and to help you manage best practices for hiring. Business contracts: Developing enforceable business contracts with suppliers and other entities can be complicated, but a Florida business attorney can assist you. Contact a Business Law Attorney in Florida Are you thinking about options for a startup? It is extremely important to have an experienced Florida business law attorney to assist you from the early stages of your business. Not only can a lawyer help you to choose…
Buying a business can be exciting, especially when you are purchasing a business that already has been operating for years and has a strong client base. At the same time, however, buying a business can have its limitations. When you are thinking about purchasing a business, it is important to think about protecting yourself from potential liabilities that you could incur as a result of the purchase. In particular, you should think carefully about what you are getting if you are buying a business that has debts. We frequently work with clients who ask: If I buy a business do I inherit the debt? The answer to that question depends on a couple of different factors, including the type of purchase you make. We want to provide you with more information about business sales and situations in which the buyer may be taking on the debt associated with the business. Options for Debt in a Business Sale Generally speaking, when a business has debts and is up for sale, one of the following will occur when the business is sold: Buyer will assume the business debt’ Seller will pay the debt prior to the closing of the sale; Seller will negotiate with the lender to reduce the debt prior to selling the business; Debts will be deducted from the proceeds of the sale of the business. Asset Sales and Business Debts Business owners often make the decision to sell the business because they have debts and want to find a way to get rid of the debt. Some of those business owners assume that simply selling the business means that they are selling all of the business assets and debts to the buyer. However, if you are the buyer, it is important to learn more about where that debt will go if you move forward with a purchase of the business. The first type of sale we want to discuss is known as an asset sale. As an article in The Balance explains, an asset sale means that you are selling the various assets of the business. Assets can include both tangible assets (like a commercial building, inventory, and equipment) as well as intangible assets (such as a client or customer list, as well as goodwill developed through a long-term relationship with customers and the community). If you are purchasing either a sole proprietorship or a partnership, an asset sale is the only way to buy the business. Yet other types of business structures also may be able to be sold through an asset sale. Just because it is called an asset sale does not mean that you are purchasing only physical assets. In some situations, a business buyer in an asset sale also can be purchasing business debt or liabilities of the business. In most situations, the buyer and the seller will negotiate about the assets and liabilities being sold or purchased. For example, the buyer of the business might agree to purchase certain assets for a particular amount of money with the understanding that the buyer is also purchasing certain liabilities. The buyer typically will negotiate with the seller, emphasizing that the debt negatively affects the business and its value, and thus will take into account any liabilities or losses in the total purchase price of the business. Stock Sales and Business Debts The other type of business sale is known as a stock sale or a share sale. In most stock sales, the business debts or liability are included in the sale (and the buyer thus assumes those debts). As we mentioned above, neither a sole proprietorship nor a partnership can be sold like this and would need to be restructured as a corporation to be eligible for a stock sale. Successor Liability and Undisclosed Debt The above scenarios assume that the seller properly disclosed all debts to the buyer when negotiating the sale. However, it is important to be aware of situations in which the seller does not disclose certain liabilities or debts. Through a legal doctrine known as successor liability, the business buyer ultimately may be liable for certain debts of the business even if the buyer did not agree to take on those debts in the purchase contract or agreement. In some cases, the buyer may be able to raise the issue of fraud. Contact a Business Lawyer in Florida If you are buying a business with debt, you should work with a Florida business lawyer on the sale to ensure that you get a fair deal on the purchase. Contact BrewerLong for more information about your options when buying a business in Florida.
