Getting the “Three Stooges” Out of Your Limited Liability Company by Cliff Ennico

Cliff EnnicoGUEST POST By Cliff Ennico

“I just started a limited liability company (LLC) with three partners. Our attorney drafted an Operating Agreement for us, but I’m a little confused by the buyout provisions he drafted.

The agreement says that if one of us dies, becomes disabled, or otherwise withdraws from the company, we have to buy his shares in the company so the remaining partners can retain control.  So far, no problem.

The problem is that the agreement doesn’t spell out the buyout price.  It says each of us (the company and the withdrawing partner) must pick an appraiser; the two appraisers then meet and determine the buyout price.  If they don’t agree, the two appraisers must appoint a third appraiser, who will arbitrate the dispute and ultimately decide on the buyout price.

I’m not a lawyer, but it seems to me that this procedure is going to be very expensive and time-consuming.  If one of us wants to leave the company, we certainly want to be fair, but we don’t want this dragging on for months.

Our attorney is telling us there’s really no other way to handle the situation as we’re just starting in business and there’s no foolproof way to value a startup company.  Is that true?”

What you have described is what is commonly called a “pyramid” appraisal clause.  I call it a “Three Stooges” appraisal clause.

Lawyers and accountants love this clause because, at least on paper, it seems very fair.  Your attorney is right that there’s no foolproof way to value a startup company that doesn’t have revenues or profits yet, so why don’t let a team of experts figure it all out when there are some real numbers to look at?

The problem is that what looks good on paper doesn’t always work well in practice.  In my experience when a “Three Stooges” appraisal clause is invoked by a withdrawing partner, what happens looks an awful lot like . . . a Three Stooges comedy.

First, the parties take forever to appoint the first two appraisers.  Then, the appraisers take forever to review the company’s books and decide on a meeting date.  Then, you get into tax season (the appraisers are often accountants or CPAs) so nothing happens for a few months while the appraisers clear their calendars.  Then, the appraisers can’t agree on the buyout price and decide they really don’t like each other.  Then, the appraisers stop talking to each other so a third appraiser cannot be appointed to resolve their dispute.  And so on and so forth.

Meanwhile, your company is paying all these folks, probably by the hour, which I’ve always suspected is the primary reason lawyers and accountants love the “Three Stooges” appraisal clause – it’s a guarantee of future business (nyuk, nyuk, nyuk).

While your attorney is right that no single formula can properly value an early-stage company, there is a way to get the buyout price determined quickly, efficiently and fairly when a partner decides to leave the company (or is forced to withdraw).

Here’s how it works.

First, the Operating Agreement should clearly state that if a partner withdraws from the company, the buyout price will be:

  • if the company is profitable, the withdrawing partner’s percentage share of the company’s average annual pretax earnings (EBIT) over the preceding five years (or the time the company has been in business, if less);
  • if the company is not profitable, the withdrawing partner’s percentage share of the company’s average annual sales of the company over the preceding five (years) or the time the company has been in business, if less);
  • if the company has neither profits nor sales (i.e. your company is still a startup), the withdrawing partner’s “capital account” (using the IRS definition of that term) as of the date the partner withdraws from the company; or
  • if the withdrawing partner has no capital account (or a negative capital account, which sometimes happens), a nominal value such as One Hundred Dollars.

Second, the Operating Agreement should state that the company’s average annual pretax earnings and annual sales, and the withdrawing partner’s capital account, will be determined by the company’s independent accountant, “which determination shall be conclusive and binding on the parties in the absence of manifest arithmetic error.”

Third, in the case where a partner dies, the buyout price should be the “greater” of the amount determined above or the proceeds of any policy of life insurance the company has maintained on the deceased partner.

Lastly, the Operating Agreement should state that if a partner’s withdrawal is due to his bad behavior (for example, he committed a crime, embezzled money from the company, or failed to perform his duties), the buyout price is One Dollar.

While not 100% perfect, this method ensures a fair, reasonable and quick calculation of a withdrawing partner’s buyout price, enabling the remaining partners to do what they do best – run the business – without having to look out for flying cream pies.

