Contracts and other legal documents need to be reviewed
Gather ‘round while I tell you a tale of frustration…
I had a client that was an e-retail/marketing company. They would occasionally schedule big corporate events at one of the nicer, local hotels. These events would be heavily advertised and announced well in advance. People from across the country would attend for the weekend. Obviously, the company could not afford to have it canceled at the last minute, or it would lose face and infuriate its customers.
Well, on a recent occasion, this client scheduled one of these corporate events at a nice, local resort. Arrangements were made with the hotel, including a signed contract. My client paid the deposit and was eagerly preparing for the event, scheduled to occur in a couple of days. It was heavily promoted, as usual and the reservations were nearly triple what they had anticipated. Three days before the event I got a frenzied call from my client’s Executive Vice President, cursing about the hotel and their ridiculous demands.
My client had paid an initial deposit to secure the space and catering for the event. It had understood that all it needed to pay was an initial deposit while it could then pay the remainder after the event. The hotel was demanding full payment before the event. The EVP was furious that the hotel was trying to jerk him around. I was then handed the contract between the hotel and my client. Here’s the rub: I was never involved in the negotiation or review of the contract. After I read through it, I informed the EVP that the hotel was indeed correct in its demands as the contract called for full payment prior to the event. In fact, my client was supposed to have paid the remainder of the contracted amount nearly two weeks before the event. My client (and the EVP) had misunderstood the contract and the result was confusion and frustration.
Had my client involved me in at least reviewing the contract before signing it (or better yet, included me in the preceding negotiations), this problem could have been resolved before coming to a head. Involving your attorney early (and often) will limit the amount of problems you have down the road.
Trade Secret protection can be vital to a small business
I had a client that owned an e-commerce/marketing business. Computer code, client lists, and marketing plans were valuable trade secrets for this client. The former president decided to quit the company and start his own business. In fact, his business was going to be exactly the same as his former company’s business – direct competition.
Needless to say, litigation in federal court ensued with allegations of the president violating trade secrets. The former president had cleaned out his office, taking substantial marketing materials, client lists, and other valuable information. This included the only copy of his signed, employee confidentiality agreement.
Trade secret law is an avenue of intellectual property law that covers items that cannot be copyrighted or patented, or shouldn’t be. Often, a business will have competitively significant information that does not meet the requirements for patent protection. Similarly, copyright protection may also be unavailable because copyright law protects the expression of an idea, not the idea itself. Moreover, the information often is of a type that the creator does not want to make it public (as required by patent and copyright laws). In such a situation, trade secret law will provide the necessary protection for this information.
Trade secrets cover a broader area of law than patents or copyrights. Unlike the limited time protections of patents and copyrights, trade secrets, with the proper protections, can last indefinitely. Some notable trade secrets include: the “secret formula” for Coca-Cola and the “secret recipe” for Kentucky Fried Chicken.
Factors for determining a Trade Secret
Some of the more common factors in determining a trade secret are:
1. The extent to which the information is known outside of the owner’s business;
2. The extent to which the information is known by employees and others involved in the owner’s business;
3. The extent of measures taken by the owner to guard the secrecy of the information;
4. The value of the information to the owner and to his competitors;
5. The amount of effort or money expended by the owner in developing the information; and
6. The ease or difficulty with which the information could be properly acquired or duplicated by others.
It’s called a trade “secret” for a reason
Remember, in order to claim you have a trade secret; you must be taking steps to keep it a “secret.” This is where employee agreements with confidentiality clauses become so essential. Make sure everyone in your business has signed an employee agreement that includes a confidentiality clause. Also, make sure the signed copies are kept someplace where no one can abscond with them.
Confidentiality Agreements can protect your small business
One of my e-commerce clients had scheduled a weekend retreat for some of its major sales agents recently. I attended a company-wide meeting the week before the event. The Executive VP warned the employees that the sales agents would likely attempt to pump them for inside information regarding the company. They were warned not to divulge anything.
