Ideas for Businesses and Business Owners Unexpectedly Working From Home Part II

Working from home woman business owner typing and texting.

As we noted in Part I of this two-part post, here we are in Week 2 of social distancing for Iowa and Minnesota. This two-part post is meant to help you with ideas to help your business emerge from this crisis in fighting shape. Part I focused on ideas for businesses that have newly moved online and on general ideas for projects to work on while you have down-time. This post will focus on suggestions for businesses facing changes to their industry, for people contemplating starting a new business, and for helping you to help your business. We also recently posted a list of resources for small businesses, including links to a variety of governmental agencies which you may find helpful. We will be adding new links and those linked pages will all be updated regularly, so we encourage you to check back regularly. Please also feel free to reach out to us to suggest updates to that list.

For Businesses Facing Changes

We are, of course, all facing changes right now. It has been a very intense time for everyone. Here are some ideas to get you started on thinking about how your business should approach them.

  • Address the immediate changes. If you have had to move to having your employees work in shifts at the office, or if you have had to move to having your employees work from home, that may have affected how you perform some of your agreements with your customers. You may be able to address these changes simply and straightforwardly, or you may need to negotiate amendments to your customer agreements.
  • Spend some time on listening to others and to yourself. There is only one thing that is clear at the moment: no one really knows what our country or our economy will look like at the end of this strange moment in time. But within industries, there are clues available about what will be coming. Take some time away from the whirlwind of the moment to pay special attention to your customers’ pain points (aside from cash flow) right now. Then consider how you can be best positioned to address those pain points.
  • Give yourself some flexibility. While few businesses will be eager to go on a hiring spree in the near future, your business should be positioned to staff up quickly should the opportunity arise. Consider vendors who can provide outsourced work or engaging freelancers to support your business in the event you suddenly become busy. Get the agreements you’ll need for these possibilities lined up now so you’ll be best positioned to move forward quickly when you’re ready.
  • Prepare for next time. The federal government provides disaster preparedness information on its website. Now may not be the time to think about this, but keep it in your back pocket for a time when your business is back on its footing.

If you need assistance with contracts or legal planning matters, please feel free to contact us for a telephone or video chat appointment.

For People Contemplating A New Business

If you have identified a new opportunity that has cropped up because of the disruptions associated with social distancing and lockdowns (aside from price gouging, which is illegal), excellent! Strike while the iron is hot. Here are some things to keep in mind as you get your new business started:

  • Create an entity. Having a business entity such as a limited liability company or a corporation helps put a layer of protection between your business and personal assets if you properly maintain your business entity. This means that under most circumstances, someone who sues your business cannot reach your personal assets. It also helps with other activities such as getting financing from loans or investors.
  • Follow any applicable regulations. Make sure that you know whether the industry you plan to enter is regulated, and if so, by what federal, state, or local authorities. You don’t want your newly-formed business to be shut down before it really gets going.
  • Keep an eye on the law. Many things are in flux right now, and some authorities are delaying or setting aside enforcement for the moment. Don’t rely on the current state of things to last, though; make sure you’re prepared to follow those laws and regulations once things settle down again.
  • Get expert help. Keep in mind that there are many resources available to those starting new businesses, even in unsettled times like this. Minnesota’s and Iowa’s Small Business Administration branch offices are great places to start, as are the Minnesota Department of Economic and Employment Development and the Iowa Economic Development Authority.

Your Personal Life: Helping You Helps Your Business

I saved the most important for last: take care of yourself and your family. Crises have a way of showing you what is most important. Take advantage of this one as much as you can.

  • Maintain as normal a routine as you are able. Don’t throw yourself into your work 24/7, tempting as it might be as you’re home with your work materials all of the time and panicking over the health of your business. We’re right there with you worrying about things, but rest and recovery are important, too.
  • Get your personal planning documents in order. No one likes to think about their mortality, but now is the time to do it. Make sure that your will, power of attorney, health care power of attorney, and living will all reflect your wishes—or if you don’t have these documents, get them. Make sure your business succession planning is also in order.
  • Get exercise. Even in the places that have implemented lockdowns, you can go outside to exercise so long as you maintain a safe distance of 6 feet from others. If you have children at home with you, they need to get out, too; take a family walk or bike ride, play a game of kickball in the back yard, take a nature walk. There are also several companies offering their working routines online for free; take advantage.
  • Eat well. The grocery stores are pretty picked over for shelf-stable or easily freezable foods, but this is the perfect chance to learn how to prepare some new-to-you fresh fruits and vegetables. You can also use this opportunity to shop local: your local Asian and Latino grocers are probably not as hard hit.
  • Keep up with friends and family. It is not as simple as popping into your usual coffee shop and running into people now. Make sure to take the time for phone calls and video chats with your friends and family on a regular basis. There are a number of services making this easier than ever, from Skype to Google Hangouts to Zoom. Don’t let social distancing mean social isolation.

