Austin TX Business Law Blog

Start-ups based in Austin, Texas have faced some headwinds in the past year, with reports showing a decline in new venture capital investment. In the first quarter of 2016, Austin start-ups suffered a 49% decline in investment. Experts say venture capitalists lost enthusiasm because of economic unease and high valuations on untested start-ups.

But there has been at least one bright spot: the food and beverage industry. Start-ups offering consumer packaged goods ranging from healthy snacks to gourmet cider have attracted new investment interest even as others have suffered setbacks.

What is the Defend Trade Secrets Act?

Now that Congress has passed the Defend Trade Secrets Act (DTSA), it will almost certainly be signed into law. This new legislation is innovative in that it will allow businesses to file claims under federal law against those who misappropriate their confidential information. This will be beneficial to U.S. companies in several ways.

What basic mistakes should entrepreneurs avoid when seeking investors?

A recent case decided in a Dallas, Texas courtroom shows that YouTube videos can be big business — and that traditional legal rules still apply to an area of the web that may seem like a free-for-all. The losing parties' response to the case also suggests that conduct that is commonplace online may not play well in court.

Avoid making unrealistic contractual commitments

The litigation centered on a partnership between two outside investors, David T. Moss and Brandon Keating, and YouTube channel owner/operators Brian Martin and Marko Princip, who were seeking funding for their videogaming channel. The outside investors signed a contract agreeing to put up $1500 in exchange for 30% ownership and 30% of the profits of the partnership for each of them.

Does the song "We Shall Overcome" now belong to the world?

Recently, the copyright of "We Shall Overcome," the theme song of the civil rights movement and one of the most emotionally powerful songs of more than one generation, has been called into question. A lawsuit filed by the nonprofit group known as the We Shall Overcome Foundation is seeking a judgment claiming that the song in not under copyright and belongs in the public domain. The suit, filed on behalf of a group that works with orphans and the poor, was filed at Federal District Court in Manhattan and seeks class-action status.

What is the status of The Defend Trade Secrets Act?

American companies have been faced with a wave of infiltration by domestic and foreign industrial spies who steal valuable trade secrets and leak them to competitors. Now lawmakers on Capitol Hill are taking steps to enhance the protection of trade secrets. The Senate Judiciary Committee recently voted in favor of The Defend Trade Secrets Act (DTSA). The proposed law is designed to fight trade-secret theft by creating a harmonized, uniform, federal standard to protect

Why are businesses owned by women and minorities trailing in earnings and in size?

Women and minorities may have come a long way as business owners, but it is clear that they still have a long way to go. According to the Pew Research Center's analysis of Census data, while minority women are the fastest-growing group of entrepreneurs in the nation, the businesses they own bring in far less revenue than firms with non-minority or male owners. Minority owners don't fare much better. The land of opportunity still seems to be on unevenly weighted in favor of white males.

The Statistics

When the research was completed in 2012, women owned 36.2 percent of U.S. businesses, but earned only 11.3 percent of the nation's business income. Part of this may be attributed to the types of businesses women go into (or are permitted to enter), but the discrepancy in revenue continues even when the focus is on female-dominated industries, such as healthcare and social assistance. As evidence, in 2012, women owned 64.5 percent of the two industries mentioned, but still received only 19.9 percent of those industries' total revenue of $703.5 billion, or approximately $140 billion.

The category of minority-owned businesses is defined as companies owned by anyone who is not white. This includes businesses owned by blacks, Asians, and Hispanics (who may be of any race). Such businesses, at the time of the study, made up 28.6 percent of businesses in the country. Nonetheless, these firms made up only 10.4 percent of the nation's revenue. Perhaps proving that the playing field is uneven, companies owned by women and minorities are centered on particular industries. In 2012, when the study took place, almost 20 percent of healthcare and social assistance firms were owned by blacks, while almost 19 percent of accommodation and food services were owned by Asians.

Differences in Business Size

For reasons not fully explained, the businesses owned by females and minorities tend to be smaller than those owned by white males. This is demonstrated by the fact that, in companies with employees, those owned by women averaged 8.5 employees in 2012 as opposed to the average of 13.5 employees in companies owned by men. Firms owned by minorities fared almost the same, with an average of 8.4 employees compared to an average of 12.6 employees in non-minority-owned companies.

Lack of Investors behind Size Differential

According to a fact sheet distributed by the White House, only 3 percent of venture capital backed women's start-up companies and only 1 percent invested in companies owned by African-Americans.  The Department of Commerce also reports that women are more likely to start businesses without outside investors and both women and minority owners create startups with less capital than their white male counterparts. Oddly, these discrepancies continue even though the statistics show that investors in diverse companies see greater returns on their investments than those who businesses owned by white men.

If you are contemplating starting a business, or have already started one, whether you are a woman,  member of a minority, or a white male, you would be well-advised to consult with an experienced and talented business attorney.