After the meeting, I conferred with the CEO regarding the status of employee confidentiality agreements with the company. Much to my chagrin, none had been signed or even drafted. I immediately set about drafting an employee confidentiality agreement to be circulated to every employee for a signature prior to the event. To my knowledge, the forms were never signed. “You can lead a horse to water, but you can’t make him drink.” That line seems apropos.
Confidentiality Agreements protect Trade Secrets
Employee confidentiality agreements are a requirement for protecting trade secrets (see my prior discussion on the topic). Most states will protect trade secrets from being divulged by employees who are in a confidential relationship. However, a court will be much more willing to protect those trade secrets when a signed employee confidentiality agreement exists. The owner of the trade secrets is much more likely to obtain relief if the parties have agreed ahead of time to protect certain confidential information.
Yes, your business needs a Confidentiality Agreement
Think of it this way: if there is anything in your business you would not enjoy having made public, then you need an employee confidentiality agreement signed by your employees. Even if you cannot think of anything you want to keep confidential, have your employees sign one anyway. You never know when you may develop, acquire, or create something you would like to keep confidential. Having an existing confidentiality agreement in place before this occurs will trigger that protection immediately, without having to hurriedly craft an agreement and then get it signed by each employee.
A good Confidentiality Agreement must be tailor made
Crafting a good confidentiality agreement can be difficult. Your attorney needs to differentiate what information will be deemed confidential and what is not. There are advantages and disadvantages to making a confidentiality agreement either general or specific. Also, a confidentiality agreement can be (and should be) binding for an indefinite amount of time as trade secrets can endure indefinitely. If your confidentiality agreement has an expiration date, then your trade secrets can be revealed after that date. This is obviously detrimental to your business.
Options For Moving A Small Business To Nevada
Nevada is a very pro-business environment. Taxes are limited and the courts seek to protect small business entities. It is no wonder why many out-of-state small businesses decide to relocate to Nevada. While it is obvious that there are numerous advantages for small businesses in Nevada, the actual procedure for moving an existing small business to Nevada can be difficult to determine.
There are three different ways to bring an out-of-state small business to Nevada:
1. Register as a “Foreign” Corporation:
A small business based in another state can do business in Nevada, but it must first register as a “foreign” corporation. The advantage of this is that the small business can now do business in Nevada. However, the disadvantage is that the small business is still subject to the laws of the state of its incorporation.
2. Dissolve Current Small Business and Form a New Nevada Entity:
Another option is to dissolve an out-of-state entity and then form a new entity in Nevada. This provides the new entity with all the advantages a Nevada business can enjoy. However, there can be tax consequences with dissolution, so it is recommended that you consult with a CPA (in addition to an attorney) before moving forward with this option (or any option).
3. Form a Nevada Entity and Merge/Reorganize with Out-of-State Entity:
This final option is similar to #2, but instead of dissolution, a merger occurs. A merger (or reorganization) allows the full advantages of having a Nevada business entity, but may help significantly with tax consequences. The IRS provides several options for reorganization that have favorable tax implications. If you own an out-of-state small business and want to relocate to Nevada, a merger/reorganization may be the best option.
When looking to relocate an out-of-state small business to Nevada, there are three main options. Depending on your specific situation, a merger/reorganization may be the best option.
Understanding Straw Purchases for Guns/Firearms
What Is a Straw Purchase?
When a buyer uses an illegal “straw purchaser” to acquire a firearm on their behalf, he or she is in violation of federal law. More accurately, when someone uses another straw purchaser to complete Form 4473, both the person completing the form and the person who will ultimately receive the firearm are violators.
Example Of An Illegal Straw Purchase
Sometimes, straw purchasers are used to purchase a firearm because a person is prohibited from possession. This can include a convicted felon or a person who resides in a state where possession would be illegal. An example provided by the BATFE:
“Mr. Smith asks Mr. Jones to purchase a firearm for Mr. Smith. Mr. Smith gives Mr. Jones the money for the firearm. If Mr. Jones fills out Form 4473, he violates the law by falsely stating that he is the actual buyer of the firearm. Mr. Smith also violates the law because he has unlawfully aided and abetted or caused the making of false statements on the form.”
