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Austin TX Business Law Blog

Friday, October 30, 2015

Mark Cuban Says Texas is a Startup-Friendly State

Is Texas a good place to start a business?

When we think of new business startups, our minds wander to places like New York City, Los Angeles and Silicon Valley. While these are great places for entrepreneurs to get started, are they any better than the state of Texas? Billionaire Mark Cuban doesn’t think so.

Cuban is a self-made billionaire who got started in the Lone Star State. Initially, he made his money by creating a streaming radio service, which was eventually bought by Yahoo! in 1999.  Now, he is a star of the hit TV show "Shark Tank." On this reality show, entrepreneurs have the opportunity to pitch their companies to wealthy investors who might financially back them if they like what they hear. Cuban has now invested in over 100 companies as a result of his spot on the show. 

Cuban was asked to speak at the North Texas Commission annual meeting. His topic was “how to think beyond the pitch.” During his presentation, he explained to the audience that he thinks Texas is one of the best states in which to start a company. While places like Silicon Valley are known for billion dollar buyouts, Texas is a great place to grow a business into an empire.  He also mentioned that he is trying to move some of the manufacturing he does in China back into the United States, specifically to Deep Ellum, Texas. Some of Cuban’s companies had booths at the meeting and were selling products or handing out samples and coupons to attendees.

According to Mark Cuban, if you are an entrepreneur in Texas, you can rest assured that you are in one of the best locations in the country. Nonetheless, nothing does more for your business than the representation of a knowledgeable and experienced business law attorney.


Saturday, October 10, 2015

Texas Ranked as Friendliest State for Small Businesses

What are the benefits of incorporating my small business in Texas versus other states?

When starting a business, one of the first steps to consider is where to incorporate? Legally speaking, deciding where to incorporate is one of the most pivotal decisions an entrepreneur can make, as the company will be subject, as it grows, to the laws of not only the state(s) where it does business, but its state of incorporation as well. Accordingly, businesses should take into consideration the various tax, civil, procedural, and dispute resolution laws in place when making this decision – all of which will undoubtedly impact at some point during the life of the business.

In a recent survey conducted on thousands of small business owners in Texas, the Lone Star State ranked first as the friendliest small business state in the U.S. The survey reviewed several areas, including: ease of starting a business, state employment regulations, taxes, zoning, and environmental laws. Receiving an “A” in nearly every category, small business owners touted the relative ease with which a start-up in Texas can obtain the necessary licensing  as well as benefit from the overall unobtrusiveness of state environmental and zoning regulations. Small businesses also reported favorable tax treatment, including paying virtually no income taxes in most cases.

If you operate a start-up business and are considering incorporating in Texas, working with a reputable business attorney is one of the first steps to take to ensure a seamless transition. While the steps to incorporate and gain legal recognition of your business entity may seem straightforward, working through the state and federal hiring and employment regulations may not be as easy. An experienced Texas business attorney can help ensure that your enterprise meets applicable zoning and permit laws. This is especially important if your business is in the industrial or manufacturing sector.

If you are in need of assistance with your start-up business, please contact the Kumar Law Firm in Austin, Texas today: 512-323-6060.


Thursday, September 24, 2015

September 1st Means Hundreds of New Laws Take Effect

Which new laws on the Texas Books will impact my small business this year?

Each year, the Texas legislatures considers, passes and enacts hundreds of new statutes. Some are relatively minor amendments; others involve sweeping reforms with major legal impact.

For the small business owner in Texas, the most recent enactments – which took effect September 1st – may have an impact depending on the nature of the business and the type of transactions it involves. The following offers a rundown of some of the most prominent legal changes. An experienced small business attorney will be able to best advise you as to more nuanced enactments impacting your particular industry:

  • Handgun Permits as ID: If your business requires proof of identification, customers may now show their handgun permit as a valid form of government-issued identification. This change does not apply to traffic stops or airport security, however.
  • Harassment of Interns: Sex-based discrimination and harassment laws have been extended to cover unpaid interns.
  • Nursing home compliance: If you are involved in the long-term care industry, new changes have limited to three the number of “serious health and safety violations” that may be assessed before your state license is revoked.
  • Shark fins: Engaged in the fishing industry? A new law has made it illegal to harvest certain species of shark solely for their fins. In addition, shark fins may not be sold, possessed, traded, bartered or possessed.
  • Liquor purchases: If an individual enters a liquor store close to the cut-off time, and is clearly browsing with the intent to make a purchase, the shop owner may transact the sale even if it takes place past the technical cut-off point.

