startup team & business launch initiative · 2016-04-28 · new business owners are familiar...

DEVINE MILLIMET & BRANCH

Startup Team & Business Launch Initiative www.devinemillimet.com/startup

OFFICES

MANCHESTER 111 Amherst Street Manchester, NH 03101t. 603-669-1000 f. 603-669-8547

CONCORD 15 North Main Street Concord, NH 03301 t. 603-226-1000 f. 603-226-1001

PORTSMOUTH 30 Penhallow Street Portsmouth, NH 03801t. 603-669-1000 f. 603-669-8547

New business owners are familiar with the challenges in the startup phase and as the business grows. Devine Millimet’s Startup Team is ready to assist with all aspects of the business, from the start up phase through progression into an established business. Our services range from legal compliance to general problem solving and include: determining the appropriate form of business entity, hiring employees or engaging contractors, protecting intellectual property, leasing commercial space, securing funding, creating employee policies and handbooks, implementing corporate governance guidelines, drafting and negotiating contracts, establishing business succession plans, and positioning your company for a successful merger or acquisition transaction. With budget and time considerations firmly in mind, our Startup Team is ready to help develop real solutions for startup issues and navigate the early growth stages of the business so that owners can get back to the more important work of running the company.

BUSINESS LAUNCH INITIATIVEOver the years, the attorneys on our Startup Team have assisted hundreds of business owners in launching their new businesses. We are pleased to offer our counsel and guidance to get your business up and running the right way.The Startup Team knows that new businesses are the engine that drives our local and regional economy and we are committed to fostering the continued growth of startup companies in New Hampshire. We also understand that every dollar is important in successfully starting a new venture. Accordingly, we have developed the Business Launch Initiative to provide entrepreneurs with limited legal representation at no fee1 for the purpose of forming a new corporation or limited liability company in New Hampshire.

20150618

DEVINE MILLIMET & BRANCH

The no-cost services include a one- hour consultation with an attorney on our Startup Team as well as the preparation and filing (as necessary) of the following legal documents2:

• Articles of incorporation or certificate of formation • Bylaws or operating agreement• Organizational consent resolutions• Application for employer identification number• Stock certificates or membership unit certificates

You will also be automatically enrolled in our electronic mailing lists and will receive access to our expansive referral network, which includes accountants, bankers, and insurance professionals. Participation in the Business Launch Initiative is subject to the following terms and conditions:

• The entity to be formed must be a New Hampshire corporation or LLC with no more than five (5) owners.

• The entity must be an operating business - not a holding company for real estate, a professional consulting firm, or other passive ownership.

• You must demonstrate your intent to grow your business and hire employees. • The business must be newly started or have been previously operated as a sole proprietorship or

partnership. This program is not available for entity conversions, mergers or business combinations.• Owners must complete the appropriate new entity questionnaire and pay all filing fees and any

out-of-pocket costs for formation of the entity prior to work commencing.• An engagement letter must be signed and returned to the firm prior to work commencing.

Representation is subject to our firm’s conflict of interest verification procedures. We encourage you to contact us with any follow up or additional questions you may have.Visit our website (www.devinemillimet.com/startup) to request our small business guide: An Entrepreneur’s Guide to Starting a Business in New Hampshire. We can be reached by emailing us at: [email protected] or by contacting any of the attorneys on our Startup team.We look forward to working with you!

The Devine Millimet Startup Team 1 Client is responsible for all out-of-pocket costs associated with any filing.2 Additional legal services beyond business formation, if requested, will be billed at our firm’s regular hourly rates as further set forth in the engagement letter.

DEVINE MILLIMET

CHOOSE WISELY®

An Entrepreneur’s

Guide

to

Starting a

Business

in

New Hampshire

Dear Entrepreneur:

Congratulations on your decision to start a new business in New Hampshire!

Over the years, our firm has assisted countless business owners, like yourself, in dealing with some common issues and pitfalls for launching a new business. Initially established in 1947, our 65 lawyers come from more than 30 law schools from around the country. Not only are we acknowledged as one of the top law firms in New Hampshire, many of our attorneys are consistently recognized as leaders in their respective fields.+

In this booklet, we are pleased to offer to you some important guidelines for beginning and operating your new business. While our goal is to provide you with helpful insight into some common legal issues that arise when individuals embark on a new business venture, the discussion that follows is not intended to be legal advice, was not prepared with knowledge of the particulars of any planned business, and is not a full and complete analysis or explanation of the issues it addresses. We encourage you to contact us with any additional questions you may have, either through our website, www.devinemillimet.com, or by contacting any of the attorneys in our Corporate Practice Group.

We wish you tremendous success with your new business venture!

With best wishes,

+Devine Millimet was presented with two "Best of Business 2011" awards in the areas of corporate law and real estate by New Hampshire

Business Review. Two of our attorneys were ranked by their peers as ―Top Lawyers‖ by Business NH magazine in the categories of real

estate law and intellectual property law. In addition, among other awards our attorneys have been recognized in Chambers USA, the world-

famous guide to law firms and lawyers, Super Lawyers, and US.News & World Report’s Best Lawyers.

Devine, Millimet & Branch, P.A.

TABLE OF CONTENTS

Starting A Business .................................................................................................................................... 1

Entity Selection and Formation ....................................................................................................... 2

Agreements Between Owners/Partners....................................................................................... 5

Entity Maintenance............................................................................................................................. 6

Business Contracts ..................................................................................................................................... 7

Contract Basics .................................................................................................................................. 8

Insurance ........................................................................................................................................... 10

Leases ................................................................................................................................................ 11

Hiring Employees .................................................................................................................................... 13

Employees vs. Independent Contractors................................................................................... 14

Deferred Compensation Arrangements & Stock Options .................................................... 15

Compliance with Federal and State Employment Laws ......................................................... 17

Other Important Matters .................................................................................................................... 21

NH Business Taxes ......................................................................................................................... 22

Protecting Your Intellectual Property ........................................................................................ 23

Raising Money .................................................................................................................................. 27

Acquiring Real Property ................................................................................................................ 28

Estate Planning ................................................................................................................................. 29

Devine, Millimet & Branch, P.A. 1

Starting A Business


Entity Selection and Formation

One of the most important decisions you must make when embarking on a business venture must be

made before you have even begun to offer any goods or services - choosing the legal form under which

your business will operate. In making this decision, it is important to be cognizant of all of the entity

forms that are available to you, including the sole proprietorship, general partnership, limited partnership, limited liability company, and corporation. Unlike the other business forms mentioned, a

sole proprietorship is not a separate legal entity and exists as an extension of the individual who starts

the business. As a result, the assets and liabilities of the business and its owner are viewed as one and

the same. For this reason, as well as the transfer of ownership issues that are associated with sole

proprietorships, formation of a separate legal entity is often advisable. While there are other legal

forms to consider, the following discussion will be limited to the predominant types of business entities

that are created today - corporations and limited liability companies (―LLCs‖).

Similarities Between Corporations and LLCs

Although they differ in many material respects, corporations and LLCs offer several of the same benefits to business owners. For most entrepreneurs, the key feature of both is that they provide

liability protection to the business’ owners. In other words, assuming that all steps necessary to form

and maintain a corporation or LLC are taken, the personal assets of the business’ owners will not

generally be subject to the claims of the business’ creditors. Beyond limited liability, however,

corporations and LLCs can also continue in perpetuity, long after the original founders have ceased

operating the business. This, coupled with the fact that both entity types also provide a mechanism through which ownership interests can easily be transferred, also makes corporations and LLCs

appealing for estate planning purposes as well.

Differences Between Corporations and LLCs

Despite these similarities, corporations and LLCs have distinct characteristics which must be considered when determining whether either entity form is appropriate for your business.