We are open and able to help with legal issues businesses are facing in the face of this public health crisis. We offer telephone and video chat consultations, including free initial 30-minute consultations. We are also able to work with businesses facing financial hardships at this time. Feel free to contact us to discuss your business’s options.

Congress Gets Serious About Defending Trade Secrets

The Defend Trade Secrets Act (DTSA) has been slowly wending its way through Congress, and it is looking as though it has a good chance of becoming a law at this point. It has bipartisan support and has now passed the Senate 87-0. It is now being considered by the House of Representatives.

Currently, there are two levels of laws governing trade secrets, and they have very different benefits for trade secret owners. The federal law is a criminal law that focuses on preventing international espionage. At the state level, the Uniform Trade Secrets Act (PDF), which has been adopted by most of the states, is a civil law. It focuses on providing monetary and injunctive remedies for trade secret owners who have experienced or may soon experience trade secret theft, regardless of the source. Some states also provide for criminal penalties. The end result is that most companies that are not operating in either agriculture or high technology (two areas particularly susceptible to international espionage) rely on a patchwork of state laws to help them protect their trade secrets.

What does the DTSA do, exactly? It creates, for the first time, a private cause of action for misappropriation of trade secrets at the federal level. This means that trade secret owners will be able to sue for trade secret violations in federal court rather than in state court, which will in turn create a more uniform treatment of trade secrets nationwide.

This bill will benefit most, but not all, trade secret owners by opening up a federal forum for litigation. This is because the federal law applies only to trade secrets that are currently used, or intended to be used, in interstate or foreign commerce. (Congress has the authority to regulate interstate, but not intrastate, commerce under the Constitution.) If your business is small enough that it operates only within one state, and you cannot make a showing that you have some effect on interstate commerce, you are stuck with whatever body of law your state has in place about trade secrets. The states generally have broadly diverging case law despite the near-uniformity of the statutes. And if you are in one of the states that hasn’t adopted the Uniform Trade Secrets Act, you might not like the outcome; older laws tended to be very skeptical of trade secrets as a form of intellectual property. All that said, at least you know what you have to do to protect your trade secret because the laws of only one state apply; the federal bill, if it becomes law, offers that kind of reassurance to businesses that operate in more than one state.

If the bill becomes law, it will create a more stable atmosphere in which to do business, as it will be clearer what constitutes a “reasonable” level of protection for a particular type of business or type of trade secret. If your business relies heavily on trade secrets and you like the idea of uniformity, this is a good time to contact your House of Representatives delegation and let them know that you support the Defend Trade Secrets Act.

What do you think? Would you rather be able to sue in federal court for trade secret violations, or are you happy with the current “50 ways of doing things” setup?

Crowdfunding On the Horizon

Back in 2012, there was quite a stir when Congress and the President worked together to create the controversial Jumpstart Our Business Startups Act (JOBS Act), Public Law 112-106. It was widely predicted at the time that the JOBS Act would be a disaster, and the naysaying has continued as the SEC’s regulations have wended their way through the implementation process.

We have very nearly, but not quite, reached the end of the very long implementation road. The SEC has announced that it has adopted final rules (PDF) for crowdfunding, but that 1) the forms for registering as a crowdfunding portal are not effective until January 29, 2016; and 2) the implementing regulations do not go into effect until May 16, 2016, 180 days after they were published in the Federal Register.

And, as was widely predicted at the time, it does appear that the 685 pages of SEC regulations could make crowdfunding a less-than-attractive option for startups, particularly those at the earliest stages. The SEC estimates “a cost range estimate for Form C and the financial statement review of: $2,500 for the smallest offerings, $4,000 to $23,000 for the larger offerings, $6,500 to $38,000 for first-time crowdfunding issuers conducting offerings between $500,000 and $1,000,000, and $7,500 to $50,000 for other issuers conducting an offering in the largest offering amount category.” This means that the cost of raising funds could be up to 7.6% for a first-time issuer conducting a $500,000 offering. This is on par with taking out a small business loan, an old-fashioned financing option that should not be discounted. While taking out a small business loan will involve quite a lot of time, effort, and paperwork, it won’t involve making the extensive disclosures and ongoing disclosures required by the JOBS Act implementing regulations. Small business owners should, as always, speak with their financial and legal advisors about their best options in their own situations.

So what’s next? Once they are allowed to begin to register this coming January, we see how many companies register as funding portals. Portals are how most small businesses (or “emerging growth companies,” as the JOBS Act calls them) will connect with their investors.

What do you think? Now that the process has become clearer, will crowdfunding be a good option for your business, or are you going to stick with more traditional funding methods?