Cliff Ennico, a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

California Tax Settlement Changes the Game by Cliff Ennico

Cliff EnnicoMuch thanks to Cliff for sending this article; which we talked about on Monday’s show, Ask A Lawyer

By Cliff Ennico

Thanks to a new law in California, the days of selling online without having to pay sales tax are numbered. Since 2008, a number of states have attempted to impose their sales taxes on Internet commerce, most of which involves sales across state (and often national) boundaries.   States try to tax e-commerce in a number of ways, but the approach that’s gotten the most publicity is the so-called “Amazon tax” adopted by New York, Rhode Island, Illinois, North Carolina and a couple of other states.  In these states, Amazon.com, Overstock.com and other e-commerce platforms that allow small businesses to sell on their sites as “affiliates” are required to collect and remit state and local sales taxes if an affiliate sells more than a certain dollar amount to residents of that state each year (the annual threshold is normally $10,000 to $20,000, although it’s only $5,000 in Rhode Island). The theory is that affiliates of e-commerce platforms are “agents” of the platform, and therefore are subject to state “nexus” laws taxing out-of-state companies that operate through in-state employees or other “agents”.  Pretty creative, no? The reaction to these laws has been straightforward – Amazon, Overstock and other affected retailers (eBay sellers are not considered “affiliates” of eBay so the tax isn’t a concern for them) have simply terminated their affiliates in Amazon-tax states rather than comply. Earlier this year, California attempted to join the fray (imposing a $500,000 threshold on sales by California-based Amazon affiliates), but Amazon fought back, spending more than $5 million to launch a public referendum to stop California’s “Amazon tax” law and ban collection of sales tax on online sales in California.  Rather than face a law banning taxes on Internet sales, California negotiated a settlement with Amazon which was signed into law last week. Under the terms of the settlement:

  • Amazon will drop its referendum challenge;
  • California will defer enforcing its “Amazon tax” until September 15, 2012, and even then will enforce it only for Amazon affiliates who sell more than $1 million to California residents;
  • Amazon has pledged to create at least 10,000 full-time jobs and hire 25,000 seasonal employees in California by the end of 2015;
  • Amazon will reinstate its California affiliates, estimated to number between 10,000 and 20,000; and
  • California will forego any sales tax owed by Amazon affiliates for the period since the original “Amazon tax” law was passed.

So far, pretty uncontroversial.

But here’s the kicker:  as part of the settlement, Amazon and other online merchants are supposed to lobby Congress to find a national solution to the out-of-state Internet sales tax collection issue.  If Congress fails to act on nationwide legislation by September 15, 2012, California’s “Amazon tax” will kick back in, and Amazon presumably will not be able to fight it at that time, having agreed to the settlement.

State and local governments are prohibited from imposing sales and other state and local taxes on interstate commerce under the “commerce clause” of the U.S. Constitution, as interpreted by a 1992 United States Supreme Court ruling (pre-dating the Internet, you will note).  An act of Congress can overrule that Supreme Court ruling, and in each of the past few Congresses somebody has introduced a bill to do just that.  The bills have generally gone nowhere, due to intensive lobbying by Amazon and other e-commerce platforms.

But now that Amazon has agreed to join brick-and-mortar retailers and lobby for Internet sales tax legislation, there’s a much better chance such a bill will pass and sales taxes not only on Internet commerce, but on all interstate sales transactions, will become the law of the land.

Such a bill was introduced in July of this year – the “Main Street Fairness Act.”  This bill would overrule the 1992 Supreme Court ruling and enable the 21 states that have voluntarily adopted the Streamlined Sales and Use Tax Agreement (www.streamlinedsalestax.org) – a grassroots effort to simply and standardize sales tax regulations in an effort to encourage taxation on interstate sales — to implement and enforce the Agreement on sales between member states.

Online sellers need to keep their eye on developments, but I wouldn’t panic right now.

First, the September 15, 2012 deadline is sure to be extended, as it comes right before the 2012 Presidential election and Congress will be distracted by politics.

Second, even if Congress passes the Main Street Fairness Act before then, only the states that have adopted the Streamlined Sales and Use Tax Agreement will be immediately affected.  Other states will have to pass legislation either adopting the Agreement or otherwise meeting the Main Street Fairness Act’s mandates.  That will take time.

Having said that, if you are selling online and haven’t been collecting sales tax on your “in-state” sales, or your sales to other states in which your business has a physical presence or “nexus” (such as an office or warehouse), you need to start doing so now.  Ignorance of the law is no excuse.

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

Sizing Up Amazon’s ‘Fulfillment By Amazon’ Program by Cliff Ennico

Cliff EnnicoAnyone who’s ever sold anything online – either directly from a website or on one of the major e-commerce platforms such as eBay and Amazon – knows that often the most unpleasant part of the process is packing, shipping and fulfilling orders.  It is labor-intensive, and the time involved can eat into your profits (by limiting the number of orders you can process at any one time).

So it should come as no surprise that one of the hottest things in online retail right now is the “Fulfillment By Amazon” service (“FBA” for short) offered by Amazon.com (http://www.amazon.com/fba).