Other Factors Relevant To Straw Purchases
It does not matter that the actual purchaser and the straw purchaser are residents of the State in which the gun store is located, are not prohibited from receiving or possessing firearms, and could have lawfully purchased the firearm from the gun store. Remember, the person completing the Form 4473 MUST be the actual person purchasing the firearm.
Exceptions That Are Not Straw Purchases
An illegal straw purchase does not occur if the person purchasing the firearm does so with the intent of making it a gift. This goes back to the original issue of who is the actual purchaser. In this case, the original purchaser is in fact the actual purchaser. Back to the BATFE example:
“[I]f Mr. Jones had bought a firearm with his own money to give to Mr. Smith as a birthday present, Mr. Jones could lawfully have completed Form 4473.”
Additionally, the use of gift certificates would also NOT fall under the category of illegal straw purchases. The person redeeming the gift certificate would be the actual purchaser of the firearm and thereby would be acting appropriately when completing the Form 4473.
Be Careful Of Straw Purchases
Many people think any purchase for someone else is an illegal straw purchase. However, as the BATFE has explained, in some cases (such as gifts or with gift certificates) these purchases are permissible. Also keep in mind that the BATFE has the burden of proof in these situations, so they must prove the elements of an illegal straw purchase.
Methods to Acquire Class III/NFA Firearms
There are two different avenues for acquiring Class III/NFA firearms and devices: as an individual or as an entity.
(1) Individual Possession and Ownership of Class III/NFA Firearms
A Nevada resident may lawfully possess/own Class III/NFA firearms so long as they comply with the procedures established by the BATFE. This includes submitting a completed BATFE Form 1 or Form 4, payment of the $200 tax stamp, payment of any local FFL transfer fees, purchase of the item, background check, fingerprints on FBI FD-258, photos, and finally the signature of the Chief Law Enforcement Officer (“CLEO”) where the applicant resides on the Form 4. Some of the major drawbacks are that many CLEOs either create long delays in signing or outright refuse to sign the form at all. Overall, this is typically the longest route to go and wait times can easily reach into many months.
(2) Entity Possession/Ownership of the Class III/Firearms
An alternative to the individual route is to create an entity and then have the entity possess/own the Class III/NFA firearm. This method eliminates several of the above steps, including the fingerprinting, photographs, and CLEO signature. By creating an entity, time can be saved and other benefits can also be realized.
A Nevada resident can form a corporation or limited liability company to possess/own Class III/NFA firearms. Then, either the directors/officers or the members can legally possess and use the firearms. As explained above, this can often reduce wait times down to a month. Additionally, a corporation or LLC allows multiple individuals to legally possess the Class III/NFA firearms (unlike the individual method above), often without additional paperwork. The disadvantages of using a corporate entity or LLC is that the startup costs and requirements can be significant, there are annual fees to the secretary of state, and there is no privacy. Additionally, if the corporation or LLC dissolves, the Class III/NFA firearms must then be transferred to someone else, thus incurring another $200 tax stamp fee.
(b) The NFA Gun Trust
More specifically, a Revocable Living Trust, which is the preferred trust vehicle for creating an entity to possess/own Class III/NFA firearms. With an NFA gun trust, there is only the single fee to pay to create the trust and no annual costs. Moreover, like the corporation/LLC, multiple individuals (trustees) can legally possess the Class III/NFA firearms. A properly created trust, with the nuances of the NFA in mind, can also ensure that the Class III/NFA firearms are distributed when the trustor passes away. Be forewarned that a “cookie-cutter” trust does not consider the implications of the NFA upon distribution and violations of federal and state law can occur. Considering the significant cost of purchasing Class III/NFA firearms and devices, it is worth it to have an experienced attorney prepare your NFA gun trust.
Contact us to learn more about how we can prepare your NFA firearms trust (for as low as $299) or form a corporation/LLC for a NFA gun purchase.