For instance, for federal purposes, corporations are generally subject to what is referred to as ―double taxation.‖ In essence, this means that their earnings are taxed both when received by the corporation

and when distributed to the corporation’s shareholders. In contrast, multimember LLCs can elect to

be taxed in the same manner as a corporation or a partnership. If the LLC elects to be treated as a

partnership for federal tax purposes, then its profits will be taxed to the business’ owners (or ―passed

through‖) and there will be no federal taxation at the entity level. While a corporation may also elect

to be taxed in a manner similar to that of a partnership by filing certain documents with the Internal Revenue Service (often referred to as filing as an S-corporation), it may only do so if, among other

things, the corporation: (i) has less than 100 shareholders; (ii) does not have any nonresident-alien

shareholders; and (iii) does not have more than one class of stock.

On the other hand, only corporations can offer their employees ―incentive stock options,‖ which are a

special type of stock option that receives beneficial tax treatment under the federal


tax code. Moreover, most capital venture funds prefer the corporate form and, thus, are more likely to

invest in a corporation. Although there are numerous other factors to be considered (such as state tax treatment and exit strategy of the business’ owners), the take-home point is that the selection of a

legal form is a critical decision that must be approached with the same level of care and consideration

that you have undoubtedly devoted to developing your business model.

Steps for Formation

Once you have selected the legal form that best suits your business objectives, you must file the

requisite formation documents with the Secretary of State, including the ―Certificate of Formation‖ for an LLC and ―Articles of Incorporation‖ for a corporation. Before doing so, however, you must first

decide in which state to form your entity.

For a business that will primarily operate in New Hampshire, the proper state of

incorporation/formation is typically New Hampshire. New Hampshire’s business laws are relatively

advantageous to the business owner and the fees for forming a business in the state are reasonable

(currently $100 to file the requisite formation documents for either an LLC or a corporation). While there are situations in which it is advisable to form a business in another state even though it will be

operated primarily in New Hampshire - for instance, public companies typically organize in Delaware in

order to take advantage of that state’s sophisticated body of case law dealing with corporate law

matters - forming your business outside of the state in which it is located can be an expensive

proposition. In the first place, many other states charge a larger fee for a formation filing than New

Hampshire. But even more to the point, if your business is located in New Hampshire and organized in another state, then you must pay a separate entity to act as your registered agent in the state of

incorporation and incur additional costs filing as a foreign entity in New Hampshire. If this is not

enough, additional state income tax liabilities may also arise. For these reasons, it is most often the

case that New Hampshire is the preferred state of incorporation/formation for businesses located

within the state.

Entity Summary Chart

The chart on the opposing page may be helpful in summarizing the foregoing:

CHOICE OF ENTITY

COMPARISON TABLE

Sole Proprietorship General

Partnership Limited Liability

Company S Corporation Corporation

Formation No formalities; no filings necessary

Agreement of the parties;

no filings necessary File with state to form

entity File with state to form

entity

File with state to form

entity

Duration Dependent on sole

proprietor Dissolved by the death of

a partner or bankruptcy Perpetual Perpetual Perpetual

Liability Unlimited liability for

sole proprietor Unlimited liability for

partners

Members not

personally liable for

debts of the LLC

Shareholders not

personally liable for debts

of the corporation

Shareholders not

personally liable for

debts of the corporation

Legal Formalities of

Operation Relatively few Relatively few

Some formal legal formalities must be

observed

Formalities of reporting

directors, officers and

annual meetings must be

observed

Formalities of reporting

directors, officers and

annual meetings must be

observed

Management Full control of

management and

operations

All partners share

management and control

of operations

Operating agreement

among members

outlines management

Management by board of

directors who are elected

by the shareholders

Management by board of

directors who are

elected by the

shareholders

Federal Taxation No taxable entity;

sole proprietor pays

all taxes

Each partner pays tax on

his/her share of income Income/loss is passed

through to members Income/loss is passed

through to shareholders Corporation pays taxes

Double Taxation at

Federal Level (tax at

entity and owner

levels)

No No No No Yes

Cost of Creation None None Filing fees with state Filing fees with state Filing fees with state

Raising Capital Individual must put

his/her own money

into proprietorship

Partners must put money

into partnership

Members can sell

additional interests in

the LLC

Corporation can sell its

stock Corporation can sell its

stock

4


Agreements Between Owners/Partners

It is not uncommon for the owners of a business to assume that they all share a common vision for the company’s operation. It is often not until a critical decision must be made, and time is of the

essence, that the owners come to realize their differences of opinion. When such problems arise at a

critical juncture, they can threaten not only the viability of the business, but also the personal

relationships of the owners. By taking the time at the outset to execute a written agreement that

clearly sets forth the rights and obligations of each respective owner (an ―Ownership Agreement‖), you can insulate your business from such undesirable circumstances.

Benefits of Executing a Written Agreement Among Owners

Whether in the form of an operating agreement (for a limited liability company), shareholders

agreement (for a corporation), or a partnership agreement (for a general or limited partnership), an

Ownership Agreement is an essential document for all business entities. Stated simply, an Ownership

Agreement sets forth in writing the rights and obligations of all of the business owners and describes

the manner in which the business will be governed.

The overwhelming majority of institutional lenders (if not all) will require your business to have an Ownership Agreement in place as a requirement to receive funding (see the section titled ―Raising

Money‖ for additional information on this point). Perhaps even more importantly, however, by

executing an Ownership Agreement you can avoid having your business subjected to certain default

provisions that are imposed by law. For instance, the New Hampshire statutes provide that, unless

otherwise stated in a written Ownership Agreement, all members of an LLC are entitled to profits

and distributions in proportion to the value of their contributions to the LLC. While on its face this may appear like a reasonable term, in practice disputes often arise among members regarding the

―value‖ of their respective contributions, particularly where members contribute unequal amounts of

both money and ―sweat equity‖ to the new venture. By setting forth the profit and distribution rights

of each member in a written agreement, these tensions can be alleviated before they are permitted to

threaten the relationship of the business’ owners.

There are numerous other provisions that, in the absence of a written agreement among the business' owners, will automatically apply to an LLC. By way of example, if there is no Ownership Agreement,

the statute provides that: (1) an LLC can merge with another business entity; (2) the approval of only a

majority of the LLC members is required to decide most matters connected with the business of the LLC; (3) a member will generally cease to be a member upon filing a voluntary petition for personal

bankruptcy; (4) a member is not liable to the LLC or its members for acts on behalf of the LLC unless

those acts constitute gross negligence or willful misconduct; and (5) a member’s interest in an LLC can

generally be sold in whole or in part. The other business forms have similar default provisions.

Accordingly, to the extent that the business owners desire to retain control over their business, an

Ownership Agreement should be considered at the outset of the new business venture.


Entity Maintenance

Just as maintenance of your client base requires ongoing attention, so too does the

maintenance of your business entity. Having determined which legal form is appropriate for your

business objectives and taken all necessary steps for formation, you must thereafter (for most entities) continue to make annual filings with the Secretary of State and pay annual filing fees (currently $100).

Moreover, you must make sure that all taxes are paid when due and that your entity is properly

insured.

If you have chosen to form your business as an LLC, corporation, or limited partnership, then you must also be mindful of whether your business is being operated in a manner that could jeopardize the

limited liability protection that these entities are intended to provide. The New Hampshire courts have

indicated that they are willing to find a business owner personally liable for the business’ debts, despite

the existence of limited liability protection, where failure to do so would lead to an ―inequitable result.‖

In the realm of corporations, such an inequitable result has been found (and the corporate veil

―pierced‖) where the business owners had suppressed the fact of incorporation, expressly agreed to be personally liable for the corporation’s debt, or otherwise used the corporate identity to promote an

injustice or fraud.

Although the analysis the courts employ when determining whether to find personal liability is

factually driven, there are certain steps that you can take to help protect your limited liability. These

precautions include, but are not limited to, maintaining separate bank accounts for your business entity, being cautious not to commingle or mix your personal assets with those of the business, and

taking steps to ensure that all individuals with whom you conduct business know that they are

transacting business with a legal entity (e.g., by placing the name of your business on the door to your

office). To be sure, it is the exceptional case rather than the norm in which a court will permit a

creditor to reach the personal assets of the owner of a properly formed business entity.

