Tag: start up

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If you are like me and many others I know, you have spent way too many hours in front of the computer or a blank piece of paper, working on your elevator pitch. If you had two minutes or less, what would you say about “what you do?”

As I have learned the hard way over the years, if you can’t spell something out on paper, you aren’t there yet. You have the germ of an idea, but no architecture. Hence the need to write first, then speak. Only when you have honed your thoughts through multiple revisions, and then rehearsed it in front of a sympathetic audience, can your words come to life. Very few of us can express what we do in a short phrase – “I fix bicycles” – without attempting a couple of iterations on the theme. Yet we need to distill it, or we lose our audience.

So what happens when I say:

Your elevator pitch. You have two minutes. Or maybe thirty seconds. Go.

Can you make it interesting, fresh and versatile enough to keep people’s interest and deliver those same few lines to contacts the world over and in your own backyard? How do you dress it up for the formality at networking events and down for the banter at kids’ soccer games? How does it look in print?

I recently joined a women’s entrepreneurship group, and six of us presented our elevator pitches today. We all have useful, personalized services to offer. We did not all, however, make a concise or compelling argument about why anyone should buy our services. In fact, a few of us were great in the first fifteen seconds or so, and we should have quit while we were ahead. Others delivered an “information overload” that would send any real prospect right out the door.

The essential elements in an elevator pitch are not what features you offer a client, but what clients you serve and the benefits they get from hiring you. People don’t hire you for your experience, or your fancy “tools” that get the job done, but for what you offer them. Focus on your target audience (i.e., niche) and the benefits of hiring you:

Who do you serve?

What value do you bring?

I would love to hear your answers.

Post originally published on LinkedIn Pulse as Your Elevator Pitch.

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Starting a high-charging company or sorting out the employment landscape as a newly-landed executive? Here are 10 essential employment-related agreements you’ll want to be familiar with.

[Note: This post was written while I was a practicing attorney running a solo law practice. When published, it was one of my most popular posts. Since April 2015, I have been working with attorney, executive and entrepreneur clients as a career coach and writer, and I am not currently available for legal engagements.]

1) Offer Letter. This is the initial offer of employment to a future employee. The letter should state the individual’s title, compensation, chief benefits (such as vacation time and 401(k)), intended start date and other basic facts. If the offer of employment is subject to certain conditions – generally they are – these should be outlined in the letter. These may include work authorization, background checks and drug screening, as well as (in some cases) agreement to be bound by certain contracts or employee handbooks. Generally an executive or other employee who receives an offer subject to a noncompete would be well-advised to ask for a copy of the agreement and read it, preferably with an attorney, prior to accepting the position. Note, however, that in certain jurisdictions a noncompete that is not presented prior to employment is not binding.

2) Employment Agreement. Although some companies use these indiscriminately, the most savvy among them save employment agreements for top employees who have the leverage to require them. Some employment agreements are rather basic documents that simply spell out the terms of the job. Others are complex, lengthy documents that include terms such as severance payments upon a termination with or without cause or change of control. All employment agreements should spell out the basic terms, such as duties, base and bonus compensation and length of guaranteed employment (if any) with relevant conditions attached. Employment agreements may also contain noncompete, non-solicit, confidentiality and other provisions, explained below.

3) Consulting Agreement. Consulting agreements are, as the name suggests, used to employ consultants on a long-term or temporary basis. At times, an individual may be an employee at one company and a consultant at an affiliated entity, and the consulting agreement serves to document the additional relationship and any related compensation. A consulting agreement should clearly spell out the services to be rendered, how they shall be delivered, what fees shall be paid and on what basis (e.g., hourly or monthly, upon receipt of an invoice or other time period) and the manner that the consulting arrangement can be terminated by either party. The agreement should also contain language that the consultant cannot bind the company, that he or she is an independent contractor responsible for deductions and taxes and similar provisions.

Businesses should consider carefully whether an individual taken on as a “consultant” or other “independent contractor” would not likely be recharacterized as an “employee”, as the financial penalties of failing to pay employment taxes and other consequences can be substantial. This is especially true if the business intends to operate solely through independent contractors and essentially treats them as employees (controlling scheduling, requiring services to be delivered on-site and other employment aspects).