Crowdfunding and Your Business

In March, Congress passed the controversial Jumpstart Our Business Startups Act (JOBS Act), Public Law 112-106, and President Obama signed the bill into law on April 5, 2012. The Act is designed to stimulate job creation (and, by extension, the economy) by helping emerging companies get better access to capital. This post explores some of the changes to crowdfunding brought about by the Act and what you might consider in deciding whether crowdfunding is right for your business.

First and foremost, this bill made crowdfunding legal. Before, it was (and still is) illegal. But wait, you may ask, what about sites like Kickstarter and IndieGoGo? Are they illegal? No; crowdfunding in the sense we are speaking of here means allowing unaccredited investors (read: people who are not rich) to invest in new and emerging companies that are not publicly traded. Both Kickstarter and IndieGoGo allow people to give money to others in exchange for a product or service (or nothing) to be provided in the future, as opposed to in exchange for an ownership interest in a company. Now small business owners, too, will be able to receive investments from the public, and members of the public will be able to become part-owners of the smallest of companies.

The JOBS Act allows greater access to funding by small companies (it calls them “emerging growth companies” and defines them as companies with less than $1,000,000,000 in annual revenue, if they did not have their initial public offering on or before December 8, 2011) in large part by deregulating them—giving them selected exemptions to the reporting, advertising, and other requirements of the Securities Exchange Acts of 1933 and 1934, as well as the Sarbanes-Oxley Act. It also gives a framework for operations of companies that will deal in emerging growth company securities, including brokers and the newly-created category of funding portals.

These funding portals are subject to some, but not all, of the same regulations as brokers, likely because a funding portal is far more limited in the functions it can perform — little more than selling emerging growth company securities. No matter which type of intermediary is involved, the intermediary will have a great many disclosure requirements as well as obligations to ensure certain protections are in place for investors. Emerging growth companies, as issuers of securities through these intermediaries, will have to provide a great deal of information in preparation for receiving investments. All crowdfunding will have to go through a broker or a funding portal.

If you have a small business, here are some highlights you should be aware of:

  • It will now be possible to receive up to $1 million per year in funding from investors who are not accredited. Anyone from your parents to strangers will be able to invest in your company.
  • You still cannot advertise a crowdfunding offering, except to direct people to the broker or funding portal that is supporting your securities offering.
  • You must ensure that information you provide to your broker or funding portal, which is then passed on to investors, is complete and correct. The JOBS Act lists some of the information that will need to be provided and gives the SEC authority to require additional disclosures.
  • When you seek investments, you will be required to select a target, and you will not be able to receive any funds at all unless you reach your investment target amount (think Kickstarter).
  • All officers, directors, and major shareholders of your company will be subject to background checks before you can list your securities offering.
  • Your broker’s or funding portal’s officers, directors, or partners will not be able to have a financial interest in your company.
  • You will need to make an annual report to the SEC and to your investors regarding your operating results and financial statements.
  • If you meet all of the requirements, your offering will be exempt from state blue sky laws, which are the state equivalent of the Securities Exchange Acts.
  • Securities you sell in a crowdfunding offering cannot be transferred for a year, unless they are transferred back to your company, to an accredited investor, to a family member, or in connection with the death or divorce of the investor. The SEC has the option to impose additional restrictions.
  • Crowdfunding is available only to domestic companies that are not investment companies and are not reporting companies under the Securities Exchange Acts.
  • The SEC has, in several places, the authority to promulgate whatever regulations it believes are needed. The statute gives the SEC 270 days, or 9 months, to create the regulations. They are subject to public comment both now and upon release.

Are you still interested in crowdfunding after reading all of that? Here are some more things to consider in deciding whether crowdfunding is right for your business:

  • The wait. If your company is in need of funds now, crowdfunding is not the way to go. It is likely to take at least a year to a year and a half before there are any crowdfunding opportunities.
  • The expense. Overall, complying with the disclosure requirements could be prohibitively expensive for companies in the earliest stages. The SEC has publicly stated its displeasure with several aspects of the JOBS Act and is widely expected to use its rule-making authority to create substantial barriers to crowdfunding.
  • Communicating with investors. You know how anxious your friends and family are to hear about how your business is going now? Imagine how much worse they would be if they had money riding on the outcome. Small investors, like many small business owners, are likely to be very emotionally invested in the outcome of your business and may be more likely to sue than larger investors if things do not go as planned.
  • The responsibilities. You may see crowdfunding as an opportunity to bring on some money without being beholden to an angel investor or venture capitalist. But once you take on investors, no matter how small they are, you will have responsibilities to them. Minority stakeholders have rights—make sure you know what those are and how they will affect your operations before you decide you want a few.

Do you think crowdfunding will be right for your company, or are you waiting to see what the SEC regulations look like before deciding?