Nevertheless, given the relatively low costs associated with taking certain precautionary measures, compared with the potentially steep costs for failing to do so, it may be prudent to obtain counsel to

review your business operations and address these issues at the outset.


Business Contracts


Contract Basics

As a business owner, you will no doubt come into contact with contracts of all different shapes and sizes. If you are on the purchasing side of the transaction, some of these contracts may be negotiable

(such as consulting agreements) and some may not (such as standard licenses for commercial

software). Regardless of your negotiating power in forming a contract, there are a number of basic

contract principles that you should be aware of so that you can more fully understand the obligations and risks arising from your contractual relationships.

Contract Formation

Contracts can be written, oral or even electronic, and do not necessarily need to be contained in one

document. For example, courts have found contracts to exist through the exchange of letters and e-mail. Moreover, once there is an agreement as to basic terms, a contract can exist even if there are

other additional terms on which the parties have yet to agree. However, because contracts are

essentially a way of assigning responsibility and risk between two or more parties, it is rarely the case

that allowing a contract to be formed over the course of a business relationship (and deciding on terms

as they come up) is a sound approach to protecting your business interests. Rather, having as complete

an understanding as possible about each parties’ rights, responsibilities and risks at the beginning of the business relationship is generally the proper course.

Developing Standard Contracts for Your Business

Whether you are providing your customers with goods or services, it is always a wise idea to have a

standard set of contracts to use with your customers. If you are selling goods, your contract can be as

simple as the standard terms and conditions that you place on the back of your quotations or order

acceptances. Developing a standard contract for your business can be cost-effective as well by

reducing the time your attorney may need for reviewing contracts on your behalf. Also, in the event

of breach, rights and remedies spelled out in a contract may greatly reduce the amount of time your attorney may need in helping you resolve the dispute.

Understanding the Boilerplate

Many business owners will often start and end their review of contracts by verifying that the business

terms (e.g., quantity and price) are properly reflected in the document. They will assume that the rest

is just ―standard legal boilerplate‖ that is not worth time or negotiation. However, by skipping over the

boilerplate, you run the risk of waiving your rights or agreeing to obligations that you might otherwise

prefer to avoid. For example, it is not uncommon to see a provision in a contract that requires any disputes between the parties to be litigated in the courts of a particular state. While this provision may

seem innocuous enough on its face, if the forum selected is a considerable distance away from your

business (such as California), do you really want to assume the extra cost of hiring an out-of-state

attorney and traveling to that other state in the event of a contract dispute? Likewise, you will often

find a provision in the boilerplate that says that all of the terms of the parties’ agreement are contained

in the contract document and any other understandings not included therein are not enforceable. If


that provision is present, it becomes critical that all terms for the transaction are spelled out in the

contract. Otherwise, you may be barred from obtaining everything that you intended to be provided under the contract relationship. In the end, the ―standard legal boilerplate‖ should not be overlooked

as it can be negotiated just like the other business terms.

Avoiding Use of Proposals as Contracts

In areas of industry where businesses provide proposals to their prospective customers, it is common to see a proposal contain a few terms and conditions at the end of the document with signature lines

for the parties to accept the proposal and terms for purposes of forming a binding contract. However,

there are several problems with using proposals as contracts. As a customer, the terms and conditions

included in the proposal are generally not specific enough to adequately address all of your risks and

obligations under the contractual relationship. As a seller, on the other hand, the proposal will often contain a lot of marketing and sales hype that can come back to haunt you later. For example, if your

proposal contains a sales pitch that states that the solution your business provides ―is easily integrated‖

with your client’s current setup, you may be assuming additional risk if problems arise during

installation that require either party to update the customer’s systems before installation can be

completed. Under those circumstances, your customer could take the position that your solution was

not ―easily‖ integrated and could try to withhold payment or cancel the contract. If this were to occur your business may not be fully compensated for all of its efforts in fulfilling the contract.

Signing the Contract

After you have taken the time to negotiate and review all of the contract terms, do not overlook the

final and important step of obtaining a fully signed copy of the contract for your records. In most cases,

it is acceptable to sign a document electronically if both parties have agreed to this manner of signature. Many companies will also accept a signature transmitted by fax as an acceptable form of

signature in lieu of an original. Regardless of how the contract is signed, it is important to put a system

in place for maintaining signed copies of these important documents. You should never rely on the

unsigned version of a document as evidence of a contract, as your attorney will need the signed copy in

order to be able to assist you effectively in the event of a dispute.

When signing a contract, be sure that the name of your business appears above the signature line and below the signature line you write or type your name and title. Use of witness lines can help to

eliminate the possibility of challenges being raised as to whether the signing party actually signed the

contract. In most instances, however, business contracts do not need to be witnessed or notarized.


An example of a signature block for a corporation might look as follows:

ABC, Inc.

By: ____________________ John D. Smith, President

Insurance

Given the significant amount of resources that you will inevitably expend in order to get your new

business off the ground, protecting your investment through appropriate insurance coverage is a wise

step. Indeed, in some contexts, insurance coverage is even mandated by law. The following is a brief overview of some of the forms of insurance that you may encounter through your business venture.

Types of Business Insurance

General Liability Insurance – Covers claims due to accidents, injuries or claims of negligence as a result of

your business operations. Claims for property damage, bodily injury and medical expense are also

generally covered, as well as the costs for defending such lawsuits.

Product Liability Insurance – Covers claims arising from a defective product that causes harm or bodily

injury. This type of insurance is available for product manufacturers, as well as for distributors, wholesalers and retail businesses who sell a defective product.

Professional Liability Insurance – Covers claims arising from malpractice, errors or negligence in the

provision of services to customers. (Also known as errors and omissions insurance.) For certain professions, professional liability insurance may be required under state law.

Employment Practices Liability – Covers claims arising from employment practices violations including

wrongful termination, harassment, discrimination, retaliation, employment-related libel or slander,

wrongful failure to employ and failure to grant tenure.

Commercial Property Insurance – Covers everything related to the loss or damage of company

property. ―Property‖ can be broadly defined to include buildings, computers, money, lost income or business interruption.

Home-Based Business Insurance – Because homeowners’ policies generally do not cover home-based

business losses, either a rider to your existing policy or a new policy may be warranted to protect the

business property located within your home.

In addition to policy limits, any of these types of policies can contain certain unanticipated

exclusions or limitations on your coverage. Accordingly, you should examine any policy carefully

with your insurance agent in order to ensure that you understand how those limitations may

affect your rights to recover at a later date.


Insurance Requirements for Employers

In addition to the general insurance policies that you may elect to obtain for your business, if you employ individuals you may also be required to pay for certain types of insurance:

Workers’ Compensation Insurance – Under New Hampshire law, every employer who has any

employees, full or part-time, is required to cover those employees with workers' compensation

insurance. Such insurance coverage must be obtained regardless of whether the employees are related

to the business owners. In addition, coverage must be provided even if the business is a "non-profit" organization.

Key Employee Insurance

The founders of a small business who are involved with developing key customer or supplier

relationships, overseeing daily operations of the business, and/or handling the business’ finances are

viewed as ―key‖ employees because of their critical roles in running the business. Key Employee Insurance is designed to protect a business against the loss of such employees by compensating the

business against losses that may arise in the event of that person's death or disability.

Key Employee Insurance is sometimes required by banks as a condition for approving a loan, as it

grants the bank an avenue through which to recover its money in the event of a founder’s death or

incapacity. Similarly, in a business with several founders, Key Employee Insurance can be maintained in

order to provide the surviving founders with money to buy the deceased founder’s stake in the

business. This is beneficial not only to the business, but also the deceased founder’s estate as it can

provide much needed liquidity at a very difficult time for that founder’s family.