Amazon has been building warehouses and distribution centers throughout the United States to ensure that customers receive orders quickly and inexpensively (often for free).  With FBA, online sellers can take advantage of those facilities and “outsource” the packing, shipping and fulfillment part of their business, even if they are not selling on Amazon.  For a fee, of course. According to Chris Green, a leading FBA expert and author of “Retail Arbitrage: The Blueprint for Buying Retail Products to Sell Online for Big Profits” ($25.00 paperback, $9.99 Kindle), FBA is the future of online retail, at least for small business sellers.   “Setting up an Amazon business that uses FBA is much like buying a franchise,” says Green.  “With a franchise, you buy a package, get some knowledge and equipment to get started, and then it’s up to you to run the business.”  Unlike a franchise, though, buying and selling online using FBA does not require an initial investment.  “There are no major upfront costs to get started,” says Green, adding that FBA fees can be as little as $2.00 for orders placed through Amazon.com.  “All you really need is a little knowledge, some motivation, and some inexpensive tools and services.” Green’s company, FBAPower (www.fbapower.com), offers a variety of software solutions, mobile phone applications, webinars and information products designed to enable sellers to take maximum advantage of FBA. FBA is a five step process. First, the seller opens an Amazon seller’s account and selects the “FBA” option. Second, the seller sends its new or used products to Amazon. Third, Amazon catalogs and stores the products in one of its network of fulfillment centers. Fourth, Amazon fulfills orders placed directly on Amazon.com or fulfillment requests the seller submits for sales not on Amazon.  When listed on Amazon.com, each seller’s listings are sorted by total price (price plus shipping) so sellers who use FBA are often first even if they have a higher list price.   Fifth, when an order is placed, FBA picks the seller’s products from inventory, packages and ships the products to the customer. “FBA is a win-win for everyone,” says Green.  “The customer gets prompt and professional delivery at little or no cost, and the seller can focus on sourcing inventory, expanding their product lines, increasing margins, and putting merchandise up for sale without the hassle of fulfilling and keeping track of individual orders.” So what’s the catch? “You have to know and understand the rules of selling on Amazon, and especially FBA,” says Green.  “Amazon is much different from eBay where you can mess up and eBay pretty much isn’t going to do anything about it.  If you’re caught breaking Amazon’s rules or provide a poor customer experience, Amazon will ban your account, and there will be no second chances.” Your merchandise must also conform to Amazon’s product listings and categories.  Precisely.  So, for example, if you are selling a power drill with only one of the two batteries required, you will not be able to sell it on FBA even if you make proper disclosure. Probably the biggest catch – one which Amazon is taking steps to correct but may create problems for FBA sellers selling a wide variety of merchandise – is that FBA sellers may not be totally in compliance with state sales tax laws. Online sellers are required to pay sales tax in their home states and in any other state in which they have a physical presence or “nexus”.  By using FBA, online sellers have “nexus” in each state in which their merchandise is being warehoused (i.e. where Amazon’s fulfillment center carrying their merchandise is located).   While Amazon does send you periodic reports showing you where your inventory is located, Amazon can, without warning or notification, ship your inventory to a different fulfillment center.  Also, while Amazon does collect sales tax and remit it to you, it is up to you to register with each state tax authority and pay the taxes to them when due (usually quarterly).

Chris GreenThis situation may create compliance headaches for FBA sellers, especially in light of states’ increasingly aggressive efforts to collect sales taxes on Internet commerce.

Still, Green says, the benefits of FBA, especially for small sellers, far outweigh the risks.  “You are outsourcing your entire shipping department, Amazon is basically absorbing the shipping costs for you, and Amazon buyers prefer FBA sellers because they know they will get their item fast and that customer service will be top-notch.  What’s not to like?”

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

ECC Radio February 6, 2012 Ask A Lawyer with Cliff Ennico

Cliff EnnicoeBay Seller's Tax and Legal Answer BookTomorrow’s Show has been declared ‘Ask A Lawyer’ day on eCom Connections!  Recurring guest Cliff Ennico AKA the Small Business Lawyer will be here for the full hour and he is taking YOUR questions. You can respond to this email with your questions, post them on our Facebook Page or in the Facebook Group or just come to the show and bring your questions. Cliff is here to answer!

WHEN CAN LANDLORDS “UNREASONABLY WITHHOLD” CONSENT – by Cliff Ennico

Cliff EnnicoWHEN CAN LANDLORDS “UNREASONABLY WITHHOLD” CONSENT

TO LEASE TRANSFERS?

By Cliff Ennico

“I am a small landlord who owns several commercial buildings.

One of my tenants – who runs a small retail store – is looking to sell his business and retire.  There are several years left to go on his lease, and because he’s such a good tenant the rent is somewhat below market for this area.

