New York Small Business Law

What licenses do I need to start an Online Business?

"Starting an Online Business: Licensing Requirements" caught my eye the other day.  I would like to add my own two cents to this topic from a New York perspective.

An online business is no different from any other business when it comes to licenses and permits.  Depending on the type of business you conduct, online or offline, you may need certain permits and licenses from three different authorities: the Federal Government, your State Government or your local authorities.

Federal Government permits and licenses are rarely necessary, except for certain types of rather dangerous activities, like drug manufacturing, selling of alcohol and firearms and so forth.

On the state level, as a New York business, you can find out what kind of licenses and permits are required by going to New York's Online Permit Assistance and Licensing web portal, short OPAL.

On OPAL, among the many choices of different business types, there is one type of business labeled "Online Retail Business."

If you go through the questionnaire, you will find out that you need to obtain a Certificate of Authority to Collect Sales Tax.  OPAL also advises that the sale of certain goods may require additional licenses and suggests that you contact GORR (New York State Governor's Office of Regulatory Reform) at 800-342-3464.

On the local level, as a New York City business, you can find information about permits and licenses here.  As far as I can see, they do not require any particular license for the sale of new goods on the internet.

With respect to using your home as a home office in New York City, I wouldn't worry about any permit or license, as long as your business doesn't disturb your neighbors.  But if in doubt, you should consult the New York City Zoning Code, or your town's zoning code, if you don't life in NYC.

By the way, don't hesitate to call all State and City agencies and ask your way through to somebody who seems knowledgeable and get all the information you need.  While there is no guarantee that people give you correct information (is there ever?), these government employees are being paid to help you (for free) and are often very helpful.

Then there is other paperwork that a new business may need to file, even though I wouldn't call that a permit or a license.

For example, corporations and multi-member LLCs must apply for a federal identification number. 

In addition, any business that conducts its business under a name other than the name of the individual owner, must apply for a "fictitious name certificate" or "business certificate."  In other words, Daphne Danzig selling widgets as Daphne Danzig does not have to get a business certificate.  But Daphne Danzig selling widgets under the name "Ace Widgets" needs to apply for a certificate.  If Daphne Danzig is in New York City, she can get her certificate at the county clerk, 60 Centre Street, for more info see here.  For an entire post on business certificates, see my earlier post on "doing business as".

**This post is for informational purposes only and does not constitute legal advice**

"Terms and Conditions" may work for your Business

If you are in a line of business where you repeatedly have to enter into agreements with your customers and the basic terms of those agreements rarely change, you may want to consider the adoption of "General Terms and Conditions."

Rather than having every contract spell out all terms and conditions, your individual contracts with customers could be rather short and refer to your General Terms and Conditions.

The General Terms and Conditions could contain all the terms of the business relationship that rarely change, such as:

The representations you do or do not give about the quality of your products or services,

the general nature of your goods and services,

when you expect payment for your products or services,

when you or your contract partner are allowed to terminate the contract and the consequences of such termination,

any elements of the price of your goods and services that never change and

all those boilerplate legal provisions you don't understand but your lawyer tells you to put in there anyway.

By using General Terms and Conditions, you standardize a large part of every customer relationship.  The individual contracts with customers would become much shorter and easier to draft and execute.  You just have to make sure that every individual contract or oder specifically incorporates your General Terms and Conditions.  For example with language like this:

"The General Terms and Conditions dated _____ are incorporated into this work order by reference and are a part of this work order as if fully stated herein."   

In addition, you may want each individual customer acknowledge receipt of your General Terms and Conditions, so that there is never any doubt which version governs the business relationship.

You could even consider allowing for changes of your General Terms and Conditions without the agreement of  your customers who are already governed by the General Terms and Conditions.  Be aware, though, that not all changes without proper notice may pass muster with the courts if challenged.  Check out this post by Techlaw on the subject.

The individual contracts could be called anything you want, but terms like "work order," "service order," "project order," "project specifications" may make sense.

