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Austin TX Business Law Blog

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.

 


Thursday, May 28, 2015

Trade Secrets At Issue In New Lawsuit Involving Apple

How Can My Business Protect Our Trade Secrets?

Your trade secrets are protected by Texas common law and the state’s Uniform Trade Protection Act and they can be protected by a properly drafted non-disclosure agreement. Those agreements make it clear to an employee what can and cannot be disclosed both during and after the person’s employment. This agreement not to disclose is made in exchange for obtaining or maintaining the person’s job. 

Though there is no guaranty this agreement will not be broken, but if it is, you have legal recourse to enforce the contract and/or seek damages due to its breach. The trade secrets or intellectual property you may want to protect could be sales or marketing plans, employee contact information, customer contact lists, manufacturing processes or product formulas. 

A recent lawsuit filed by Massachusetts company A123 Systems, LLC (which makes lithium-ion batteries) demonstrates some of the issues that can accompany trade secret disputes. It claims that five former employees violated non-disclosure agreements because they either went to work for the computer company Apple, Inc., or planned to do so, and they were going to bring company trade secrets with them, according to Bloomberg. Apple is accused of aggressively hiring their employees, possibly as part of a reported effort to develop an electric car.

A123 became known in 2007 when General Motors Corp. (GM) worked with the company to come up with battery technology that could be used in its electric-plug-in hybrid car the Chevrolet Volt (GM later chose LG Chemical Ltd. to provide the batteries).

A123 is seeking a court order that would prohibit one of its former employees from breaching his employment agreement and prevent Apple from encouraging him to do so. The company also wants the court to order the return of any A123’s confidential documents that the defendants may have in their possession.

Every company has trade secrets that are vital to its ability to stay in business and grow in the future; they are worth taking steps to protect. The Kumar Law Firm in Austin can help you create non-disclosure agreements for your employees so you can protect your business. If you are interested in finding out how you can protect your companies trade secrets, call our business law attorneys today at (512)960-3808.



Monday, May 18, 2015

Austin Tech Company Sues Honeywell for IP Infringement

What litigation strategies should start-ups pursue to protect valuable intellectual property from rivals?


Austin, Texas-based start-up Allure Energy has sued Honeywell International in a case involving innovative thermostat technology.  Allure Energy's Eversense thermostat integrates location-based controls in mobile phones to allow users to control their home environment.  Allure alleges that Honeywell's Lyric thermostat infringes on two of its patents.

In its complaint in the U.S. District Court for the Western District of Texas, Allure Energy seeks damages, profits, and an injunction against Honeywell's use of Allure's technology.  The litigation also alleges that Honeywell engaged in false advertising under the Lanham Act.

In 2012, at a trade show in San Antonio, Texas, Honeywell requested that Allure demonstrate the EverSense thermostat, which is designed to detect users' locations through their mobile devices and automatically adjust temperature settings depending on whether homeowners are going out or returning home.  Allure Energy owns several patents on the technology underlying the smart thermostat.  Honeywell ordered samples and Allure Energy's CEO, Kevin Imes, thought a business partnership might be in the offing.

Instead, says Allure Energy's complaint, Honeywell took the geolocation technology that Allure developed for EverSense and incorporated it into Lyric.  Honeywell has been marketing Lyric since August 2013, according to Imes. 

Imes was previously the founder of an Austin-based intellectual property services firm, Imes IP LLC, as well as 3Gfoto Inc., a mobile imaging software maker, also in Austin.


This is not Allure Energy's first lawsuit against a competitor for infringement of its IP.  The start-up previously sued Nest Labs, now part of Google, in a Texas federal court. 


Intellectual property is often a company's most valuable asset and the crown jewel of many start-ups and growing businesses.  Patent, copyright or trademark infringement by a large competitor can be devastating to a new enterprise, requiring a forceful legal response.

The expert business and intellectual property lawyers of the Kumar law firm in Austin, Texas, can help you protect your IP.  The firm’s expert business strategists can help you choose the best course of action to prevail against competitors and prevent or resolve disputes.  Call (512) 960-3808 for a consultation today. 

Friday, May 15, 2015

Business Succession Planning

Will Your Company Have a Future Without You?

If you are running your own business you are probably very focused on the here and now, making sure your business is running well and avoiding (or getting through) the many obstacles it faces. But you should also think about the future, because the future will happen whether you are prepared for it or not.

One thing to consider is succession planning which outlines the transfer of leadership in the event that you leave your company by choice (perhaps to start another business or retire) or suffer serious injury or death.  

A recent Inc. magazine article states that a Deloitte survey found:

• Nearly 90% percent of business leaders realize their company’s success depends on proper leadership succession, 

• 13% are confident with their succession plans, and 

• 54% stated lack of talent has damaged their companies.

To help plan for succession:

• Define what type of leader your company needs. What type of skills and behaviors are needed to run it? What specific actions will a new CEO need to take and what knowledge and experience will be needed to succeed? 

• Identify job specific assignments linked to business strategy which can help to prepare this person, in addition to useful feedback to make sure the person is on the right track. 

• Define how leadership talent will be promoted and identify high potential employees formally as those with potential. Give worthy candidates training, incentives and added authority.

• Track the development of needed skills. Measure candidates' problem solving and decision making skills, a candidate's emotional intelligence and his or her ability to negotiate and navigate problems with employees, customers and outside partners. 

If you are not the sole owner, succession planning should include buy sell agreements between those with ownership interests. If one party wants to sell his or her share, to whom can that interest be sold and for what price? A mechanism needs to be worked out so if a part owner is leaving the company, he or she (or his or her family) will be treated fairly.

If you own a business and want help preparing for its future, call business law attorney Sanjeev Kumar at (512) 960-3808 to schedule a consultation today.