4) Noncompete. Non-competition agreements or provisions are restrictive covenants that prohibit an employee from engaging in a competing activity. Their effectiveness depends on many factors, including the law of the controlling jurisdiction. In jurisdictions that tend to uphold noncompetes, whether as written or as modified (reduced in scope) by the court, two main factors are the length of the restriction and the geographic scope. Of all employment-related agreements, noncompetes can be the most complex and restrictive. Therefore, they are the most important to read and understand before signing.

Note: I do not give the above guidance lightly, as I have occasionally seen highly-educated, highly-paid individuals simply sign noncompetes and other restrictive covenants without even reading them. Not a smart thing to do, especially in this economy!

5) Non-solicitation. Non-solicit provisions – these are usually part of a larger agreement – restrict an executive or other employee from recruiting or hiring individuals from a current employer on behalf of a third party. They can also restrict other forms of “solicitation”, such as soliciting customers, investors or business opportunities. Since non-solicitation provisions do not “restrain employment” they can be easier to enforce in the courts than non-competition clauses.

6) Confidentiality. A confidentiality agreement is designed to keep non-public information from entering into the public domain. Generally there is no term or end date on the time period that the information needs to be kept confidential, as long as it has not become public (generally or known within the relevant industry) through no fault of the person receiving the confidential information. This is especially true in the case of trade secrets, which by their nature must remain confidential to retain their value.

7) Work for Hire and Assignment of Inventions. Intellectual property, such as copyrights, generally belong to the employer absent a special agreement to the contrary. This is not true in certain contexts where the creation is entirely unrelated to an individual’s work assignment (e.g., if an engineer in charge of quality control wrote a Broadway play in his or her spare time.) For independent contractors (ICs), work for hire and assignment provisions should be in place to delineate who owns any non-tangible property that the IC has created for a company. In some cases, the parties should draft carve outs for intellectual property (from copyrights to trading algorithms) that were created by an employee or consultant prior to employment if such individual wishes (with the company’s agreement) to retain as his or her property and license it for use, rather than transfer it, to the company with which he or she is employed or engaged. Provisions that assign ownership of any or certain intellectual property or inventions (i.e., assignment of inventions provisions) often accompany work for hire provisions, as a backstop to assure the rights of a company that expects work for hire provisions to uphold its ownership.

8) Indemnification. In the employment context, an indemnification agreement is offered to a key individual who may be exposed to liability under his or her fiduciary duties or for other reasons. A company should offer a broad indemnity as well as insurance to the individual to induce him or her to take on a role of responsibility. There are relatively standard provisions that should accompany all indemnities, although the language used to express them may vary, and these should be carefully drafted and/or reviewed.

9) Severance. In the case of top executives, severance terms may be agreed in advance at the time of employment or upon a promotion. For other employees, they may be extended upon termination. Severance agreements include, among other provisions, the amount of severance offered in lieu of the contracted notice period, any extension of benefits, a noncompete (if applicable) and a release.

10) Release. A company may ask for a release of all potential claims by an employee against the company in exchange for consideration offered. The consideration must be in addition to whatever money or property the employee was already entitled, and the amount will vary based on factors such as the employee’s regular compensation when employed. An employee should read a release agreement with care to ensure that he or she is not releasing claims that have already vested in the employee or would vest upon termination, such as vested stock that was part of a benefits package.

There is an additional document – not an “agreement” per se – that is often critical in the employment relationship. This is the employee handbook.

From an employer’s standpoint, once a small handful of employees is hired it is helpful to start putting company policies in place. At some point, based on size and other factors, an employee handbook is a veritable necessity. It should be acknowledged in writing by all employees upon employment and again upon each significant revision (or at least annually). From an employee’s standpoint, it is important to know that although a handbook is not an individual contract between each employer and employee, employees are bound by its terms.

This short summary obviously does not cover all of the nuances of the above agreements.

Nothing posted on this site constitutes legal advice or forms an attorney-client relationship. You should consult your attorney to discuss the facts of your situation. This is a public forum. Please do not post confidential information.

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[Note: This post was written while I was a practicing attorney running a solo law practice. Since April 2015, I have been working with attorney, executive and entrepreneur clients as a career coach and writer, and I am not currently available for legal engagements.]