Beyond being a time saver, there are other potential benefits of General Terms and Conditions:

You can post your General Terms and Conditions  on your website and give your customers immediate access to what a contractual relationship with you would look like;

You can create the appearance that your General Terms and Conditions are non negotiable and deter your customers from trying to change the terms of the business deal.  While you and I know that every contract is negotiable, for some reason many people think that General Terms and Conditions are set in stone.

**This post is for informational purposes only and does not constitute legal advice**

How to use Special Terms in your LLC's Name

As you may know, there are naming rules (Section 204 NY limited liability company law) when it comes to choosing a name for your LLC.  Most  names are o.k. if not already taken by somebody else, but some terms are tricky and require special dispensation.

For example, try filing articles of organization for this LLC:  "Life Exchange, LLC".  You will get a nice letter from the Department of State informing you that they are unable to file this name, because it is not allowed to use "exchange" in the name of an LLC without the approval of the Attorney General.  And they are right; it says here in Section 204(h) NY limited liability company law:

"The name of each limited liability company as set forth in its articles of organization [......] shall not, unless the approval of the attorney general is attached to the articles organization [.......] contain the word "exchange" or any abbreviation or derivative thereof.  Such approval shall not be granted by the Attorney General if in his or her opinion the use of the word "exchange" in the limited liability company's proposed name would falsely imply that the limited liability company conducts its business at a place where trade is carried on in securities or commodities by brokers, dealers or merchants."

Is that the end of your name?  No, you can go ahead, write a letter to the Attorney General and describe the business you are planning to conduct under the name "Life Exchange, LLC".  I am assuming it's some kind of life coaching, re-birthing center type of activity.  If you explain it right, there should be no doubt that you are not trying to establish a New York stock exchange in your backyard and they will happily give you the approval.

Many people have successfully done it already, as you can find out by searching the New York State corporate database with the term "exchange."  There are plenty of businesses using the term "exchange" that have nothing to do with trading stocks or commodities.

**This post is for informational purposes only and does not constitute legal advice**

How to Amend a Contract

When you enter into a contract (or agreement, same thing really) you cannot possibly foresee all future developments of the relationship that is governed by that contract.  As a result, you may find yourself in a situation where you have to amend an existing contract.

How do you amend a contract?  By entering into a new contract, which provides for the terms of the amendment.  Let's say you entered into a contract on August 10, 2006, which contract provided in its Section 10:  "This contract terminates on August 1, 2010."  Now you and your contract partner decide that the contract should really go on until August 1, 2012.   You plan on amending the original contract.

The amendment of the provision should be in writing and clearly reference the agreement that is being amended.  The amendment doesn't have to be very formal, it could be in a simple note or letter, but it should be in writing and signed by all the parties who signed the original agreement.

By way of example, the amendment could look like this:

Amendment

Joe Junior and Daphne Danzig entered into the Service Agreement dated August 10, 2006 and wish to amend the Service Agreement.

Joe Junior and Daphne Danzig hereby amend Section 10 of the Service Agreement by replacing such section in its entirety with the following:

"This Agreement terminates on August 1, 2012."

Other than as amended hereby, the Service Agreement shall remain in full force and effect.

So agreed, this ___ day of August, 2007.

Joe Junior (signature)

Daphne Danzig (signature)

There you have it.  You can do this as many times as you want, so that you may end up with Amendment No. 1, Amendment No. 2 and so forth.  However, if there are many changes to an Agreement at the same time, you may be better off by "amending and restating" the Agreement.  I'll explain what that means another time.

**This post is for informational purposes only and does not constitute legal advice**

In court, an LLC needs an Attorney

Tom Swartz of New York Legal Update alerted me to this recent development in LLC law:  A New York court has decided that a  New York LLC needs to be represented by an attorney in court.  See his post on the topic and for case information. 