The buyer is a young man just out of military service.  His credit history is good and he comes from a decent family.  The problem is that he has never worked in retail or run a business of his own before.  He also doesn’t own a home.  I like this young man personally, but I’m afraid he’s going to get ‘in over his head’ and fall behind on his rent.

The lease contains a clause requiring me to consent to any assignment or sublease of the rented space, as long as my consent is not ‘unreasonably withheld.’

I spoke to my attorney who told me I should ask this young man for several months’ rent as an additional security deposit because it will take at least six months to evict him should he be unable to pay his rent.  When I offered this to the young man he became angry and told me he couldn’t afford it.  He said he felt I was discriminating against him because of his youth and his ethnic background, and that it was crazy to put that much money in an escrow account not earning interest for several years.

I want to be helpful in this situation but I can’t afford to have tenants who don’t pay their rent on time.  I also cannot afford to be sued by the current tenant because I was unreasonable in withholding my approval of the lease transfer.

Is there any way to get out of this jam?”

Once upon a time, landlords could evict their tenants the minute a rent payment became overdue. Not anymore.

Most commercial leases contain a clause requiring the landlord to approve any transfer of the lease to a new tenant, as long as the approval is “not unreasonably withheld.”  Most landlords will want to meet the new tenant and review his credit history before they will grant their approval to the transfer and release the old tenant from his liability under the lease.

If a new tenant is not financially able to make his lease payments on time, or has background issues that would cause a reasonable person to question his integrity (for example, jail time or a bankruptcy), most landlords would “reasonably” refuse their consent to the transfer and the law would back them up.

The law isn’t as clear when a landlord wants to withhold consent for personal or nonfinancial reasons.

If the landlord’s decision to reject a transfer is based on prejudice or discrimination, he is being unreasonable.  If a landlord withholds approval because he “just doesn’t like” the person, and the person is a member of a protected class under federal or state antidiscrimination laws, the landlord is almost certain to be sued by his existing tenant for breach of contract.

If you do decide to disapprove the lease transfer, your attorney should prepare a letter to the current tenant detailing precisely what motivated your decision.  This should be based as much as possible on the economic and financial circumstances of the buyer.

If that is not feasible, there are several ways you can approve the transfer while getting additional protection in case the new tenant has trouble paying rent (I would agree with this buyer that asking for more than three months’ rent as a security deposit is probably unreasonable).  For example:

O  you can refuse to release the current tenant from his lease obligations for a period of one year after the transfer – this will make him a personal guarantor of the new tenant’s obligations under the lease and will encourage him to assist the new tenant in making sure rent gets paid on time;

O  you can ask the new tenant if there are any family members (preferably with deeper pockets or greater business experience) who can co-sign the lease along with him; or

O  you can provide for rent increases each time the tenant makes a late payment (called a “time is of the essence” clause).

If all else fails, you may be able to put a clause in the lease enabling you to terminate the lease during the next two years, even if the new tenant is paying rent on time, if for any reason you “deem yourself insecure.”  Banks put this provision in their loan agreements all the time.  Note, however, that because the new tenant is losing his lease without having done anything wrong the law may require you to reimburse the new tenant for the money he paid for the business, his relocation expenses, plus the cost of any tenant improvements he makes after taking occupancy.

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

Learning the “Inside Baseball” of Online Retail by Cliff Ennico

Cliff EnnicoI had the honor last week of speaking on e-commerce legal and tax issues for the Kansas Jubilee eBay and eCommerce Conference at Fort Hays State University in beautiful Hays, Kansas (www.kansasjubilee.net).  This annual event brings together eBay, Amazon, Bonanzle and other online sellers throughout the midwest to compare notes and learn the latest online selling strategies.

Some of the attendees shared with me the important lessons about online selling they learned at the Hays conference.  Here they are, in their own words.

“When you are selling on eBay or Amazon, you have to remember that you are just the same as Dillard’s.  You have to act professionally, and give your customers the same quality experience they would get in a brick-and-mortar store.  If you are not prepared or disciplined enough to do that, do not sell online.”  Joseph “Uncle Joe” Adamson, eBay Certified Business Consultant and Education Specialist, Oklahoma City, Oklahoma (www.unclejoeradio.com).

“The biggest challenge online sellers face is tracking their income and expenses and staying in compliance with taxes.  Small business owners have to spend way too much time on financials, often to the detriment of doing what they love – running their businesses!  Outright.com, an online accounting tool, can help these businesses thrive by making these tasks simple and easy.”  Jennifer Dunn Escalona, Community Manager, Outright.com, Atlanta, Georgia.

“I learned that ‘microsites’ – websites that reach small, highly targeted communities of collectors – are often the best places to sell antiques and collectibles.”  Del Paeske, Keizer, Oregon (www.itsallwrite.biz).