Overall, approximately 700 new laws took effect on September 1st, some of which may be pertinent to your small business. If you would like to learn whether the new laws will result in any changes to your business structure, and to ensure your compliance with revised Texas laws, please contact one of our experienced business attorneys at The Kumar Law Firm today: 512.960.3808.


Monday, August 31, 2015

Congress Introduces Bill to Ban Non-Compete Clauses Against Low-Wage Workers

Can my employer prevent me from changing jobs to work with a competitor?

Non-compete clauses are an extremely common component to the hiring process, and are used to prevent employees from leaving one company to work at a competitor, presumably taking clientele along in the process. 

In general, a non-compete agreement is enforceable if it is reasonable in scope. In Texas, this means that the agreement must not cover an unreasonably large geographic area (i.e., the entire state of Texas) or last for an unreasonably lengthy amount of time (i.e., ten years). Reasonableness will depend on the nature of the industry, the type of work performed, and the employee’s factual ability to cause financial harm to the first employer. 

However, there is a point where a non-compete clause can go too far, and may actually cross the line into an unlawful restraint on trade. Moreover, as several members of Congress have pointed out, businesses have begun restraining low-wage workers with non-compete agreements as well, creating additional hardship for a population already facing financial struggles. 

In June, 2015, several U.S. Senators introduced the Mobility and Opportunity for Vulnerable Employees Act. This Act, if approved, would prevent employers from attempting to restrain former employees from working for competitors if the workers earn less than $15.00 per hour, less than $31,200 annually, or the minimum wage in the worker’s municipality. 

In the words of Senator Chris Murphy (D-Conn.), non-compete agreements hidden in low-wage worker contracts deliberately trap these workers in low-paying jobs – and that’s unacceptable….I worked hard on this bill because I believe that if you’re making less than $15 an hour, the government has a moral duty to stop companies from exploiting your hard work by preventing you from using your skills and experience to work your way up.”

Currently, a number of low-wage food service companies embed non-compete agreements in employment contracts, preventing counter-service workers from procuring a job at a competitor. 

If you have questions about non-compete agreements, or would like to discuss the proper way to implement this strategy into your hiring procedures, please contact the Kumar Law Firm, serving Austin, Texas and surrounding areas today at 512.960.3808.


Sunday, August 23, 2015

BBQ Bans & Other Legal Issues Facing Restaurant Entrepreneurs

What should we be considering as we plan to open a new restaurant in Texas?

Restaurant start-ups are a hot industry right now, and entrepreneurs are too often mired in the details of menu and décor to consider the legal ramifications of embarking on their new venture. Fortunately, The Kumar Law Firm can help organize and protect your team, whether you operate a food truck or a five-star rooftop restaurant.

The initial steps in creating a restaurant business are pre-planning and choosing a suitable, appropriately zoned location. Finding the perfect location depends on a number of factors, with some restaurants -- such as barbeque joints -- having additional hurdles to overcome. Earlier this year, for instance, the Austin City Council considered a proposal to regulate barbeque smoke known to waft into residential areas – apparently bothering nearby neighbors and causing a nuisance for other surrounding businesses. The council, however, ultimately voted 4-0 against the measure, while encouraging residents to make use of the city’s 311 service to launch complaints about “air pollution.”

Once beginning restaurant entrepreneurs have chosen an appropriate location, they must consider the various state and federal food safety regulations, which govern everything from food temperatures to proper cooking techniques. In addition, businesses must maintain a sizable insurance policy to cover liability stemming from foodborne illnesses. Such illnesses are not always preventable, even with the most careful preparation techniques.

Of course, hiring and maintaining employees also requires legal knowledge, particularly in regard to insurance, taxes, payroll, anti-discrimination policies, and other human resource issues wrapped up the opening of any business. An experienced start-up attorney can be invaluable in helping to draft contracts, defend against vendor/customer disputes, and offer general legal advice, not only during the first few years, but throughout the course of enterprise's operation.

If you are considering starting up a restaurant business in Austin or surrounding areas, please contact a business law attorney at The Kumar Law Firm at 512.960.3808 so that we can supply you with information about how to best protect your assets and ideas.