Friday, May 8, 2015

Congressional Hearing Reviews Recent Patent Cases

Is patent reform being considered by Congress?

Our nation's patent system was not created with today's technology in mind. Over the years, various issues have been addressed by legislation or court decisions, but many believe a modernized law is needed. The United States House of Representatives created a Subcommittee on Courts, Intellectual Property, and the Internet in order to stay abreast of technological changes and their intersection with the law.

A subcommittee hearing was held recently to review United States Supreme Court cases in the patent arena. The chairman noted that the Innovation Act had been reintroduced in the House; the bill contains reforms to address abusive patent litigation. Lawmakers discussed the importance of venture capitalists in fueling the patent system and the danger of amending patent laws in such a way that would lead to excessive litigation and discourage product development. Patent trolls were also considered; that term refers to people or entities who purchase patents without the intent to benefit from their protections, but rather initiate patent infringement lawsuits against businesses with similar ideas. Panelists urged lawmakers to adopt changes to current patent policy that would address trolling and frivolous lawsuits.

Patent quality was cited as an important goal, striving to strengthen requirements for patent eligibility in order to reduce the number of weak or overly broad patents in the system. Patent equality was also mentioned as a priority, seeking to ensure that laws apply fairly and equally to all. An essential component to this equality would mean refraining from legislative carve-outs for certain industries. Still, the venture capital industry, particularly those involved with technology patents, has urged the House to consider the unique needs of the start-up tech space.

The Kumar Law Firm PLLC is experienced in the field of intellectual property law. Founder and principal Sanjeev Kumar is an attorney who also has a bachelors and masters degree in electrical engineering. He has filed multiple patents in his own name and has been granted a patent by the United States Patent and Trademark Office (USPTO). Contact Kumar Law Firm today at (512)960-3808 for guidance on your intellectual property issue, whether it involves patents, trademarks, copyrights, trade secrets or more.


Thursday, April 2, 2015

Rin Tin Incorporated Commences Legal Dogfight Over Intellectual Property

What remedies does a business have against former corporate officers who go into direct competition against it?

When business partners, officers or employees leave the company, ownership of intellectual property can become a source of conflict. Contentious claims to Trademarks, computer source code and numerous other IP assets, often of substantial value to the company, may become the basis of a conflict. In a recent Texas case, the disputed property is the right to breed dogs—specifically descendants of Rin Tin Tin, the canine movie and television star from the 1950s and earlier.

Rin Tin Incorporated has sued several of its former corporate officers for trying to sell dogs from the bloodline of the original Rin Tin Tin. The lawsuit, filed in a Texas federal court, accuses the defendants of breach of contract, breach of fiduciary duty, trademark infringement and dilution, unfair competition and more. Dogs descended from Rin Tin Tin sell for as much as $50,000.

Rin Tin Incorporated's owner, Daphne Hereford, says she holds the copyrights and trademarks that allow her to use the Rin Tin Tin name. The company uses those trademark registrations to sell not just dogs but clothing, dog accessories, children's books and other products.

In 2008, Hereford began working with the defendants, professional breeders who had once been involved in the training program for Lassie. She appointed them officers of her company. She also registered them with the American Kennel Club as owners of some of the Rin Tin Tin Dogs. In the current litigation, she maintains that those registrations were not intended to transfer actual ownership of the dogs or conflict with other contracts and policies of her company.

A dispute over finances and the operation of the business ensued, however, and in 2014, Hereford dismissed the defendants from the company. The defendants kept a number of the dogs and refused to return them. They are, Hereford alleges, trying to breed them in violation of written commitments.

According to the complaint, when the defendants took possession of the dogs, they signed documents barring them from breeding the dogs or using them in advertising or promotions. Hereford and Rin Tin Incorporated are seeking damages and a permanent injunction preventing the defendants from using the dogs commercially.

Whether you are formulating a strategy to protect your company's intellectual property or you are already engaged in litigation, The Kumar Law Firm in Austin, Texas can help. Contact us today at (512)960-3808 to learn how our experienced business attorneys can help protect your interests.


Monday, March 23, 2015

Is a Joint Venture Right for My Business?

What factors should be covered in a joint venture agreement?

A joint venture with another company may be a way to grow your business. You may want to exploit a potential market for your products or services, but your business may not have the needed resources. Perhaps there is another company that complements what you do, and the two of you could work together to open up a new market so you can both profit.

That sounds good on paper, but in reality, it can be difficult to pull off. Properly drafted agreements are crucial to avert failure of joint ventures. Some common pitfalls to consider are:
• Rapid consumption of capital: Capital is often used much faster and much earlier than expected. Failure to plan for this may result in a struggle to find more capital and agreeing to a loan on unfavorable terms. The joint venture agreement may include the option of a loan from one of the partners, but the terms should be at least as favorable as a loan from a third party.
• Arguments over control: Each partner will be accustomed to his or her leadership style, and disagreements over management often occur. To manage conflicts in the future, if and when they arise, the joint venture agreement should spell out the management structure, how decisions are to be made and how are any disagreements to be resolved.
• Desire for assets: One partner may want to control the assets of the other party. A smaller company may be willing to give more control to a larger company in exchange for capital, which could result in loss of control over the project and failure in the long run. Assets that each party brings to the venture need to be properly valued and that value should be reflected in reasonable shares of ownership and control.
• Unrealistic profit expectations: Partners want to see profits, but how should they be distributed? An agreement could list priorities as to where profits should go, including paying off debt or investment back into the business.

If you are in the Austin, Texas area and think a joint venture is something that may be in your company’s future, call business and corporate law attorney Sanjeev Kumar at (512)960-3808 for a consultation today. With his successful business background, Sanjeev Kumar provides insightful and effective counsel to business owners and entrepreneurs.


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