Leases

Leasing office or industrial space for your new business is an important decision that may

substantially impact your business operations. On one hand, if your lease does not allow for

expansion or the ability to sublease and relocate, you run the risk of slowing your business’ growth. On the other hand, leasing additional space that your business does not need can waste your

precious cash reserves. A balance between these competing objectives is therefore critical.

At the same time, like other contracts, leases come in all different shapes and sizes. Some give the appearance of being non-negotiable form documents and heavily favor the landlord. Even when faced

with so-called ―standard‖ leases, however, you should never assume that the lease terms cannot be

negotiated. If a broker or landlord is unwilling to change the form itself, an amendment to the form

can always be added to better reflect your understanding of the lease relationship.

Some of the more common issues that appear in leases that you may want to consider are:


Construction -- If there will be initial construction to build out the space, a detailed description of the

improvements (usually set out in a floor plan), as well as the time, cost and responsibility for the work

need to be incorporated into the lease. If the landlord is responsible for construction, the lease should

also require substantial completion of the work and issuance of a certificate of occupancy as conditions that must be met before the lease term commences.

Parking spaces -- The exact number, location and additional charge, if any, should be clearly set out in the lease. The same is true for storage areas.

Operating Expenses -- If the lease requires your business to share the operating expenses for the

building, be sure to ask the landlord what is included in the definition of ―operating expenses‖ and

ensure that the definition contained in the lease is limited to only those items specified. Along the same line, you should also check to make sure that the lease grants you the right to review the landlord’s

invoices relating to those operating expenses.

Taxes -- If the lease requires your business to share in the taxes assessed to the building, you may want to consider negotiating for the right to receive refunds and abatements.

Landlord Defaults -- If the landlord does not comply with its obligations under the lease, in most cases,

you will not be able to withhold rent or engage in other ―self-help‖ measures unless you are granted

the specific right to do so under the lease. However, a self-help provision is not something that a

landlord will readily agree to and may be a point of considerable negotiation. In the event that a self-

help clause is not included in your business’ lease and a breach by the landlord occurs, you should

consult an attorney about your options for recovering all or a portion of the rent you have paid

during the period of breach.

Access by Landlord -- While it may be necessary for the landlord to have access to the leased space for

purposes of repairs or showing the space to a new tenant, that right of access can be limited.

Provisions can be included in the lease to require the landlord to first provide notice to you and, when possible, to perform any repairs or showings at such times when it will be least disruptive to

your business.

Extensions and Expansions -- Even if you are leasing space in a building that is fully occupied, if you

believe that your business may expand in the future an option to lease additional space within the building may be something worth considering having addressed upfront in your lease.

Damage to the Building -- In the event of fire, flood or other damage to the building (including

condemnation), be sure that the lease gives your business the right to terminate the lease if

restoration is not completed within a specific period of time. The obligation to pay rent during the restoration period should also be reduced or abated depending on whether your business is able to

remain in the building or is forced to temporarily relocate.


Hiring Employees


Employees vs. Independent Contractors

There are several laws that impose varying conditions and requirements upon a business based upon

whether the business has either ―employees‖ or merely employs independent contractors. These include New Hampshire wage and hour laws, unemployment laws, workers’ compensation laws,

federal tax laws and other common law tests used to determine whether an individual is subject to

federal employment laws.

Improperly classifying an individual as an independent contractor versus an employee can result in the imposition of penalties and fines for non-compliance with federal and state employment laws (e.g.

payroll deductions, record-keeping requirements, etc.). Due in no small part to a perceived trend of

employers misclassifying individuals as independent contractors for purposes of circumventing the

imposition of certain taxes and employment laws, this issue has become a hot topic for enforcement actions by state and federal agencies. The penalties for noncompliance can be steep. For instance,

violations of many laws administered by the NH Department of Labor (including those arising from misclassification) carry with them a penalty of up to $2500 per violation. Additionally, an employer will be liable for back payments on any unpaid payroll taxes or other payments required under wage and

hour laws.

State Law Tests

Under the state labor law, Workers’ Compensation law and the Whistleblowers’ Protection Act,

anyone who performs services for pay for an employer is presumed to be an employee. This

presumption may be rebutted, however, by proof that an individual meets all of the twelve specific

criteria set forth in the New Hampshire labor and employment statutes. Following amendments that

took effect on January 1, 2008, it has become much more difficult for an individual to qualify as an

independent contractor.

For purposes of state unemployment compensation, an individual who performs services for wages is deemed to be employed unless it is shown to the satisfaction of the Commissioner of the

Department of Employment Security that:

(a) Such individual has been and will continue to be free from control or direction by the business over the performance of such services, both under his contract of service and in fact; and

(b) Such service is either outside the usual course of the business for which such service

is performed or that such service is performed outside of all the places of business of the enterprise for which such service is performed; and

(c) Such individual is customarily engaged in an independently established trade, occupation, profession, or business.


Federal Law Test

The test under federal law is less precise and focuses on the totality of the circumstances as they

pertain to the relationship between the worker and the business. Generally, the critical factor in the

analysis will be evidence of control or independence. According to the Internal Revenue Service (IRS), the facts that provide evidence of such control or independence fall into three categories: behavioral

control, financial control, and the type of relationship itself.

Suffice it to say, the analysis as to whether a worker is an employee or an independent contractor is

fact specific. Ultimately, courts will look at the big picture - no one factor is outcome determinative.

Instead, all the incidents of a given relationship will be weighed in order to determine whether that

relationship fits within the confines of the employer-employee category.

In the end, given the complexity of the analysis the state and federal authorities employ, it is generally advisable to seek the counsel of an attorney who specializes in labor and employment law when determining whether to classify someone as an employee or an independent contractor.

Deferred Compensation Arrangements & Stock Options

Granting stock options or other equity incentives to employees of your business can be an

attractive option for conserving working capital while also incentivizing your personnel to perform

at their best. There are a number of monetary and equity incentives that businesses should

consider.

Cash Bonus

A cash bonus can be structured so that employees receive bonuses upon meeting certain

benchmarks, such as a certain level of sales revenue or meeting a defined point on a product development timeline.

Incentive Stock Options

Incentive Stock Options (ISOs) are a special type of stock option that receive special treatment under

the federal tax code. They may only be granted to employees of a corporation and must be granted

pursuant to a stock option plan that specifies both the total number of option shares available for

issuance under the plan and the criteria for employee participation. As noted in a preceding section,

ISOs are not available for an employee of an LLC or a partnership.

The stock option plan must be approved by the stockholders of the corporation within 12 months

of its adoption by the Board of Directors. In addition, options to employees must be exercised

within 10 years from the date of grant. Typically, options vest over time and unvested shares may be

subject to forfeiture upon termination of employment. There are certain other criteria that must be

met for an option to be deemed an ISO. If properly held and structured, any gains from the eventual sale of the stock will be treated entirely as long-term capital gain income, which is generally more


beneficial to the employee than having the option recognized as income at his/her individual tax

rate.

Non-qualified Stock Options

Non-qualified Stock Options (NSOs) may be granted to any person who provides services to a

business. ISOs that fail to meet all of the qualifications under federal tax law are automatically treated

as NSOs.

The tax treatment of NSOs are substantially different from those of ISOs. Although an optionee is not

required to recognize any income upon the grant of an NSO, upon exercise of the NSO the optionee must recognize any difference between the exercise price and the actual fair market value of the shares at the time of exercise as ordinary income compensation. Upon sale of the shares that were

granted under the NSO, the optionee will then recognize longterm or short-term capital gain income on the difference between the stock’s value at the time of exercise and its value at the time of sale.

Stock Appreciation Rights

A Stock Appreciation Right (SAR) is an award that provides the grantee with the ability to profit from the appreciation in value of the company’s stock over a set period of time. SARs are similar to

stock options in that they are granted at a set price, and generally have a vesting period and an

expiration date. However, unlike an option, the employee is not required to pay an exercise price to

exercise them. Rather, he or she simply receives the net amount of the increase in the stock price in either cash or shares of company stock, depending on plan rules. Because the SAR is essentially a

cash bonus, they have the added benefit of avoiding issues concerning both adding employees as

stockholders and equity dilution that can arise with other incentive options.