When you have a business partnership (or an LLC that is treated as a partnership for federal income tax purposes), profits and losses typically need to be divided or allocated to the partners. This is typically done in a way that corresponds with each of the partners’ percentages of business ownership. If you want to divide or distribute profits in a way that does not correspond with the partners’ percentage interests in your business, then you need to look into something known as a special allocation. You need to be very careful with partnership special allocations of profits and losses for purposes of taxation and the Internal Revenue Service (IRS). Since special allocations can be used in some cases to avoid taxation, the IRS pays special attention to these situations. If the IRS does not believe that the special allocation is legitimate, it can tax all of the partners according to their percentage interests in the business even if there is another agreement—such as your partnership agreement—that says otherwise. To understand how special allocations work, it is essential to learn more about why they occur and how the IRS determines their legitimacy. Why Businesses Arrange for a Special Allocation When you form a partnership, you will also create a partnership agreement (an operating agreement for an LLC). In a partnership, profits and losses typically get distributed to owners of the business based on their percentage interests in the partnership. For example, imagine a business that has a partnership structure with four partners: Partner A, Partner B, Partner C, and Partner D. Each partner owns 25 percent of the business, or has a 25 percent interest in the partnership. The U.S. Small Business Administration (SBA) makes clear that profits are passed through to the owners’ personal tax returns. In terms of typical taxation for a partnership, each partner will have profits and losses allocated according to his or her percentage interest in the business and then will pay taxes on those profits and losses. In the above hypothetical example, each of the partners would be allocated profits and losses that correspond to 25 percent of the business’s profits and losses, and then would be taxed on that amount. However, there are some situations in which there may be a need for a special allocation. For example, if Partner A provided all of the startup income for the business, the partnership agreement (or an operating agreement in an LLC) might stipulate that Partner A will be allocated 75 percent of the business profits and losses the first year. This accounts for her initial investment, and the remaining three partners will be allocated equal percentages of the remaining 25 percent of the business profits and losses. IRS Issues with Special Allocations and the “Substantial Economic Effect” Test The above hypothetical scenario is a legitimate reason for a special allocation, but the IRS often looks closely at special allocations because they can be a way for the partners to avoid paying taxes. For example, a special allocation could allocate a larger percentage of profits and losses to a partner who can pay fewer taxes due to his or her tax bracket. Accordingly, the IRS looks at a special allocation to decide whether it has a “substantial economic effect.” If it does, the IRS allows the special allocation. The term “substantial economic effect” is a complicated one to understand. In short the special allocation needs to be in line with the economic circumstances of the partners. Given the complicated nature of special allocations, you should always work with an experienced business lawyer to ensure that the special allocation will pass muster with the IRS. Contact a Business Law Attorney in Florida If you are part of a partnership and you have questions about special allocations, it is extremely important to speak with a Florida business law attorney about how these work. You do not want to allocate profits and losses in such a way that violate rules of taxation. An experienced Florida business lawyer at our firm can speak with you today about your business needs and can begin providing your partnership with information about tax law and special allocations. Contact BrewerLong today for more information about how we can help your business.
Not all contributions to a business are financial. For example, John and Jill might form a business. John contributes $50,000 but Jill does all the work. After two years, the business is now worth $150,000, a three-fold increase in value—all thanks to the sweat of Jill’s brow. Sweat equity is the increase in a business’ value thanks to hard work. If you don’t have the funds to contribute to a business, you can contribute in other ways. But you will want a legal document that protects your right to equity. For help drafting or negotiating a sweat equity agreement, please contact BrewerLong today. Our Florida business attorneys can help you with your agreement today. The Difference Between Sweat Equity and Labor Anyone who works for a business contributes to its value (unless they are terrible at their job). For this reason, a company’s employees might increase the equity of the business. But you don’t need a sweat equity agreement for your employees for one simple reason—they aren’t owners and you don’t intend to make them owners. That’s where the “equity” portion of sweat equity comes in. The term refers to an ownership stake in the business, and a sweat equity agreement is only necessary if you want to grant an ownership stake to someone who doesn’t have capital to buy their way in. When You Need a Sweat Equity Agreement If you are forming a partnership, then you probably need a sweat equity agreement. A partnership is an agreement between at least two people to run a venture jointly. Partnerships bind each partner to each other and make them personally liable for business debts. When you form a partnership, each partner brings something to the arrangement, usually start-up capital as well as their labor. You need a written sweat equity agreement in this situation. You might also need a sweat equity agreement if you are forming a different business structure with someone who wants to earn equity by working. This person might not have any capital to contribute or they have some but want to own more equity than they can buy. If you are unsure about whether you need a sweat equity agreement, meet with an attorney to discuss your case. You need to get these documents nailed down before starting your business, so schedule a consultation. What Goes into a Sweat Equity Agreement? You need an equity agreement that is clear and is written with future contingencies in mind. Generally, an equity agreement should contain the following: The total amount of equity that may be earned. For example, you might want to limit it to 50% if you have a two-person partnership. Larger companies often set the limit much lower. You might also want to set a minimum amount. The rate at which equity accrues. One option is to use the person’s salary or rate of pay to calculate equity. If the person is paid $30,000 