 


Friday, August 14, 2015

Start-Ups & Tech Businesses Fear Impact of New “Cloud Tax”

Is it true that some areas are beginning to “tax” the Internet? 

Believe it or not, a concept known as the “cloud tax” may be on the horizon, since the city of Chicago recently enacted a surcharge to tack on an additional nine percent fee to the cost of streaming videos via Netflix or Spotify. While the notion may seem far-fetched, web-based start-ups ought to be mindful of the developments in these laws, as Chicago lawmakers assert that the tax is actually not a new idea – just an expansion of current tax laws long since on the books. 

The “cloud tax” assesses the fee to any cloud-based services, and is considered a combination and expansion of both the Personal Property Lease Transaction Tax and the Amusement Tax. While the lawmakers do not seem to have any difficulty applying these taxes to streaming videos, both were historically enacted to generate revenue from the sale of tickets to concerts or sporting events – not individual viewership of movies or entertainment. 

Under the Chicago law, the cloud tax would apply to all streaming services, as well as cloud-based services including the Multiple Listing Services (MLS) utilized by realtors. 

The Chamber of Commerce has remarked that this approach is akin to “nickel and diming” businesses and consumers.  However, the move is calculated to bring in $12 million to the city. 

On the flip side, the city says that it intended to enact the tax in order to “bring companies using new technology in line with brick-and-mortar businesses. The city also promised exemptions for tech startups based on their revenue.”

The Texas Comptroller issued a ruling on Internet taxation in 2012, holding that certain highly-nuanced cloud-based transactions may be subject to the “statutory definition of taxable data processing services, telecommunications services and information services.” It remarked that “[a]ccording to the Comptroller, the virtual/cloud computing environment service is taxable as a data processing service. The definition of "data processing services" includes computerized data and information storage or manipulation as well as use of computer time for data processing. Again, the first 20 percent of the charge is exempt.”

If you are considering a tech start-up and would like to discuss the tax implications of this type of business in Texas, please contact the Austin business law attorneys at The Kumar Law Firm right away: (512) 960-3808. 

Monday, July 27, 2015

Texas Passes Bill Eliminating Double Taxation for Professional Employer Organizations

Did Texas enact any recent changes to its tax laws, particularly with regard to small businesses? 


As of July 1, 2014, House Bill 3150 became law thanks to the concerted lobbying efforts of small business advocates and businesses known as Professional Employer Organizations (PEO’s). The bill, which ultimately resulted in a slight increase in unemployment taxes statewide, worked to create an attractive tax incentive for small business contracting with PEO’s for purposes of outsourcing various human resources tasks. In sum, the bill would help alleviate double taxation of PEO partnerships, thereby allowing business the opportunity to reinvest these funds. 

How HB 3150 helps the PEO’s in Texas 

For many small businesses, it is easier and more cost effective to outsource an entire human resources department as opposed to hiring and employing such professionals in-house. Accordingly PEO businesses began to spring up and are organized to offer these services to businesses for a flat annual contract rate. However, under the old laws, PEO’s were actually facing somewhat of a double taxation rate, unlike any other small business in Texas. 

More specifically, when a company contracts with a PEO, the PEO then contracts with each employee for purposes of supplying unemployment benefits should the need arise. During the PEO’s tenure with the company, it is responsible for placing all unemployment taxes in trust until a point when a terminated employee needs the funds. Under the new laws, which become effective September 1, 2015, a PEO would receive a tax credit for any unemployment taxes paid to the employer prior to engaging with the PEO, thereby resulting in tax savings for the small business sector overall. 

In a statement by the National Association of Professional Employer Organizations, “[w]e thank Governor Abbott for his support of this bill, which will enable PEOs to continue to help small businesses in Texas grow and thrive while eliminating what was essentially a double tax on small business and maintaining the integrity of the UI trust fund at the same time.” 

Texas lawmaker Brandon Creighton similarly commented, stating “[t]his bill changes the law to ensure that these small employers in a PEO relationship are not faced with paying double tax if they make a change after Jan. 1….This bill is good for small employers in Texas, it’s good for all PEOs in Texas and it avoids double taxation.”

If you are a small business with questions about human resources or taxation issues, please contact the Austin, Texas business law attorneys at the Kumar Law Firm by calling (512)960-3808 today! 

Friday, July 10, 2015

New Provision Added to 2012 JOBS Act Designed to Make Crowdfunding Easier

What are the limitations on private equity funding, and how does this impact start-ups in need of capital? 