Phantom stock plans are very similar to SARs.

Tax Implications with Deferred Compensation

Regardless of the type of equity incentive program you wish to adopt, you need to be aware of the

federal tax rules concerning deferred compensation under Section 409A. Section 409A of the Internal

Revenue Code applies to compensation that employees earn in one year but that is not paid until a

future year, including equity compensation arrangements. There are strict rules that need to be

followed in order for an equity compensation arrangement to be exempt from Section 409A. Failure to comply with Section 409A can result in the compensation being subject to current taxation plus a

20% penalty.


Compliance with Federal and State Employment Laws

The following is a brief overview of only some of the employment issues that can arise under Federal and State employment laws. Given the breadth of law governing the employer-employee relationship,

it is highly advisable that all new business owners engage qualified legal counsel in order to review

their employment practices and policies prior to hiring a first employee.

Mandatory Notifications to Employees

Under New Hampshire law, at the time of hire, employers are required to notify employees in writing of their rate of pay, and the day and place of payment. Employers must pay all wages due to

employees within 8 days after the expiration of the week in which the work is performed, on regular

paydays designated in advance. The New Hampshire Department of Labor may allow payments to be

made less frequently, for ―good cause shown,‖ if an employer submits a written request to do so.

In no event may an employer pay employees less frequently than once per month.

Among other things, employers are also required to notify employees in writing, or through a posted notice maintained in a place accessible to employees, of: (a) employment practices and policies with

regard to vacation pay, sick leave or other fringe benefits; (b) deductions made from the employee’s payroll check for each pay period such deductions are made; and (c) information regarding the

deductions allowed from wage payments under state law. Changes to any policies affecting vested

leave accruals and other fringe benefits may only be implemented on a going forward basis.

Mandatory Notifications to State Agencies

Under New Hampshire law, every employer must report every new hire and rehire (and

contractors over $2,500) to New Hampshire Employment Security (NHES). Employers may file a

―new hire‖ report by faxing or mailing the employee’s W-4 form to NHES. This information must

be reported within 20 days of the hiring or rehiring of the employee. For independent contractors,

the employer may submit a copy of the contractor’s W-9. There is a $25.00 penalty for filing a late

report.

Employment Eligibility Verification

Federal law requires that all employees submit Form I-9 to their employers to verify that they are authorized to work in the United States. Employers are responsible for ensuring that Form I-

9’s are properly and timely completed for each new employee. Employers must complete the

Form I-9 by examining evidence of identity and employment authorization within 3 business days

from when employment begins. The completed form must then be retained by the employer and made available for inspection by U.S. Government officials. Failure by employers to verify the

eligibility of individuals for employment can result in civil and criminal penalties.


Breaks and Lunch Hours

Under New Hampshire law, employees who work more than five consecutive hours must be given a

meal break, paid or unpaid, unless it is feasible to eat during the performance of the work and the employer permits the employee to do so. Employers are not required to pay an employee for meal

periods or breaks of more than twenty (20) minute. Employer time records must show the actual

time in/out from unpaid meal breaks. Payroll systems which automatically deduct meal periods are not

permitted.

Unemployment Insurance Tax

If your business hires employees in New Hampshire, it must register with New Hampshire

Employment Security and pay taxes into the Unemployment Compensation Trust Fund. This tax is

utilized to pay benefits to displaced workers and must be paid in addition to the federal

unemployment insurance tax under the Federal Unemployment Tax Act (FUTA).

Health and Welfare Benefits

Assuming your business can afford it, offering health and other employee benefit plans to employees

may help attract and retain a talented pool of workers. Currently, there are no federal or state laws

that require employers to provide health insurance to employees in New Hampshire. It is therefore up

to the employer to decide whether to offer health insurance as an employment benefit and what kind

of plan will be offered. The same is true for retirement and qualified pension plans. Many employee benefit plans involve enormously complex qualification, compliance and nondiscrimination rules and can

typically be offered only to employees, not independent contractors. A third party plan administrator

and legal counsel should be consulted to advise you of plan options and costs before implementing a

formal benefit plan.

If your business cannot offer a formal health insurance plan because of your business’ size and the

associated cost, you can reimburse your employees for payments towards their personal health care

coverage at whatever rate makes sense for your business. However, before offering such medical expense reimbursements, your understanding with those employees for which you provide

reimbursement should be set forth in writing and both parties should understand the tax implications

of such additional compensation arrangements.

Jury Duty and Voting Requirements

New Hampshire law requires that employees be granted jury duty leave and prohibits employers

from discharging employees based on jury service. Employers are not required to pay hourly

employees for time out on jury duty leave. However, a salaried employee must be paid for the full

pay period if he or she worked at all during that period. Employers are required to pay salaried employees for time not at work due to jury duty but may offset any amounts received by the

employee for jury duty for a particular pay period against the salary due for the pay period provided

that this is done pursuant to a written leave plan, practice or policy. New Hampshire law does not

require that employees be given time off to vote.


Some Federal and State Laws Dealing with Discrimination

Civil Rights Act of 1964, Title VII – Covers employers with at least 15 employees – protects against

discrimination based upon race, color, gender, national origin, and religion.

Age Discrimination in Employment Act of 1967 – Covers employers with at least 20 employees –

protects against discrimination based upon age against people who are age 40 or older.

Americans with Disabilities Act of 1990 – Covers employers with at least 15 employees – protects against discrimination based upon disabilities, the perception of disabilities, or association with people with

disabilities.

Immigration Reform and Control Act of 1986 – Discrimination protection provisions cover

employers with at least 4 employees – protects against discrimination based upon national origin or citizenship.

NH Law Against Discrimination – Covers employers with at least 6 employees – protects against

discrimination based upon age, sex, race, color, marital status, physical or mental disability, religious

creed, national origin or sexual orientation.

Leaves of Absence

Family and Medical Leave Act

The Family and Medical Leave Act (―FMLA‖), 29 U.S.C. §§2601 et seq. is a federal law that requires

employers to provide an eligible employee with up to 12 weeks (in certain circumstances 26 weeks) of

unpaid leave from work in a 12 month period for an FMLA qualifying reason, which is:

For the birth of a child and to care for the newborn child;

For placement with the employee of a child for adoption or foster care;

To care for the employee’s spouse, son, daughter, or parent with a serious health

condition;

Because of a serious health condition that makes the employee unable to perform the functions of his or her job;

Because of a qualifying exigency arising out of the fact that an employee’s spouse, son or

daughter, or parent is on active duty or called to active duty status in support of a

contingency operation as a member of the National Guard or Reserves; or

Because an employee is the spouse, son or daughter, parent, or next of kin of a covered servicemember with a serious injury or illness.

29 C.F.R. § 825.112(a).

Only those employers who are covered by the FMLA are required to provide FMLA leave to eligible

employees. The FMLA applies to employers engaged in commerce or in any industry or activity

affecting commerce who employ 50 or more employees for each working day during each of 20 or

more calendar work weeks in the current or preceding calendar year. The FMLA also applies to public


employers without regard to the number of employees employed by the public agency. Additionally,

the statute specifically covers public and private elementary and secondary schools without regard to

the number of individuals they employ.

Only ―eligible‖ employees may take FMLA leave. To be eligible for FMLA leave, an employee must be

employed by an employer who is covered under the statute and:

(a) must have been employed by the employer for at least twelve (12) months (not

necessarily consecutive months); and

(b) must have been employed for at least 1,250 hours of service during the twelve month

period immediately preceding the commencement of the leave; and

(c) must be employed at a work site where fifty (50) or more employees are employed by

the employer within seventy five (75) miles of that work site.

29 C.F.R. § 825.110 and 111. While the FMLA covers public employers of any size, employees of public employers are eligible for FMLA leave only if the employer employs 50 or more employees at

the employee’s work site or within 75 miles of the work site. Id.; see also 29 C.F.R. § 825.108(d).