A client of mine recently received her filing receipt evidencing incorporation in the State of New York. Her astute next question was “now what?” She had been carrying on business in her own name and wanted to know how to begin conducting her activities as a corporation.

She was asking, in other words, “how do I transition from me to the Company?”

This is a great question. I am sure that, by knowing to ask it, this client is off to a great start. One of the most important features of a corporation is that is generally offers limited liability, so corporate protocol must be followed to make sure the corporate structure is respected. This is often called “i’s” dotted and “t’s” crossed. In practice it means, among other things, that:

– company and individual activities are kept separate (especially in cases where money is involved),

– the company’s board of directors (“Board”) and officers do what is expected of them (and each individual role is respected), and

– the company follows the direction of the Board and Chief Executive Officer or, as this title may be designated at a nonprofit entity, Executive Director.

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Here are some of the important, initial steps you will need to take. There may be others in your home state and for your particular entity and activities, but these are generally universal:

1) If you were the sole incorporator and have not yet elected a Board or have until now filled all roles, you will need to elect your Board. It is generally preferable to have at least five Board members, although you can start with a smaller Board and expand if you only have a small core group of dedicated directors at the beginning. Choosing your Board is one of the most important decisions of a young organization. You should give careful consideration to who will best advance the organizations’s goals and take their roles and duties seriously.

Electing the Board – or expanding the Board – is done at an organizational Board meeting and recorded in the minutes of the meeting. Alternatively, Board members can be elected by unanimous written consent of the Board.

2) The Board, in its organizational meeting or via written consent, will also elect officers of the corporation. Core officer roles are generally President, Secretary and Treasurer. A Vice President is also commonly elected to serve as an alternate to the President. In some states, these roles can all be filled by one individual, although generally that is not recommended to avoid potential conflicts of interest and provide for good corporate governance.

3) If you have already undertaken activities in your individual name or as an incorporator – such as incorporate or make some initial payments to third parties – it may be that the Board needs to review and ratify your prior actions. For example, the Board would ratify and approve the incorporator(s)’ act of forming the corporation.

If your prior activity has been substantial, it is possible that that only certain activities should be ratified, and this may depend on the nature of the activity and ongoing relationships. At the same time, if there are contracts in your individual name that should now belong to the company, these may need to be assigned to the corporation or terminated. It can get complicated if there has been substantial activity or in certain circumstances, so if you have any doubt, speak with a business attorney about how to sort this out.

4) The Board should also authorize other important actions to be undertaken by officers of the corporation, such as applying for an Employer Identification Number (EIN) and opening a bank account. (Note that the IRS now allows a company to apply for its EIN online. Click here.)

5) The newly-formed corporation should also draft and adopt bylaws, which the Secretary of the corporation will insert into the minute book along with the Certificate of Incorporation, all board resolutions and other important corporate documents. I suggest to my clients that they keep an electronic copy of all documents as well as paper copies, even if the laws of their home state allow for only electronic versions. In the digital database, care should be taken to name files in an identifiable manner and to keep the documents secure. The contents of the bylaws should reflect what the corporation will actually do – not simply be copied from a form – and it is a best practice to have a copy at Board meetings to which the directors can refer if needed.

6) State and local tax law matters and registrations need to be addressed.

7) The corporation should put basic policies in place, such as a conflict of interest, whistleblower and document-destruction policies. Over time as the company grows, these policies may be worked into an employee handbook.

8) The corporation should hire an accountant or bookkeeper – or designate someone with expertise from within its ranks – to keep track of revenues and expenses as well as tax and other deadlines.

The above steps provide an overview of certain important first steps for a new corporation. Depending on the nature of the organization, there may be other important steps to consider, but as a minimum these steps should be followed. As discussed above, these are not simply “formalities” but rather will allow for effective governance of a corporation and go a long way toward preserving limited liability for its directors and officers.

None of the information posted on this site constitutes legal advice or forms an attorney-client relationship, and there may be facts not discussed here that are relevant to your situation.