“Seven years ago I sold books on eBay for five years.  I got burned out and abandoned my Seller ID and a 1,200 feedback score.  I now sell books on Amazon.com and after this weekend I want to sell on eBay again.”  Lucian Siedler, BRTCO-Amazon, Asheville, North Carolina.

“I learned that all of us have started at the same position on eBay, we’ve all been new at this once, and by networking and making mistakes and never giving up we can succeed.  Oh, and that you should always offer your customers ‘free shipping’ wherever possible.”  Jan Maughmer, Kansas City, Missouri.

“That a successful online business looks a lot like an octopus – you have the ‘head’ which is your own business website, the ‘tentacles’ which are your outposts on eBay, Amazon and elsewhere, and the ‘suckers” which are your Internet marketing tools driving customers to your website and outposts.  A very compelling metaphor!”  Lacy Bruggeman, Misslacyg’s Market of Miscellany, Hays, Kansas.

“If you don’t track your numbers, you will never really know if your way of doing business is profitable.”  Leanne Skrok, The Designer Family, Edmond, Oklahoma.

“The importance of getting a federal trademark if you have a really cool name for your business, and making sure to protect it if you see someone using the same name to sell similar stuff.”  Kim Everitt, WalkInAuction, Denver, Colorado.

“The things you need to do to avoid an IRS audit, and especially the tips on how to claim your pet as a tax-deductible ‘guard dog’!”.  Michelle Petersen, Happy Dog Deals, Osborn, Missouri.

“Learning about how to limit your liability for ‘ripple effect’ damages, so for example if I sell someone a dress on eBay, they wear it to a corporate function and there’s a wardrobe malfunction that causes the buyer to lose her job, I won’t be liable for anything other than the price she paid for the dress to begin with.”  Linda Wolff, L&P Enterprises LLC, Northglenn, Colorado.

“I’ve been selling on eBay for some time now, and it was very interesting to learn the details of selling on Amazon.com and other online platforms.”  Paula Hughes, Occasions2go, Kansas City, Missouri.

“How to search items on eBay to find out what they normally sell for, and also how to pick the right keywords for your listing titles and item descriptions so you can get your listings noticed by search engines.”  Dottie Caldwell, Solomon Valley Books, Russell, Kansas.

“Discovering the vast variety of products that can be marketed and sold. It has made me realize I too can build a small business doing something I love.  And, it’s shown me there is a possibility my business could someday turn into a larger one.  For someone just starting out that knowledge is invaluable.”  Rachel Lundy, Midnight Software, Kansas City, Missouri.

“Learning how to find inventory in thrift shops – the stuff that sells well on eBay, and the stuff you should pass on.  It was amazing to learn, for example, that teeshirts from little-known rock and roll bands often sell better on eBay than teeshirts showing the Rolling Stones or Beatles!”  Danni Ackerman, Udderly Good Stuff, Las Vegas, Nevada.

“The importance of having a great good accountant when you’re first starting out.”  Kat Simpson, Kat’s Boutique, Mount Plymouth, Florida.

“How others sell!”.  Karin Banghart, Glam-R-Us, Windsor, Colorado.