Pursuant to CPLR 321(a), "a party, other than one specified in section 1201 of this chapter, may prosecute or defend  a  civil  action  in  person  or  by attorney, except that a corporation or voluntary association shall appear by attorney . . .. 

Until recently, no one knew if this provision also applied to limited liability companies.  Now a court has held that it does.

Terms of Use: Do they have to be Fair?

Who knows what fair is, anyway.  But, under certain circumstances, your terms of use cannot be completely unconscionable.

When drafting terms of use for your Website, you are probably inclined to make them as favorable to you as possible, thinking it is a "take it or leave it" proposition.  If visitors don't like your terms of use, they can take their web surfing elsewhere.

Unfortunately, this approach may cause your terms of use to be unenforceable when brought into court by a disgruntled web site visitor.

As blogged about by E-commerce and TechLaw, Linden Research, the creator of Second Life, had to learn this the hard way in federal court recently.

The terms of use on Second Life provided that anybody who wanted to fight a legal dispute over the use of Second Life had to do it by arbitration and could not take Second Life to court.

Well, someone did take them to court and the federal court decided that the arbitration provision was unenforceable, because it was procedurally and substantively unconscionable ( Bragg v. Linden Research Inc., No. 06-4925 (E.D. Pa. May 30, 2007).

Some of the court's reasons:

• There is no second Second Life.  Thus, Second Life had "superior bargaining power" over its users.
• The arbitration provision was hidden in a long provision with no descriptive heading.
• The rest of the terms of use were  very one-sided and in favor of Second Life.
• Second Life could not prove to the court that its one-sided terms of use were necessary for its business.

Thus, resist the urge to be a jerk and put yourself into the shoes of your web site visitors.  Clearly, you want to protect your own, but try to be somewhat fair.

**This post is for informational purposes only and does not constitute legal advice**

Pimp Your Site (with Legalese): Part 1 - Terms of Use

Having a web business does not save you from the normal perils of having a brick and mortar business, such as being sued, robbed or getting caught in not complying with the law.  In many ways it is more dangerous than having a real life location.  You expose your business to millions of users, many different laws and court systems.

Thus, pretty much every website has a lot of legalese greeting the unsuspecting web surfer, also known as "Terms of Use", "Terms of Use Agreement", "Terms and Conditions", "User Agreement" and similar terms.  The idea of having Terms of Use posted on your website is that you limit your liabilities and responsibilities to website visitors, and visitors' rights to content on your website, by making them agree to such terms before being allowed to use the website.

One important issue you want to address in your Terms of Use is the danger of being hailed into court in States other than your own and being subject to laws other than your State's law.  Normally, you cannot be sued in States other than your own, unless you have certain "minimum contacts" with such States.  Is having a website that is accessible in a State minimum contact?  Is having customers in that State minimum contact, delivering goods, providing services?  Ideally, don't even get into that discussion, but try to limit the danger by employing these tactics:

1.    Make your website a brochure site with limited interactivity.  Just being accessible from a State is usually not considered to be sufficient minimum contact.  Granted, in this Web 2.0 world, this is like saying don't have a website at all.

2.    If your site solicits interaction from visitors, include language in the Terms of Use that limits use of the site to residents of your State and country.  If you are targeting customers in your State only, this might be a good strategy.

3.    Include provisions in the Terms of Use that limit jurisdiction to your State (i.e. where you can be sued) and provide that only the law of State X will apply to disputes between you and your visitors.  For example, see Section 30 of  Allbusiness.com's Terms of Use or Amazon's Terms under "Applicable Law" and "Disputes."

4.    If your website is really global, you may want to have different mirror websites targeted to individual countries in addition to stating on each such site that it is only intended for residents of that country. You may even prevent residents of country X from using the mirror website in country Y, by, for example, only excepting credit cards with addresses in the respective country.  Ideally, you should get advice on how to draft Terms of Use for each country.