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If you plan to start or have recently started your own business and are considering a single-member LLC (i.e., a limited liability company of which you are the sole owner), it is tempting to cut corners on the formalities, cost and time investment that may be associated with administering a “real business”. After all, no one can dispute profits, control or any aspect of the company with you, so why do you need the hassle? Successful or not – including the scary and exhilarating bits – it’s all yours.

The main problem if you fail to treat your LLC as a real business is that, when you actually need the limited liability protection that the LLC is meant to afford, the courts may not treat it as one either.

[Note: This post was written while I was a practicing attorney running a solo law practice. Since April 2015, I have been working with attorney, executive and entrepreneur clients as a career coach and writer, and I am not currently available for legal engagements.]

The Concept of Limited Liability

If you are going into business for yourself, there is no requirement to form an LLC or any other legal entity. There are quite a number of small businesses that operate as sole proprietorships, especially in the early days of the business when there is little or no revenue generation. The reasons to form an LLC or other entity vary, from simply appearing “more professional” to raising capital or engaging in tax planning, but obtaining limited liability status is certainly a key motivator.

In contrast to the single-member LLC, a sole proprietor simply operates a business in his or her own name. Let’s say Katie Lynn designs handbags, for example, and sells them from her home. Her business transactions are all done through her own name. Katie has personal liability for her own conduct as well as any debts of her business. If she purchases fabric, rents display space or incurs other liabilities that she later cannot afford to pay, Katie’s creditors can come after her home or other personal assets.

If Katie forms a limited liability company – let’s call it KL Designs LLC – she can now take a step back from the business if – and this is the important point to note – she takes appropriate care in the operation of her LLC. Simply forming an LLC one day and making no other changes to her business operations will not afford Katie the protection she expects. She needs to run KL Designs LLC not as an extension of Katie Lynn but as a separate entity or “legal person”.

Veil Piercing

The risk that Katie now runs, as the sole owner of an LLC, is that she has spent time and money to create KD Designs LLC but will be liable for its debts nonetheless. To be clear, there are instances where an LLC owner can be personally liable despite any entity status, including:

– personally and directly injuring someone,

– personally guaranteeing a business loan or other liability, or

– intentionally or recklessly committing fraud or illegal acts.

An LLC owner can also be personally liable if he or she does not treat the entity as a separate legal entity. In that instance, a court can hold that Katie or another business owner is essentially operating as a sole proprietorship and disregard the LLC status. Below are some ways sole member LLCs can protect themselves against “veil piercing”, which is the legal term used to analogize that the entity is simply a facade or “veil” covering the owner rather than shield against liability.

Operating Agreement

The central document for an LLC is the operating agreement. An operating agreement sets forth the obligations of the member(s) with respect to ownership percentages, capital contributions, profits and losses and other rights and responsibilities. It also overrides any default rules on the governance of LLCs in the relevant jurisdiction, which may or may not be what the owner(s) intended. As a sole owner of an LLC, having an operating agreement and following what it requires to authorize or take action by the entity are the first steps to demonstrating that the business is separate from one’s individual affairs.

Funding the LLC and Insurance

Undercapitalization – i.e., lack of sufficient funds to operate the business – is another reason a court may pierce the veil of an LLC and hold the owner(s) personally liable for the company’s debts. LLC owners need to invest sufficient cash in the business to fund its expenses and should hold sufficient liability insurance to cover lawsuits and claims (which will also be available to cover instances where the limited liability status is not respected).

Separation of Business and Personal Assets

An LLC owner should obtain a federal employer identification number (EIN) and keep bank accounts and financial accounting separate for the LLC and his or her personal assets. The absence of corporate records and commingling (mixing) of business and personal assets are two factors that courts consider in determining whether the piercing-the-corporate-veil test is met.

Transacting Through the LLC

All agreements and business transactions should be conducted through the name of the LLC. If we consider our example above, all contracts, invoices and other documents that Katie enters into on behalf of her handbag business should be in the full name of KL Designs LLC (including the “LLC” designation) and signed by Katie in her capacity as president (or another title) of the company.

The above considerations are crucial for any owner of an LLC, including a single-member LLC, who wants to preserve the limited liability status that an LLC is intended to afford.

None of the information posted on this site constitutes legal advice or forms an attorney-client relationship. This is a public forum. Please do not post confidential or fact-specific information regarding your legal questions on this site.