New York Small Business Law

Lack of Shareholder Agreement leaves Dentist's widow empty handed

As New York Business Divorce reports today, the lack of a shareholder agreement caused a New York widow of a dentist, who was practicing dentistry in a professional corporation, to be left with nothing.  

Despite the fact that the deceased dentist was a 75% shareholder in the dentist professional corporation and his widow had found a dentist purchaser for the dentist practice offering $530,000, the minority dentist shareholder was able to defeat her and will likely be able to force her to sell her late husband's share in the business for $0.  

The reason for all this was the fact that shareholders of professional corporations must all be licensed to exercise the profession of the corporation, in this case dentistry.  If one dentist dies, his non dentist heirs, here the widow, are severely limited in their rights to exercise rights of a shareholder.  

However, all of this could have been prevented by a properly drafted shareholder agreement including provisions dealing with the death of any shareholder and his heirs' rights.  The shareholder agreement would have preempted the New York default provisions contained in the business corporation law.  These default provisions caused the widow's dilemma.  

Read New York Business Divorce for a full analysis of the case.

Can you be liable for third party defamatory comments about your competitor posted on your Blog?

Most businesses now have a blog connected to their website.  Blogs attract comments.  What if a particular nasty comment is posted by a visitor about one of your competitors?  Can the competitor come after you for defamation or unfair competition? New York's Highest Court has recently said, no, a business is not liable for the defamatory comment of a visitor on its blog  (Shiamili v. Real Estate Group of N.Y., Inc).  

Communications Decency Act

The court based its decision on  Section 230 of the Communications Decency Act. This federal law provides that no provider of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.  Thus, the publisher of a blog is generally not liable for comments by its readers.

However, this case had an interesting twist which makes you wonder whether there should be some liability on the blogging business after all.

An employee of the company who was the moderator of the blog took it upon himself to repost the nasty comments in a new post on the blog and added some commentary of his own; to introduce the comments, he wrote "an now it's time for your weekly dose of hate".  Then he posted a picture of Jesus Christ with the competitor's face and the caption "[competitor name]: King of the Token Jews".  Still, the court decided, no liability on the company's part.      

Even though the company got away with the employee's conduct, I'd say it would be more advisable to let comments be and stay away from highlighting or embellishing any ugly comments about your competitors. This is how some of the judges of the court felt as well; Chief Judge Jonathan Lippman wrote in his dissenting opinion that the company's complicity in defaming a direct competitor takes takes us so far afield from the purpose of the Communications Decency Act as to make it unrecognizable.  

 

 

Contracting by Email and the Statute of Frauds

Email can actually save many agreements that would otherwise fall prey to the "statute of frauds".   Let me explain.

I know that many of you neglect to get their agreements and understandings in writing.  And, on an emotional level, I understand why.  It can seem off putting, too demanding and even insulting to new business partners to immediately have every understanding in writing.  Even if you all plan to put your business deal into writing, it often gets postponed indefinitely for fear of not doing it exactly right, bickering over minute details, the time and money it takes to get legal help and so forth.  Meanwhile, everybody starts doing things, working hard, creating stuff.....

Statute of Frauds - Some Agreements must be in Writing

Now, an oral agreement can still be a good and enforceable contract.  But very often it is not, because a little law commonly called the "statute of frauds" requires certain agreements to be in writing.

For example, all agreements that by their terms are not to be performed within one year from the making thereof require to be in writing to be enforceable.  

Email to the Rescue

Still, there may be a way out of this dilemma, if you have an email or several emails combined which set forth all the essential terms of your agreement and which are sent and "authenticated" by the party you want to bind to that agreement.  

The statute of frauds states that if there is a note, memo or other writing sufficient to indicate that a contract has been made and signed by the party against whom enforcement is sought, the statute of frauds is satisfied.

A writing can be a text produced by "computer retrieval or other process by which electronic signals are transmitted by telephone or otherwise," if it was created by a party with the present intention to authenticate that writing.  Email fits squarely into that definition.

As court cases have shown, "authenticating" can be the fact that the party simply has typed his or her name at the end of the email.

Still, for a full fledged enforceable agreement, the email must lay out the essential terms of the agreement.

A court has held that an email, signed by the sender, naming the seller and buyer and the agreed upon price for a particular house  did not contain the essential terms of the agreement, since it failed to set forth any understanding about a contract deposit for the house and treatment of a lease that encumbered the house.

Lessons to be Learned

• Be aware of email's power to constitute binding contracts
• Save or properly archive all your email with past and present business partners
• If using email as a contracting device, make sure all essential terms of your agreement are contained in the email

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 **This post is for informational purposes only.  For actual legal advice contact a business lawyer, business attorney or business law firm**

 

New York State Sales Tax Information

The New York State Department of Taxation and Finance just updated some of its very helpful information regarding business owners and their sales tax obligations.

For a general overview, consult "Your responsibilities under the New York State and local sales and use tax laws."

Other updated guidance:

"How sales and use taxes apply to interior decorating and design services"

"Record Keeping Requirements for Sales Tax Vendors"

Knowledge of this material and your obligations is crucial, because a business owner can be held personally liable (i.e. no hiding behind corp or LLC) for sales tax obligations and there are numerous ugly and even criminal penalties for failing to comply with the responsibilities.

The DOL Timesheet App and a Reminder on keeping Wage and Hour Records

The Department of Labor recently released an app for workers to independently keep track of their hours worked, wages earned and breaks taken.  According to their press release, "This app will help empower workers to understand and stand up for their rights when employers have denied their hard-earned pay."

Obviously, this raises concern that the small business owner will soon find himself or herself in a dispute with employees over conflicting time records on the worker's smart phone versus the employer's records.  

A small business owner's first line of defense?  Knowing its record keeping obligations and keeping such records in tip top shape at all times.

Employer Payroll Recordkeeping Obligations

THE FLSA

Recordkeeping requirements of many employers are governed by the Fair Labor Standards Act (FLSA 29 CFR Part 516).  See here for which employers and employees are covered.  The covered employers must keep the following records for at least 3 years:

1. Employee's full name and social security number.
2. Address, including zip code.
3. Birth date, if younger than 19.
4. Sex and occupation.
5. Time and day of week when employee's workweek begins.
6. Hours worked each day.
7. Total hours worked each workweek.
8. Basis on which employee's wages are paid (e.g., "$9 per hour", "$440 a week", "piecework")
9. Regular hourly pay rate.
10. Total daily or weekly straight-time earnings.
11. Total overtime earnings for the workweek.
12. All additions to or deductions from the employee's wages.
13. Total wages paid each pay period.
14. Date of payment and the pay period covered by the payment.

For more information, see this fact sheet from the DOL.

NEW YORK STATE LABOR LAWS

In addition, New York has its own laws on payroll recordkeeping, see Labor Law Section 195.

Each employer is required to maintain for not less than 6 years the following records for each week worked by its employees:

Rate of pay and basis thereof, whether paid by hour, shift, day, week, salary or piece; gross wages, deductions, allowances and net wages; for non exempt employees, regular hourly rate, overtime rate, number of regular hours worked and number of overtime hours worked.

See here for the NY DOL wage and hour law information and helpful forms.

 

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 **This post is for informational purposes only.  For actual legal advice contact a business lawyer, business attorney or business law firm**