Properly administration of the FMLA can be complicated; employers have specific and detailed notice

requirements that must be met on strict timelines.

Americans with Disabilities Act of 1990

The Americans with Disabilities Act of 1990 (―ADA‖) is a comprehensive anti-discrimination statute

that prohibits discrimination against qualified individuals with disabilities in private employment, state

and local government employment, public accommodations, public transportation, state and local

government services, and telecommunications. Under the ADA, employers are obligated to provide

qualified individuals with disabilities with reasonable accommodations in order to perform the essential

functions of their position. In some instances a reasonable accommodation may include a leave of

absence.

The ADA applies to all employers with 20 or more employees, labor organizations, and employment

agencies.

Nursing Mothers’ Break (FLSA)

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act

of 2010 (jointly ―Health Care Reform Act‖) amended the Fair Labor Standards Act to create new

federal rights for nursing mothers at work, and corresponding new obligations on their employers.

Employers are now required to allow mothers for a period of up to one year following birth of a

child ―reasonable break time‖ each time the mother needs to express milk. However, the

employer is not required to pay the employee for this break time regardless of its length.

Employers are further required by this law to provide a mother expressing milk with a place

to do so ―other than a bathroom, that is shielded from view and free from intrusion from coworkers

and the public.‖


This law applies very broadly to all employers covered by the FLSA. However, employers with less

than 50 employees do not have to comply if doing so would impose ―undue hardship by causing the

employer significant difficulty or expense when considered in relation to the size, financial resources,

nature or structure of the employer’s business.‖

The Uniformed Services Employment and Reemployment Rights Act of 1994

The Uniformed Services Employment and Reemployment Rights Act of 1994 (―USERRA‖), 38 U.S.C. §§

4301 et seq., protects civilian employment for those who need to be absent from work to serve in this

country’s uniformed services. Under the Act, an employer must not deny initial employment,

reemployment, retention in employment, promotion, or any benefit of employment to an individual on

the basis of his or her membership, application for membership, performance of service, application for

service, or obligation for service in the uniformed services. Further, an employer may not

discriminate or retaliate against an employee because he or she exercises his or her rights under this

law.

The Act generally requires service members to provide advance notice to their employers of military duty, and generally requires employers to reinstate service members upon completion of military

service. A reinstated employee is entitled to the seniority and other rights and benefits determined by

seniority that the employee had on the date of the commencement of service plus the additional

seniority and rights and benefits that such employee would have attained if the person had remained

continuously employed. Employees on military leave are also entitled to the non-seniority rights

accorded other individuals on similar non-military leaves of absence. Further, USERRA requires

employers to reasonably accommodate the needs of disabled veterans. USERRA does not protect

independent contractors.

In addition, USERRA provides that employers must make reasonable efforts to accommodate the

disability of a disabled veteran. However, in such cases, the employer will not be required to re-

employ the individual if it would impose an undue hardship on the employer. 38 U.S.C. §

4312(d)(1)(B).

USERRA applies to all employers.

New Hampshire’s Maternity Leave Law

New Hampshire’s maternity leave law, RSA 354-A:7, VI, requires covered employers to provide

female employees with unpaid leave for the period of temporary physical disability resulting from

pregnancy, childbirth, or related medical conditions.

Unlike the FMLA, the law requires that leave for the period of temporary physical disability be

provided to female employees without regard for how long the employee has worked for the

employer or for how many hours the employee has worked. As leave is only required for the period

of physical incapacity, the leave begins when an employee becomes physically disabled and ends when

the employee is physically able to return to work.

The maternity leave law applies to employers with six (6) or more employees. However, it does not

apply to nonprofit social clubs or nonprofit fraternal or religious associations or corporations.


Vacation Pay, Sick Leave, And Other Leave Of Absence Policies

Most employers choose to offer their employees certain vacation and sick time benefits, and many also

offer employees the opportunity to take leaves of absence under other circumstances, such as in the

event of the death of a family member.

Employers are not required by law to provide any of these benefits of employment. However, if an

employer chooses to provide leave of absence benefits, certain laws must be followed.

A. Vacation Pay and Sick Leave

Under New Hampshire law, employers must provide employees with notice of the workplace’s

―employment practices and policies with regard to vacation pay, sick leave, and other fringe benefits.‖

RSA 275:49, III. This notice may be posted in the workplace, or may be provided to employees in

writing, usually as part of an employee handbook. Any notice given to employees should clearly state

the benefit provided, and explain the details of how and when the benefit will be available.

Under state law, vacation pay, holiday pay, sick pay, and personal days are considered ―wages . . . when

due.‖ RSA 275:43, V. New Hampshire law requires that employees be paid all of their wages within

72 hours if the employee is involuntarily terminated or if the employee gives at least one pay period’s

notice of his or her intent to quit. RSA 275:44, II. If an employee voluntarily terminates his or her

employment, he or she must receive all of his or her wages no later than the next regular pay day. Id.

B. Bereavement Leave

Employers are not required to offer bereavement leave. However, if they do, employers are free to

craft bereavement policies as they wish, as long as they comply with state and federal anti-

discrimination laws in drafting and implementing the policy. Pursuant to the new civil unions law, RSA

457-A:6, civil union partners must be treated in the same manner as spouses for purposes of this

benefit.

C. Jury Duty and Voting Requirements

New Hampshire law requires that employees be granted jury duty leave and prohibits employers from

discharging employees based on jury service. RSA 500-A:14. Violation of this provision constitutes

contempt of court. An employee discharged in violation of this provision may bring a civil suit for

recovery of lost wages, reinstatement, and attorney’s fees. Id.

Employers are not required to pay hourly employees for time out on jury duty leave. A salaried

employee, however, must be paid for the full pay period if he or she worked at all during that period.

Employers are required to pay salaried employees for time not at work due to jury duty and may offset

any amounts received by the employee for jury duty (or witness fees, where applicable) for a particular

pay period against the salary due for that pay period, provided that this is done pursuant to a ―written

bonafide leave plan, practice, or policy.‖ RSA 275:43-b, I and III. New Hampshire law does not require

that employees be given time off to vote.


D. Crime Victim Leave

The New Hampshire Crime Victim Employment Leave Act, N.H. RSA 275:61 et. seq. requires

employers with 25 or more employees to provide unpaid leaves of absence to employees who are

victims of crimes or are immediate family members of certain crime victims. Affected employers

should adopt written leave policies to comply with the law.

The law requires a leave of absence for an employee to attend court or other legal or investigative

proceedings associated with the prosecution of a crime in which the employee:

• was a victim; or

• is part of the immediate family of a homicide victim; or

• is part of the immediate family of a child under the age of 18 who was a victim; or

• is part of the immediate family of an incompetent adult who was a victim.

The law defines a ―victim‖ as ―any person who suffers direct or threatened physical, emotional,

psychological, or financial harm as a result of the commission or attempted commission of a crime.‖

―Immediate family‖ is defined as the ―father, mother, stepparent, child, stepchild, sibling, spouse,

grandparent, or legal guardian of the victim, or any person involved in an intimate relationship and

residing in the same household with the victim.‖ Pursuant to RSA 457-A:6, the term spouse should

be read to include civil union partners.

Background Checks and Pre-Employment Tests

Employers have the right to do background checks of new hires, but checking backgrounds is not an

easy process. There are restrictions placed on employer access to criminal history records, military

records, driving records, credit reports, medical data, and educational achievements. The Fair Credit

Reporting Act, for example, requires an employer to get written authorization from an applicant to do

a credit or background check if an outside agency will be used to obtain the information. In addition, if the applicant is turned down, the employer must tell the applicant why and let them know the name

and address of the service that furnished the information.

Pre-employment tests or examinations, including medical exams, must be job-related and non-

discriminatory (i.e., required of all applicants for that position). Employees cannot be required to bear the cost of any such tests. Due to the complexity of these issues, it is imperative to have a written

policy in place before engaging in such testing programs.