According to the Small Business Administration, what topics should employee handbooks cover?

While it is not legally required that every small business have an employee handbook, it is highly recommended for companies with more than a few employees. Employee handbooks work to standardize expectations for both employers and employees, and offer the company legal protection. Since employee handbooks set forth company policies clearly in black and white, they can help to keep friction and disputes to a minimum.

What Your Employee Handbook Should Cover

So that everyone understands the rules of the road from the first day of employment, employee handbooks typically cover standards that must be met by both employees and employers, including:

• Non-disclosure agreements (NDAs) and statements concerning conflict of interest
• Anti-discrimination policies: compliance with equal opportunity laws, including the Americans with Disabilities Act; information about discrimination and harassment
• Compensation information: wages, overtime, performance reviews, raises, time-keeping records, breaks, bonuses and workers' compensation
• Employee Benefits: including health insurance, retirement plans, wellness programs
• Work schedules: work hours, attendance, punctuality, flexible hours and telecommuting
• Leave Policies: vacation, sick leave, holiday, bereavement, family medical leave, jury duty, military leave, leave for voting and court cases
• Conduct standards: code of dress, legal obligations, ethical behavior (avoiding harassment), privacy rules, particularly in activities under government regulation

In addition, employee handbooks should provide employees with an overview of the business and its general policies, including:

• Hiring practices:  job postings and employment eligibility
• Referrals, probationary periods, transfers, relocations, union information
• Resignation and termination procedures

As the owner of the company, you are responsible for creating a safe and secure workplace for your employees, meaning the premises should comply with Occupational Safety and Health Administration (OSHA) laws. Your employee handbook, therefore, should state clearly that all accidents, injuries, safety hazards and safety suggestions should be promptly reported to management.

In addition, the employee handbook should make abundantly clear that employees also have a responsibility to maintain a safe and secure work environment -- keeping pathways unobstructed, turning off appliances when not in use, and being committed to securing electronic information on their computers.

If you are starting up a new business or taking over an established one, you should consult with a firm of skilled and experienced business attorneys to make sure that you proceed in a legal, ethical, and efficient manner.

What types of insurance do I need to protect my business?

In addition to choosing the right business organization, starting a small business requires obtaining the maximum protection for your company. By having the following types of insurance, your business will have maximum protection from a variety of situations that can lead to lawsuits.

Property Insurance

Obtaining property insurance should be a primary consideration for protecting your tangible investment, including essential merchandise, equipment, tools, and buildings. It is critical to protect your business property from the potential for loss and damage from a number of events, including fires, vandalism, theft and storms. In addition to protecting the actual building, furnishings, inventory and equipment, business property insurance may also cover other costs such as equipment breakdowns or the cost of clean up after a covered loss like a fire or storm.

Regardless of the size or type of business, it is critical to obtain general liability insurance. This type of insurance protects you in the event you are faced with a lawsuit arising from accidents, injuries or claims of negligence. General liability insurance coverage protects you if your products, services or employees cause property damage or bodily injury to a third party. For example, if someone is injured on the premises of your business and files a lawsuit against you, general liability insurance may help to recover some of the costs, depending on the situation.

Errors and omissions (E&O) is insurance that typically covers doctors, accountants and lawyers. For medical professionals, E&O usually comes in the form of malpractice insurance. At the same time, lawyers, accountants, architects and engineers are covered by professional liability insurance. Moreover, even businesses like advertising agencies and commercial printers, in fact any business that provides a service to a client for a fee, needs E&O coverage.  In short, E&O coverage protects you from error or omission on your part that has caused a financial loss for your client.

While the particular rules differ from state to state, employers are required to buy workers' compensation insurance. Generally, this type of insurance protects businesses from lawsuits arising from workplace accidents. Workers' compensation also covers medical bills and compensates lost income for employees injured on the job, whether on the premises or elsewhere, regardless of who was at fault. Workers' compensation also covers employees who are injured in auto accidents while on company business or who suffer work-related illnesses. It also provides death benefits to surviving spouses and defendants.

Small business owners should consider how they would manage if a fire or other disaster damaged their business premises so that they were temporarily unusable. If you are conducting business in an area that has a high risk of natural disasters, investing in business interruption insurance will compensate you for lost income if your company has to vacate the business premises due to disaster-related damage.

Every business is different, and each faces a variety of risks; however, by investing is the right types of business insurance, a company can protect itself from a wide range of losses and liabilities. 

“Authentic brands don't emerge from marketing cubicles or advertising agencies. They emanate from everything the company does...” (Howard Schultz, CEO Starbucks)

Whether you take coffee or not, most people are familiar with the Starbucks brand. Not every company is a renowned franchise like the international Barista. Branding , however, is essential for every small business. A brand helps customers identify a company's products and services and distinguish them from the competition.