Start-ups are the cornerstone of American industry, particularly within the booming technology sector. As a business just starting out, one of the most difficult aspects of growth and development is finding the necessary capital and liquidity to get off the ground – which in turn requires sizable investments from willing venture capitalists. Over the past several years, several private equity companies have endorsed the concept of “crowdfunding,” which allows for contributions by several smaller investors as opposed to one or two large donors. Problem is, federal and state corporate laws have made crowdfunding an administrative nightmare, and start-ups are facing increasingly burdensome paperwork and reporting requirements that are often required within all 50 states as well as by the federal government. 

To alleviate the burden a little, in June, 2015, the federal government lightened this bureaucratic load by amending the 2012 JOBS Act to increase the amount of capital a business can raise from private individuals to $50 million under what is often called a Regulation A filing – which is a major jump from the former $5 million cap. Under the former rules, publicly-traded companies could not accept more than $5 million from individual corporate investors, which significantly dampened the available crowdfunding sources obtainable by blossoming start-ups. Now, this amount has been greatly expanded to allow companies the opportunity to accept offerings from anyone willing to pitch in. 

Also under the new rules, exhaustive paperwork requirements have been somewhat lessened, thereby allowing start-ups the opportunity to focus on business growth and expansion instead of concentrating on dozens of filings (and the associated fees). Previously, once a business hit $20 million in capital investments, it was required to adhere to the recording, filing, paperwork, and fee schedules of any state wherein an investor was located – along with the Securities and Exchange Commission. Now, most companies can file a single report and audit with only the SEC, however additional oversight might be required in certain situations.

Despite these steps in the right direction to enable crowdfunding easier, the new amendments have specific requirements in the area of eligibility, disclosure, caps on amount as well as percentage of shares being offered to individual investors, etc. especially for offerings in excess of $20 million - being referred to by the new moniker of Tier 2 Regulation A filing.

If you have questions about starting a new business or would like to speak to a reputable business attorney, please do not hesitate to contact the Kumar Law Firm based in Austin, Texas today: (512)960-3808. 


Friday, June 26, 2015

Texas Supreme Court Approves Shareholder Lawsuit in ‘Closely Held’ Corporation

I am one of a few shareholders in a small corporation. What are our rights in the event the board of directors engages in misconduct?

Texas law maintains a distinct body of law applicable to small corporations with just a few shareholders. The concept, known as a ‘closely held’ corporation, is explained in Section 21.563 of the Texas Business Organizations code, which states:

(a) In this section, "closely held corporation" means a corporation that has:
(1) fewer than 35 shareholders; and
(2) no shares listed on a national securities exchange or regularly quoted in an over-the-counter market by one or more members of a national securities association.
(b) Sections 21.552-21.559 do not apply to a closely held corporation.

In Section (b), the restrictions on closely held corporations refer to the rights of shareholders to initiate “derivative proceedings,” or lawsuits, against boards of directors alleged to be engaging in misconduct. While the code may allow for such lawsuits ‘in the interests of justice,’ this area of the law has been historically misunderstood – triggering several lawsuits and judicial inquiries. 

In May, 2015, the Texas Supreme Court considered the concept of a ‘double derivative lawsuit’ within the context of a closely-held corporation, and found the notion applicable and available to shareholders looking to obtain justice in light of wayward leadership. 

Basics of Sneed, et al. v. Webre, Jr., et al.

In the recent Sneed decision, the Court was faced with whether shareholders of a small family-run business, which was further divided with a wholly-owned subsidiary, could launch a lawsuit against the board of directors following a ‘bad business transaction’ approved by the subsidiary entity. The board objected to the petition, citing the statute listed above and noting the well-established principle that boards should be permitted to make their own decisions without intervention (known as the Business Judgment Rule). 

The shareholders, however, asserted that the situation was actually distinguishable from a straightforward derivative suit referred to in the code, and should be treated as such.  The Court agreed, and allowed the lawsuit to proceed against the board. In its analysis, it reasoned that the legislature likely did not intend to prevent small corporations from pursuing valid claims of fraud or breach of fiduciary duty simply because the corporate structure had created a wholly-owned subsidiary arrangement. Otherwise, this notion would prompt all corporate boards to structure the business as such, thereby allowing an unfair legal loophole to the detriment of shareholders. 