Other Important Matters


New Hampshire Business Taxes

Due in no small part to its lack of both a general sales tax and personal income tax, the State of New

Hampshire has developed a sophisticated and comprehensive business taxation system. Accordingly, because taxes are an unavoidable consideration in all business transactions, the following discussion

covers some of the highlights of the taxes imposed upon businesses in New Hampshire.

New Hampshire Business Profits Tax

The business profits tax (―BPT‖) is an entity level net income tax imposed upon all for-profit business organizations conducting business within the state of New Hampshire which have gross business

income in excess of $50,000. Even those business organizations that are entitled to ―pass through‖

federal taxation, including LLCs and so-called S Corporations, are subject to the BPT. Moreover, the

$50,000 gross income cut off is based upon all sources of income, not merely that received in New

Hampshire. However, for those entities operating in more than one state, taxable business profits is

apportioned among the states in which the business is operated based upon a complicated three factor test. The BPT is currently 8.5% of these taxable business profits.

New Hampshire Business Enterprise Tax

The business enterprise tax (―BET‖) is an entity level tax imposed upon all ―business enterprises‖

(which is defined slightly broader than ―business organization‖ under the BPT) that carry on business

activity in New Hampshire. A BET return must be filed if a business enterprise’s gross business receipts

exceed $150,000, which amount includes all business receipts from all sources and not merely those

from New Hampshire. A BET must also be filed by entities with an ―enterprise value tax base‖ greater than $75,000. The enterprise value tax base is determined by combining the total amount of wages

paid or accrued, interest paid or accrued, and dividends paid, before certain special adjustments or

apportionment. At present, the BET is imposed at a rate of .75% of the enterprise value tax base.

Currently, a credit is allowed against the amount owed for the BPT for the amount of BET paid.

New Hampshire Real Estate Transfer Tax

Perhaps the most surprising facet of New Hampshire taxation for entrepreneurs that are unfamiliar

with the state is the real estate transfer tax (―RETT‖). At present, the tax is imposed at the rate of

$1.50 for every $100 of consideration exchanged for a parcel of real estate. Although this amount is

typically split between the contracting parties, it is well in excess of that charged by neighboring states

for similar transactions (for example, Massachusetts imposes a tax of $.45 per every $100).

The RETT also arises in transactions that involve even an indirect transfer of an interest in real estate. For instance, the tax is imposed in transactions that involve the sale of an interest in a real estate

holding company and the execution of a lease which has the potential to last more than 99 years. To

be sure, the statute creates a presumption that all transfers involving an interest in real estate are

subject to the RETT. Accordingly, given the amount of the tax and the frequency in which it is

imposed, if your business will in any way possess rights to an interest in real estate, you must


consider whether there are any real estate transfer tax implications.

Other State Taxes

The foregoing is by no means an exhaustive discussion of New Hampshire taxation. The state has numerous other taxes that you could potentially encounter while operating your business, including

the: (1) Interest and Dividends Tax (applicable to New Hampshire residents and some businesses),

(2) Meals, Rooms and Rentals Tax (which businesses are legally required to collect from customers

on behalf of the state), (3) local Real Estate Taxes, (4) Current Use Tax, (5) Forest Yield Tax, and (6)

Communication Services Tax. Given the costly ramifications associated with a business’ failure to pay

its taxes, entrepreneurs ignore these tax laws at their peril.

Protecting Your Intellectual Property

A trademark is a distinctive element or collection of elements, used by an individual, or other legal

entity, to identify that the products and/or services associated with the trademark originate from a

particular source. Some potential types of trademarks that a small business might use could include a logo, or even a phrase associated with some or all of the business’s goods and/or services.

Statutory protection of trademarks and related property is provided at the federal level by the

Lanham Trademark Act of 1946. Many states, including New Hampshire, also have state trademark statutes. To register for federal protection, an application must be filed with the U.S. Patent and

Trademark Office (USPTO) in Washington, D.C. An applicant can file for registration of a mark (1)

that the applicant is currently using in commerce or (2) that the applicant intends to put into

commerce. However, generally prior to registration, the mark needs to be used in commerce.

Registration is for a period of ten years and can be renewed indefinitely as long as the owner

continues to use the trademark.

Only trademarks deemed sufficiently distinctive from competing trademarks are protected under the

law. Fanciful, arbitrary, or suggestive trademarks are generally considered to be the most distinctive

trademarks. Descriptive terms, geographical terms, and personal names are not inherently distinctive

and do not receive protection until the trademark owner can establish that those terms have become associated with the owner’s goods over a period of time. Generic terms, such as aspirin, car or

computer, cannot be trademarked.

The scope of protection can dependent on numerous factors including registration, breadth of use

associated with the mark, and region of use of the mark. Others who may copy an existing

trademark to a substantial degree or use in its entirety may be subject to claims of infringement.

When asserting your rights in a trademark or service mark that your business has adopted, the ―TM‖

or ―SM‖ symbol may be used for trademarks that are not registered or are only state registered. The

® symbol may only be used once a trademark or service mark is federally registered and only in

association with the goods and / or services associated with the registration.


Patents

A patent gives an inventor the exclusive right to exclude others from making, using, or selling an invention from the issuance of the patent until the patent expires. A utility patent generally expires

twenty years from the patent application filing date. A design patent expires fourteen years from the

date of issuance. Upon issuance of the patent, the applicant may have some rights that date back to the date of publication of the patent application. Registration cannot be renewed and upon expiration, the

invention becomes available for use by the general public. To qualify, an applicant must satisfy the U.S.

Patent and Trademark Office (USPTO) that the invention, discovery, process, or design is genuine,

novel, useful, and not obvious in light of current technology.

Almost anything is patentable except for (1) the laws of nature, (2) natural phenomena, and (3)

abstract ideas (including algorithms), although the recently enacted America Invests Act has changed

the patentability of some forms of business methods. Genetically engineered (or cloned)

microorganisms and animals are also patentable in the United States. By obtaining a patent, you

obtain the right to file a patent infringement suit against others who attempt to make, use, or sell

any products that infringe upon your patented design, product or process.

In the U.S., an inventor has one year from the first public disclosure of or offer for sale of their

invention in order to file a patent application before the subject matter is deemed to have been donated to the public, and as such, is no longer patentable. In most of the rest of the world, there is

an absolute novelty standard, meaning that any disclosure of the invention before filing for patent

protection renders the invention unpatentable. For these reasons, it is important to consider

whether or not your business wishes to pursue patent protection before making any public

disclosures.

Copyrights

An author obtains a copyright in an original work when it is fixed in a tangible medium. There are five exclusive rights in a copyrighted work: reproduction, modification, distribution, public

performance, and public display. By federally registering, one gets additional statutory protections,

such as the right to bring an infringement action and additional statutory damages. Anyone who

violates any of the exclusive rights of a copyright owner is an infringer.

Copyright law protects works that are original and fall into one of the following categories:

Literary works

Musical works

Dramatic works

Pantomimes and choreographic works

Pictorial, graphic, and sculptural works Films and other audiovisual works

Sound recordings Architectural works


Protection is not available for any ―idea, procedure, process, system, method of operation, concept,

principle, or discovery, regardless of the form in which it is described, explained, illustrated, or

embodied.‖ Ideas may be freely used by anyone—what can be copyrighted is the original way in which an idea is expressed.

Protection lasts for the life of the author plus 70 years. For businesses, protection expires 95 years

from the date of publication or 120 years from the date of creation, whichever is first. Copyright

infringement occurs when the form or expression of an idea is copied in substantial part. A copy does not have to be an exact duplicate of the original or reproduce it entirely, as substantial similarity to a

copyrighted work is sufficient for a claim of infringement.

Generally, an employer is the owner of a copyrighted work that is created by an employee in the

course of his or her employment. If the creator is not an employee, the copyright will remain with the

creator unless the parties agree in writing that the work was commissioned and qualifies as a ―work

made for hire.‖ It is recommended that published works (including publication on the Internet) bear a

copyright notice as follows:

© [Year of Publication]

[Name of Copyright Owner]

All Rights Reserved.