Brands, Logos Trademarks

A company's brand stands for its reputation, and this is often a matter of customers' perceptions. Customers need to know who you are and a brand identity helps to clarify your target customers. Having an effective brand strategy allows a business to communicate with customers in a variety of ways.

Often, this starts with a logo or a trademark which serves as the basis for packaging, the domain name of a website, media communications, as well as advertising and promotional materials. Having a trademark, moreover, requires registering that mark with the US Patent and Trademark Office. This is a complicated process that requires the advice of an attorney in order to prevent a trademark infringement lawsuit that could possibly damage your brand.

 There are a number of steps a small business needs to take in order to develop its brand. The first is to define the brand and its purpose so that you capture the interest of customers. One way to do this is with a "mission statement" that explains what your business stands for and what your products and services do.

Once your mission is established, the next step is to identify your target market. Not every customer will be drawn to your product or service. However, there is a customer base that is likely to buy from your business, especially those that identify with your brand. In the end, your target customers will decide whether or not your brand has value.

Lastly your brand must have a personality and represent your values. The values of your brand are the core principles that foster relationships with your employees, customers and vendors. Ideally, these values should be the foundation for a positive business culture. Put simply, a brand is important to a company and its products and services much like someone's personal or professional reputation is to him or her. 

Your brand tells customers what to expect from your products and services and distinguishes you from the competition. Your brand strategy is essential for communicating and delivering your message which is really a promise to your customers. In other words, a brand flows from who you are, influences customers' perceptions and allows them to identify with you. Ultimately an effective brand strategy can give you an edge in the market place.

If you are considering starting a business or have already done so, an attorney can advise you on legal matters affecting your business.

Over 826,000 Texans have a license that allows them to carry a handgun with them in public. Until the beginning of 2016, you might never have noticed if an employee or customer had come into your place of business while carrying because their guns had to be concealed. Now the law has changed, and licensed gun owners are allowed to openly carry their weapons in visible holsters on their hip or shoulder. This change in law has forced Texas business owners to make a tough choice -- should they allow open carry in their place of business? Or only allow concealed carry? Or ban all guns?

At the Kumar Law Firm we are helping several businesses in the Austin area work through this issue. Figuring out what your gun policy is going to be is an important decision because it may end up impacting your bottom line. Folks on both sides of the debate over the proper role of guns in society are very passionate, and have committed to boycotting businesses that disagree with their philosophy. Businesses that ban guns are being boycotted by pro-gun advocates, while businesses that allow guns on their premises are being boycotted by anti-gun advocates.

If a business wants to allow patrons and employees to carry, it probably doesn’t need to do anything. Unless the place of business is in a zone where guns are prohibited by law, at a school for example, open and concealed carry are legal by default.

If a business wants to prohibit guns, it must post proper signage.
• Separate signs are required for banning open carry and concealed carry so businesses can allow concealed carry but not open carry, or vice-versa.
• Signs must have 1-inch block lettering.
• Signs must be written in both English and Spanish.
• Signs must be posted at all entrances. Posting signs only at the main entrance is insufficient.

Business owners who allow open carry still have complete control over their premises. So, if a customer enters and begins to act suspiciously, the business owner still has the right to ask that person to leave, whether or not he or she is open carrying. If a customer refuses to comply with a request to leave, the police can be called.

In addition to considering what the customer may think about open and concealed carry, business owners must also consider how they and their employees feel about the issue. Business owners are allowed to set separate rules for employees and customers, and should not hesitate to do so if it is in their business interest.

If you have questions about how to handle open carry in your business, consult with a competent, informed business attorney.

One of the first question a business must ask itself is “how should we organize?” Of course, the answer to this question varies significantly based on context, however the legal organization of one’s enterprise should be of preeminent concern from the get-go – and here are a few reasons why:

            #1: Liability is Everywhere: It’s true – just ask any one of the thousands of business facing expensive, time-consuming litigation each year. From the food industry to technology, there is no private sector business that is immune to liability, which means the savvy entrepreneur must take steps from Day 1 to protect against its pitfalls.

            #2: Exposure May be Reduced: There are a number of positive action steps a start-up can take to help limit exposure to liability – and many are inexpensive, no-brainer type options that can make the difference between booming and bankruptcy. More on that in a minute.

            #3: It’s an Investment: For the start-up, expenses like legal fees and organization consultations may seem beyond the budget. However, the costs of litigation far exceed that of a short legal consultation and incorporation package – so think of it as the company’s first official investment in its future.

When it comes to incorporating in Texas there are several options to consider when forming a business, including:

• Private domestic corporation
• Close corporation
• Benefit corporation
• Foreign corporation
• Non-profit corporation
• Limited liability company
• Partnership
• Professional associations & corporations (e.g., law, medicine, architecture)

Of course, each option carries distinct benefits which may be best-suited to the particular endeavors of a start-up entity – and an experienced Texas business attorney can help officers choose the best way to incorporate from the outset, keeping in mind the factors listed above.