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

WHAT TO DO WHEN AN INVENTOR WANTS – by Cliff Ennico

“A couple of friends and I formed a corporation a while back with a noted inventor who lives in our area.
The entire purpose of this company was to bring to market a piece of technology the inventor had created, and for which he holds a U.S. patent.
Because of the difficult economy we’ve had more trouble raising money for this business than we thought, to the point that the inventor has threatened to quit the company because he thinks he can do better elsewhere.
My friends and I have put substantial money into this company. Is there any way we can let the inventor off the hook and still try to bring the product to market? Or is it best to just let him go and write off our losses?”
The first thing you need to do is look at the shareholders’ agreement you and your friends signed with the inventor when you formed the corporation (you did sign one, didn’t you?)
First, look at the section that describes how the company was to be capitalized. This section spells out “who is putting what into the company.” There should be language in this section that specifically requires the inventor to license his patent to the company. If that language is missing, then your corporation technically has no legal rights to the inventor’s patent (these are usually registered in the name of the inventor as an individual) – shame on any attorney who let THAT happen.
If the inventor licensed his patent to the company, you will need to determine the scope of the license. There are four words you should look for:
• “perpetual”
• “unlimited”
• “exclusive”
• “royalty free”
“Perpetual” means that the license continues in perpetuity, regardless of what happens to the inventor. If the inventor dies or withdraws from the company (as he’s threatening to do), the license continues. If the license is not “perpetual,” your corporation’s rights to the technology will terminate when he leaves.
“Unlimited” means that there are no restrictions on what you can do with the inventor’s technology, or where you can operate. If the license is “limited,” you will need to determine what rights the inventor has reserved for himself (for example, your license may be limited to the United States which gives him the right to license the patent overseas).
“Exclusive” means that the inventor cannot license the technology to anyone else as long as the corporation is in existence.
Finally, “royalty free” means that the corporation doesn’t have to pay anything extra for the license (except, of course, for the inventor’s percentage of the corporation’s profits or any other compensation which he receives as an officer or shareholder of the company).
The more of these four words appear in the license language, the better.
If the scope of the license isn’t clear, look to see if the shareholders’ agreement has a “survival” clause. This language, which appears usually in the “miscellaneous” section at the end of the agreement, lists certain provisions that survive the death or departure of a shareholder, among other things. If the license clause is included in the “survival” language, it will be enforceable against the inventor even after he withdraws.
Next, look at the “buy-sell” provisions in the shareholders’ agreement, that determine how and when shareholders can sell their shares either to each other or to third parties. These commonly contain a “right of first refusal” requiring a shareholder to offer his shares to the corporation, or to the remaining shareholders, if he wishes to retire, withdraw or sell his shares to an outside party. If there are such provisions, you may be able to waive them in exchange for a stronger license agreement from the departing inventor.
Finally, see if there is a non-compete clause in the agreement prohibiting shareholders from competing with the corporation after they withdraw. While such language will not take the place of a “perpetual” license, it may give you some leverage to negotiate with the inventor (i.e. you can offer to make the non-compete less restrictive in exchange for being allowed to continue using the technology).
If the shareholders’ agreement isn’t helpful on any of these points, you will need to consider how you will be made whole for the money and time you put into this company.
In practice, most patents are pretty useless to a company without the inventor’s knowledge, expertise, know-how, and active participation in the company’s business. Since your inventor has “gone over to the dark side” and may well work with a competing company, it may be better to try to recoup your losses from him and shut the company down. If the inventor doesn’t have the money to make you whole, and if litigation is not an option, consider releasing the inventor from his obligations to you and your partners in exchange for a percentage of any income he receives if and when he licenses the patent to another company.
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

THE GREATEST MOTIVATOR, AND HOW TO HARNESS IT – by Cliff Ennico

We’re about 10 days into January by the time you read this, and I’m willing to bet most of you have already given up on one or more of your New Year’s resolutions.

The key to success with any resolution – personal, business or otherwise – is will power.  We all start out with the best of intentions, but when you set yourself a goal and fail to reach it, it’s always because you quit at some point.

Once you have set a goal for something, it all comes down to execution.  Or, to use some other popular words from the “self-help” literature:

  • dedication;
  • commitment;
  • persistence;
  • perseverance;
  • stick-to-it-ive-ness;
  • pigheadedness;
  • ruthlessness.

Whatever name you assign to it (and before you wrinkle your nose in disgust, name one self-made billionaire who was not utterly ruthless getting there), this trait or quality is what separates the winners from the losers in life 99% of the time.

One of my all-time favorite quotes comes from Calvin Coolidge, president of the United States during the Roaring 1920s:   “Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan ‘Press On’ has solved and always will solve the problems of the human race.”

Or, if the thought that a Republican might actually be right about something makes you gag, here’s one from Richard DeVos, the co-founder of Amway:  “If I had to select one quality, one personal characteristic that I regard as being most highly correlated with success, whatever the field, I would pick the trait of persistence. Determination. The will to endure to the end, to get knocked down seventy times and get up off the floor saying, ‘Here comes number seventy-one!’”
Whatever you call it, let’s be clear about something:  it’s not fun.  It is work, and work by definition is not fun.  Anyone who tells you you can reach a goal

without suffering – that you can actually lose weight while eating cupcakes — is lying to you, pure and simple.

I have written more than 15 books in my life, on topics ranging from selling on eBay to making partner at a law firm.  I am proud of each and every one of them.  But let me tell you something:  sitting before a blank computer screen and realizing you have to fill 300 pages before your publisher will pay you anything (or will demand a return of their advance which you have probably already spent) is not fun.

Anything that is worth doing in life requires hard work, pain, suffering and sacrifice.  Get over it, and get going.

In ages past, it was easier for people to accept this.  Up until only a few decades ago, most people accepted the proposition that life was a “vale of tears” that had to be endured stoically so you could finally die and go someplace where maybe you could eat cupcakes without losing weight.  Look at photos of people from the Victorian era.  Notice how nobody smiles?  People back then probably weren’t much fun at parties (most of them would have viewed enjoying oneself too much as a sin), but they were tough, they never complained, and they got an awful lot done.  The idea that hard work, obstacles and suffering as mankind’s daily lot is a tough sell for

us spoiled-rotten Americans of the second Millennium who are (let’s face it) a little too easy on ourselves.  Where are the Puritans now that we really need them?