If you are facing a difficult situation with a board of directors, or would like more information about a derivative lawsuit in Austin, Texas, please do not hesitate to contact the business law attorneys at the Kumar Law Firm today by calling (512)960-3808.




Tuesday, June 16, 2015

4 Legal Lessons You Learn From Watching "Shark Tank"

Do I need a business plan?

If you did not know any better, you might guess that a show called “Shark Tank” is about lawyers. But fans of the hit reality show on ABC and CNBC know that the sharks on this series are venture capitalists, including Texas’s own Mark Cuban.

The premise of the show is that entrepreneurs pitch their business, inventions, and ideas to a panel of venture capitalists, a/k/a the sharks, in hopes of getting funding. As you might expect based on the name of the show, the investors are not there to make friends, they are there to make a deal.

There are several legal lessons to be learned from watching the show.

Do not expect your business to succeed if you do not have a business plan. All too often, entrepreneurs on the show are stumped when the sharks ask them very basic questions about their future plans. Sitting down and thinking through how you are going to get from point A to point B is something every business owner should do. 

Legal risks can make a business unappealing to investors. There are several episodes of "Shark Tank" where the sharks love the business or product being pitched to them, but decline to invest because the liability risk is just too great. Identifying your liability risks is a critical part of properly running and valuing your business. 

If you have a good idea, patent it. Patents are like blood in the water to the sharks. Great ideas and inventions are worthless if they can be stolen by others, so do everything you can to protect your intellectual property.

Selling a stake in your business is often emotional. The sharks are obviously tough negotiators, but the business owners they are dealing with often need a reality check when it comes to valuing the company or the product up for sale. Separating the emotional value you put on your business from its market value is very difficult, and often requires outside advice, but it is important to do before you get to the negotiating table, or tank. 

Following these tips will not guarantee your success if you wind up in the shark tank, but they will ensure your business starts out on the right foot. 

If you are an entrepreneur in the Austin area looking for legal advice to help you grow your business, or an inventor needing help patenting your intellectual property, The Kumar Law Firm PLLC can help. Sanjeev Kumar was an engineer and entrepreneur before becoming a lawyer, so he has a unique understanding of what it is like to be in your shoes. Call him today at (512)960-3808 to schedule a consultation.


Friday, May 29, 2015

Honing Your Negotiation Skills

How Can I Get Better at Negotiation?

Negotiation is a key skill in business. Done properly it can save you money, result in higher profits and help you seal the deal to obtain the right employees, suppliers and contractors. Like any skill it can improve with practice and some good advice.

A recent article in Entrepreneur shares some great tips for improving your negotiation skills. 

1. Prepare

Psychology plays a crucial role in negotiations. If you are better prepared than the other party, you may put them back on their heels and put yourself in a better position. Take time to learn as much about the other party as possible so you can capitalize on your company’s strengths and the other party's weaknesses. 

 2. Find Leverage

Take maximum advantage of your strengths. If you are the only source of a product or service, or what you offer is of much better quality or much lower price than the competition, run with that. If there is great demand and not much supply for what you sell, you are in a strong negotiating position. 

3. Be Willing to Walk Away

If you are in the position where you absolutely need an agreement, you have no leverage and you are not really negotiating. You are just setting the terms of your surrender. If the other side’s final offer is simply unacceptable or the people you are negotiating with are arrogant, demanding or inflexible, is it really worth the effort?

4. Both Sides Need a Win

If there are no benefits for the other side, there is no reason for them to agree and negotiations will be a waste of time. Be proactive and creative. Ask questions. What are they looking for and what will be acceptable to them? If you were in their shoes, what would you really want and what would you be willing to do to get it? 

Sell them on how the deal that you want will benefit them. If you see negotiations as strictly a power game where you impose your will to the maximum detriment of the other party, you probably will not come to an agreement and if you do, it will likely be the last one they ever sign with you.

5. Close the Deal

Have the endgame in mind as you negotiate. If there are several issues to be negotiated, work on the ones that will be easiest to agree on first. Once you start getting those out of the way, negotiations will build up momentum. The parties will feel more comfortable with each other. Each side will be more willing to compromise to close the deal because they do not want to have wasted all the time and energy spent in resolving the lesser issues. 

If you need help negotiating a contract in the Austin area, call business law attorney Sanjeev Kumar at (512)960-3808 for a consultation today.

 


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