a year, then they could have this much equity at the end of the year in lieu of a salary. Conversion rates. Will the sweat convert to equity every month? Every two months? Six months? This can matter if the person is gaining voting rights. Vesting period. You might not want the person to immediately start gaining equity, especially if they are new to the business. You could set a six-month vesting period during which their labor will be compensated in cash and then, after vesting begins, they begin to earn equity. Type of equity. Some companies have different tiers of stock. You should identify the type and the quantity the person is earning. Performance criteria. Be very clear about the responsibilities for each partner, which is vital if a partner tackles several roles at once. You also need a section on separation criteria. Unfortunately, business owners jump around, and you can’t expect someone to stay with the business forever. Sometimes, businesses need to eliminate roles against your wishes. You need to spell out in advance what happens to equity in the event of separation. These are only some of the items that should be in a sweat equity agreement. There are many other helpful terms, depending on your situation. Work closely with a Florida business lawyer to draft a sweat equity agreement that works for you. Should You Offer Equity? You don’t have to offer an ownership stake. Instead, you could make someone an employee and pay a salary or wage. Before deciding to grant someone equity, consider the following: How committed is the person to the business? Have they participated enthusiastically in early discussions of the business? If you suspect a person won’t stick around, you might want to forgo giving them equity. Can the person truly increase the value of the business? If not, then they are probably replaceable and should probably be an ordinary employee. Do see eye to eye? A business will flounder if owners disagree on fundamental issues, like the immediate direction of the company and the preferred rate of expansion. Your answers to these questions will also drive the content of your sweat equity agreement. For example, if you are unsure about someone’s passion or commitment, you might have a lengthy vesting period to protect yourself. Experienced Business Lawyers If you are forming a business, or if you are taking on a new owner, you should carefully cross all your T’s and dot all your I’s. The proper legal documents can help minimize disputes later, which can save your business time and money. Contact BrewerLong today. Our Florida business lawyers have drafted or negotiated many sweat equity agreements. We will identify what you hope to accomplish with this agreement and then tailor it to fit your needs. You can contact us or, call 407-660-2964 for a free introductory phone call.
Businesses take a lot of elbow grease to get up and running. After years of promotion and providing quality work, you might find that you grow so successful that you suddenly are in the cross hairs of some very unsavory people. Many businesses can go decades without confronting serious legal issues, but many eventually find themselves the targets of attacks on their reputations. When an individual is lied about and suffers injury, they might have a legal claim for defamation. Businesses that are lied about also have legal rights, and in Florida they can bring a lawsuit for business disparagement. Also called commercial disparagement, business disparagement cases are complicated and very difficult to bring successfully, requiring detailed evidence of what was said about your business and how it has harmed you. For more information, please contact a business law attorney to begin building your case. What is Business Disparagement? You can’t bring a lawsuit for business disparagement simply because you are unhappy about what a competitor or a member of the public has said about you. Instead, you need to prove the following elements: The statement was false. The person making the statement intends for you to suffer financial loss and your business does suffer loss. The person making the statement knew it was false or did not have any concern whether it was true. For example, a competitor might claim that you hire illegal immigrants as workers, which makes you the focus of negative press stories. Customers might also leave you, costing you money. If the competitor made the claim knowing this would hurt you financially, and if the statement is false, then you might have a legal claim. Defenses to Business Disparagement Based on the elements listed above, you can tell when you will not have a commercial disparagement case. For example, if the statements made about your business are true, you don’t have a case. Only false statements are actionable. Also, an opinion is probably protected as well. Someone can write on a Yelp review, “I thought the food was terrible” and that is not disparagement because it is an opinion not a statement of fact. By contrast, if someone claims to have found an insect in their food when there wasn’t one, then this is an obvious lie. Second, your business actually has to suffer financial losses. Many negative things are said about businesses all the time and the public just overlook them. A negative statement might hurt your feelings as a business owner, but you need to suffer real losses to bring a lawsuit. The person making the statement also had to intend for you to lose or business or have known that the statement would reasonably cause you to lose business. Third, the person making the statements either must know they were a lie or couldn’t be bothered to check their veracity. This requirement protects someone who tries to confirm the statement before publishing it, such as a journalist who does research to confirm the truth. Even if the statement is false, the journalist didn’t know it was false or recklessly publish it, so the defendant probably has a defense. How Much Compensation Can a Business Receive? If your business has been disparaged, you can bring a lawsuit for compensation. This money should make up for your losses and put you in the position you would have been in had the false statements never been made. Keep careful record of lost sales or lost business contracts. Typically, you need detailed proof of the amount of money that you have lost, otherwise you will receive only nominal damages. You might also be able to receive money for loss of your reputation. Work with an attorney for help documenting everything. Has a Competitor Lied about You? Contact a Business Lawyer Today The marketplace is cutthroat, and competitors sometimes make false statements that they later regret. They can try to get an unfair advantage by outright lying about your business in the hopes of persuading people to not do business with you. If you have been victimized by commercial disparagement, contact BrewerLong today. Our Florida business lawyers have years of experience in this area of law and know how to bring a successful claim. For a free introductory phone call, please reach out to us at 407-660-2964.