Nowadays we all want everything, including our work, to be fun and entertaining – look at those Silicon Valley companies that create playrooms for their employees.  If you really want to motivate your employees to work harder, fire a couple of low performers, very publicly, and watch what the rest do.  It’s not pleasant or nice, but boy, does it work (if you have the right people).

If you lack the discipline to persevere in your work, your business, or your life, here’s a little self-motivation trick:  scare yourself silly.  Instead of visualizing success (what all the motivational speakers tell you to do), visualize yourself failing miserably and suffering the “worst case” consequences.  If you want to lose weight, picture your doctor telling you you’ve just developed Type 2 Diabetes and may need to have a limb cut off.  If you need more revenue from your business, picture yourself selling your house, losing your spouse and moving into a tenement if your business fails.

One of the dirtiest secrets of life – an “inconvenient truth” — is that fear is a great, perhaps the greatest, motivator. Once you are haunted by the prospect of failure, and have lost sleep by staring hard into the abyss, you will find inner resources of strength you never suspected you had, and will find creative solutions you

wouldn’t have thought of otherwise.  As a mountain-climbing friend of mine says, “when you’re hanging from a sheer cliff face 200 feet off the ground, you’re not thinking about anything but handholds and toeholds.”

Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s Tax and Legal Answer Book” and 15 other books.

 

HOW TO RESPOND TO BOGUS ONLINE CUSTOMER REVIEWS by Cliff Ennico

Cliff Ennico“I run a service business in a small town where everybody knows everyone else.  Recently someone posted a review of my business online, anonymously, saying I provided lousy service and that he would never deal with me again.  I was shocked as I wasn’t aware I had any unhappy customers.

I had my computer person look into this, and the e-mail address of the person who posted this review was registered to a person with the same last name as one of my local competitors.  I’m thinking it may be one of his relatives posting a false review just to give my business a black eye.

I’m afraid people will see this review and think I really do provide lousy service.  What’s the best way to handle this?”

Thanks to the Internet, we can find out with a click of a button if anyone has had a bad experience with a product, a service, a small business or a local professional.

A number of websites have sprouted up to provide a forum for online reviews.  Some, like Angie’s List (http://www.angieslist.com/), charge users a small fee in order to weed out bogus reviews.  Most of these sites, however, including Amazon.com and Yelp.com (http://www.yelp.com/) are free, which encourages anonymous postings.  While most of these postings are valid and genuine, there’s a temptation for people with an “axe to grind” to post false reviews knowing they cannot be tracked down.

The worst thing you can do is to overreact, according to Josh King, General Counsel of Avvo, Inc., a leading medical and legal website where consumers get their questions answered by a community of rated doctors and lawyers (http://www.avvo.com/).
King admits it’s hard for small business owners to be objective when dealing with a hurtful review, but he says you have to calm down and ask if there might be some merit to the review, regardless of its origin:  “You should never assume that a negative review is bogus. You have to ask, is this a possible blind spot?  My employees are very good at ‘managing up’ to me, but maybe they’re being surly to the customers and this is the first inkling I have of that.”

But what if you have a strong suspicion that a negative online review is bogus – for example, because it isn’t worded correctly, doesn’t sound familiar, or ties in a little too closely to the message that a competitor frequently uses?

King again warns of overreacting, citing the “Streisand Effect” (so called after an incident involving the singer Barbara Streisand), by which bringing a lawsuit over an online posting creates exponentially greater attention to the posting than it would have received had it simply been ignored.  “The truth about online postings is that there is a big difference between reviews left on sites heavily used by consumers – like Amazon, Avvo or Yelp – and postings in the vast underbelly of the internet” says King, explaining this is especially true of blog entries, “tweets” on Twitter.com, and other “ephemeral” postings.

According to King, there are three ways you should never respond to a negative online review:
• by threatening to sue – most reviews are merely people’s opinions, and therefore not actionable as “libel” or “slander”;
• by posting a bunch of overly positive reviews – this is called “Astroturfing”, and can get you into legal hot water for false advertising; and
• by posting a detailed version of “your side” of the facts – “this makes you appear defensive”, says King, and especially if you are a professional, can open you up to charges of disclosing a client’s or patient’s confidential information.

So what is the right way to respond to a negative online review you think is bogus?

First, says King, you should contact the website where the review appears and let them know your suspicions.  Most social media websites have “community guidelines” for people who post reviews, and will investigate a possible violation of those standards if brought to their attention.