Now, before you start copying all the legalese on allbusiness.com (which would be a violation of their Terms of Use, by the way) or any other site, remember that each internet business is different and you may need a whole set of other provisions.   Some of their provisions might be useless for your purposes.  For example, if you don't provide information that could be construed as legal advice, you wouldn't need Section 6 of Allbusiness' Terms of Use.  If you are selling and shipping products, you may need more specific terms designed for such products.

Finally, if you are in the business of distributing, selling or advertising stuff that is not really suitable for the under 18 crowd or otherwise regulated, there are a lot of other things to worry about.

Also see "The "Terms of Use" Trap for Web Businesses" by Jay Parkhill

**This post is for informational purposes only and does not constitute legal advice**

 

Transferring Assets to your new LLC

Another reader question:  "If you start a new LLC, but have web sites or other IP that you want to be “owned” by the new LLC, what needs to be done to make it property of the new LLC?"

The property has to be transferred to the new LLC, some say "contributed" to the LLC.  If the property consists of a website, you may write up a one page document that says something like "I hereby transfer all my rights to the domain name "www.minenomore.com" to New LLC.  I will do everything necessary to transfer such domain name to New LLC."  Then you should go to the host or other service where you originally registered your domain name and find out how to transfer the domain name to a new owner.

With respect to Intellectual Property, the process might be a little more involved.  If the IP is registered with the United States Patent and Trademark Office, you may have to record a transfer ("assignment") to the new owner.  In other words, first you create and execute the document that transfers the IP from you to the new LLC and then you effect any filings that need to be done to document such assignment and make it known to the rest of the world.

**This post is for informational purposes only and does not constitute legal advice**

Keeping your LLCs separate

Somebody asked me the following question: 

"If you start a new LLC, but have old business credit cards from a previous (but now closed) LLC, can you use those credit cards with the new business without causing problems?"

It is a little bit like asking, "If my grandfather died and left behind some credit cards in his desk, can I use those cards for my spring break vacation without causing problems?"  I think you know the answer.

Creating a business entity is like giving birth to a new being.  For the most part, everything that entity does and owns is separate from you and the stuff you own.  The same goes for bank accounts, credit card accounts and credit history.  Also, everything the entity does and owns is separate from any other entity.  If you want to transfer property from one entity to another, or from yourself to your LLC, there has to be some actual transfer, ideally documented in writing.

**This post is for informational purposes only and does not constitute legal advice**

Hiring Employees in New York - Surviving the Paperwork

There is a reason many startups and small businesses try getting away with using independent contractors as long as they can.  Hiring employees means a lot of paperwork and added responsibilities, potential liabilities, extra financial burdens and on and on...

When you  hire a new employee in New York, this is some of the paperwork that awaits you:

1. New Hire Reporting

In order to get hold of child support debtors, every new employee needs to be reported as a "new hire."  This so called new hire reporting can be done online.

2. Unemployment, Wage Reporting, Tax Withholding Registration

You need to fill out NYS-100 and file it with New York State's Department of Labor in order to register as an employer and for purposes of wage reporting and tax withholding. Unemployment Insurance gets paid together with your quarterly tax payments to New York State, i.e. the state and city taxes you withhold from your employee's paycheck.

3. Workers Compensation and Disability Insurance

You must arrange (and pay) for workers compensation and disability insurance for your employees.  You can do so through a private insurance carrier, or choose to go with New York's semi-governmental Insurance Fund.

4. Knowing your obligations as an Employer

For more of your obligations as a New York employer, read this helpful guide by New York's Attorney General.  As you will see in the guide, some of the obligations are no laughing matter, since there may be criminal penalties for non compliance.

For more federal reporting obligations, check out this IRS' guide.

5. Decking the Halls with Posters

Finally, be prepared to decorate your business with all kinds of posters required by federal and state law.  To find the required federal posters, consult this E-laws -Poster Advisor.  For New York posters, see here.

**This post is for informational purposes only and does not constitute legal advice**