Second, if the review is truly damaging, post a short response saying something like “I’m sorry you have had a bad experience with us; please contact me personally at the following e-mail address and I will do everything I can to make this right.”  This shows that you really care about your reputation and customer service.  If the review really is bogus, the poster won’t contact you.

Lastly, encourage your happy customers to post positive reviews.  Send them an e-mail with a direct link to a place where they can say something great about your business.

Negative reviews can actually enhance your reputation in the marketplace.  “Everyone knows nobody’s perfect, and that there are some crazy customers out there whom nobody can satisfy,” King says, adding that “you really don’t want 100% positive reviews because nobody will believe it.  They will assume you’re gaming the system.”

What about making your customers sign a document saying they won’t criticize you online before you will do business with them?  A New York City dentist tried that and is now facing a multimillion dollar lawsuit in federal court for violating her patients’ rights to free speech.

 

Cliff Ennico (http://www.succeedinginyourbusiness.com/), a leading expert on small business law and taxes, is the author of “Small Business Survival Guide,” “The eBay Seller’s

Tax and Legal Answer Book” and 15 other eBooks

Kansas Jubilee eBay to eCommerce

Kansas Jubilee eBay to eCommerce

What is the Kansas Jubilee and why should you attend?  The Kansas Jubilee is an up-and-coming eCommerce event that started in 2008 and is growing into a gathering of exceptional eCommerce talent covering multi-venues. From eBay to eCommerce is the 2011 theme and there will be experts there to teach about selling on Amazon, Bonanza, Addoway and your own website, as well as generous representation from eBay including the famous Uncle Griff himself!  Here are all the details and we would love to meet you there!

The Kansas Jubilee, eBay to eCommerce Conference is a seller to seller working conference held at Fort Hays State University (FHSU) Memorial Union in Hays, KS 67601.  It is supported by the FHSU COBL (College of Business and Leadership) and the Kansas Small Business Development Center.
The Kansas Jubilee,  eBay to eCommerce  Conference, Sept 30/Oct 1 is at Fort Hays State University Memorial Union Conference Center (FHSU).  This will be a two day event of seminars, workshops and round tables focused on Education, Networking and Community. We have a page set up with primary information on Facebook  Kansas Jubilee.     The registration website is Kansas Jubilee Registration  and registration went live on July 25.  Our target is micro sellers who are looking to start or expand a business and business builders.  To that end there will be two tracks of learning:  1. Beginner/Inexperienced sellers. 2. Business builders and entrepreneurs. We are offering Social Networking, Selling on multiple platforms and basic of selling  information.
We held a Jubilee in 2008 and it was a lot of fun and had good response. The Jubilee is supported by eBay.  Jim “Griff” Griffith was here and several eBay staff members to present workshops. Griff is already on the calendar for this one too and is bringing staff members with him again.
This is a regional conference and we have seller experts from eBay, Amazon, Bonanza, Addoway as well as eCommerce and Social Networking, who come in from all over the USA to give workshops/Seminars and participate in round table discussions . Our goal is to provide the best possible information to registrants in a community setting of networking and interaction.
Danni Ackerman, Shawna Seigel, Kathy Simpson, Byran Goodman & Jason Smith (AKA ‘Thrifting With the Boys’), Cliff Ennico, Judy Oglesby, Uncle Joe Adamson, and Fredrick Nijm are a few people who will present workshops and be active in the roundtable discussions.
This is an important conference as it is rural in nature and part of the focus is show how eBay and eCommerce can assist in rural economic development.  Most of rural America is just now getting high speed internet so it opens up new markets for eCommerce and eCommerce seller.

Fort Hays State University (FHSU) is a public, co-educational regents university located in Hays, Kansas. It is the fourth-largest of the six state universities governed by the Kansas Board of Regents, with an enrollment of approximately 11,200 students (4,000 undergraduate, 1,200 graduate, and 6,000 online students in China).

Our sponsors will participate in roundtables to further the learning experience for the registrants.  In other words we want our sponsors to be able to explain the use and need their product fills (without it being an advertisement).  We are selective about who we are asking to sponsor the event.  We are grass roots and our goal is to assist our non-corporate speakers to make the trip–we are not paying any speaker honorarium fees.  Our venue capacity is capped at 200 paid registrations plus the sponsors and speakers so this will be an intimate setting with a lot of person-to-person and networking time. The workshops will take place in break-out rooms rather than one central location.
In addition we are asking our sponsors to assist in promoting the Kansas Jubilee through any avenues they might have to give it exposure.  Sponsors may provide materials for the gift bags, have information through hand-outs and participate in the Round Table discussions.  There will be exposure on our website and and other materials that will be distributed to our registrants.
Please take time to like us on Facebook Kansas Jubilee  and visit the Kansas Jubilee Website

 

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