Trade Secrets

Some business processes and information that cannot be patented, copyrighted, or

trademarked are protected against appropriation by a competitor as trade secrets. Customer lists,

plans, research and development, pricing information, marketing techniques, production techniques,

formulas, and generally anything that makes an individual company unique and that would have value

to a competitor constitute trade secrets.

In order to gain protection under federal or state law, the owner of a trade secret must continue

to maintain its confidentiality. Once the information is no longer secret, it is no longer protected.

It is possible for a copyrighted work, such as a copyrighted program, to contain trade secrets or other proprietary information. Likewise, disclosure of an invention prior to applying for a patent can

limit or prohibit protection under patent law. Therefore, it is generally advisable that before engaging

in discussions with any third parties whereby you might need to disclose a trade secret or invention,

a confidentiality agreement should be signed by the parties.

Privacy Laws

In addition to confidential information that you may maintain for your own business, be aware that there is an increasing number of federal and state mandates concerning the protection of your

customers’ personal information, including credit card and bank account information. For health care

providers (including doctors, dentists, psychologists, chiropractors, nursing homes and pharmacies),


federal HIPAA privacy rules require those providers to protect the privacy of their patients’ health

information. Those meeting the definition of a ―financial institution‖ must comply with the privacy

rules mandated under the Gramm-Leach-Bliley Act. The Federal Trade Commission has also issued rules known as the ―Red Flag Rules‖ that require any business that extends credit to consumers to

have a written policy designed to identify and detect signs of identity theft.

Nearly every state has some form of data breach notification law, and some states also have data

security laws. For example, under New Hampshire’s State Data Breach Notification Law, ―any person doing business in this state who owns or licenses computerized data that includes personal

information shall, when it becomes aware of a security breach, promptly determine the likelihood that

the information has been or will be misused. If the determination is that misuse of the information

has occurred or is reasonably likely to occur, or if a determination cannot be made, the person shall

notify the affected individuals as soon as possible….‖ Under NH law, a ―person‖ is defined very

broadly, and ―personal information‖ relates to information that is not encrypted.

Under Massachusetts’ State law, there are not only data breach notification provisions, but also

separate data security regulations. Massachusetts’ Data Security Regulations pertain to all persons

who ―receive, store, maintain, process, or otherwise have access to‖ personal information about

Massachusetts residents. The regulations further require every business to have a Written Information Security Program (―WISP‖).

Notification requirements in the event of a data breach are common among the various data security

laws, but the specific requirements often vary. In some cases the data security laws require a certain

level of harm in order to qualify as a data ―breach,‖ but many do not. In some cases, the duty to notify can include a requirement to supply credit monitoring and/or credit protection services to the

affected individuals. Other notification requirements include notifying the Attorney General’s Office,

notifying supervisory agencies, or even notifying media outlets. As you can see, notification costs

could easily cripple your business depending on the number of affected individuals, and the method of

notification required.

The costs associated with notification of a data breach are in addition to provisions in many data-security laws that provide for damages, including treble damages for willful violations, and the costs

associated with reputational losses following a data breach. But, one similarity across various data

breach notification requirements is that if the data is encrypted, and the encryption is not

compromised, then the duty to notify is relieved.

It is possible for a business to be subject to more than one of these privacy laws at any given time and

compliance with one law does not automatically qualify as compliance under the other laws. It is

therefore important to consult your attorney if you maintain personal account information of your

customers in order to determine what compliance steps you may need to take under these various laws.

Raising Money

Whether you borrow money from a bank or take private investment money, having sources available

to maintain sufficient capital to operate and grow your business will be critical to your success.


Getting Ready To Make Your Pitch

Before going to see your local banker or searching for investors for your business, it is a good idea to

develop a professional looking business plan. Not only should the business plan be well-edited, neat and logically organized, it should aim to convey critical information about your business venture in a

concise and focused way.

A key component of a business plan is the executive summary that summarizes the business

opportunity, the experience of the management team and the overall expectations for the business’

growth in a passionate and compelling way. Other components include critical analysis of the market

(your competitors, your customers and how your business fulfills a need in the marketplace), as well

as financial projections over the next 3 to 5 years and a detailed discussion about the skills and experience of the existing management team. Creating a good business plan will not only assist you in

defining your goals for your business but once completed, can be quite useful in gaining the

confidence of would-be investors that you have done your homework and are prepared to lead your

new venture.

Selling Stock and Other Securities

Federal and state laws require that all offers and sales of stock or other securities must be registered

with the U.S. Securities and Exchange Commission (SEC) and applicable state securities agencies

unless an permissible exemption from registration exists. Failure to comply with federal and state

securities laws can result in the imposition of fines, civil and criminal liability and other measures for both the company selling its stock and its owners and management.

For small businesses, registering their stock with the SEC and state agencies (also known as ―going

public‖) is too time-consuming and expensive for raising the kind of capital they need. However,

exemptions are available to permit small businesses to accept investment in their businesses from a limited number of sophisticated investors in what are known as ―private placements.‖

In order to qualify as a private placement that is exempt from federal and state securities laws, the

offering must generally be limited to a small group of sophisticated investors with certain disclosures

about the business being made, and without general solicitation or advertising of the investment

opportunity. In addition, even though exempt from registration, notice of the transaction may also

need to be filed with the SEC and appropriate state securities agencies within a short period of time after the offer or sale of the stock. Again, similar to registration requirements, failure to comply with

the necessary notice filings for private placements can result in substantial liability for your company

and its majority shareholders, directors and officers.

Because satisfying the exemption requirements and notice filing requirements can be quite technical in nature, and the consequences for failing to comply can be quite severe, it is

essential to speak with an attorney experienced in private equity financing prior to offering to sell

stock or other securities in your company to anyone.


Acquiring Real Property

For businesses electing to acquire real estate for their operations, it is important to recognize the

various local and State regulations that may affect the use and development of land.

Municipal Zoning Restrictions

Prior to purchasing any property, it is essential to determine whether your intended use will be

allowed under the zoning regulations for the municipality in which it is located. Almost every New

Hampshire municipality has enacted a zoning ordinance which restricts the use of properties within certain zones. For example, most towns have at least set aside certain areas where only residential,

commercial, or industrial uses are specifically permitted and all other uses excluded. Thus, it is

imperative to determine whether your business use will be permitted in the zone in which your

property lies.

Municipal Land Use Regulations

If you intend to construct new buildings on your property, or expand existing structures, it is also

important to determine whether any municipal approvals will be needed. Most municipalities require a

site plan to be approved by the municipal planning department or planning board for new construction or significant improvements. Even after a site plan has been approved a building permit is

required before construction may begin and a certificate of occupancy must be issued before the

building may actually be used. Local subdivision approval from the Planning Board may also be

required for your intended use of the property.

State and Federal Permitting Requirements

Several state permits may also be required from the New Hampshire Department of Environmental Services (DES) prior to any new development. While those permits will vary greatly depending on the

nature of your new business, it is important to recognize that any new development and construction

(even for non-industrial facilities) may require environmental permits. For example, any impact to

wetlands may require a wetlands permit from DES (and possibly the US Army Corps of Engineers).

Depending on the location and size of your proposed construction activity, you may also need a state alteration of terrain, a state shoreland permit or a federal stormwater permit prior to construction.

Therefore, it is essential to determine what potential impacts your new business may have prior to

initiating any new development activity on your property.

Environmental Due Diligence

Finally, given the potential costs of failing to do so, it is essential that you consider whether there are any environmental issues present prior to purchasing real estate. Under state and federal law,

landowners may be held responsible for the clean-up of contamination on their property regardless

of whether they actually caused the environmental impact. Accordingly, proper due diligence is

essential to avoid liability for pre-existing contamination. This is typically accomplished by the

completion of an environmental site assessment of the property by an environmental professional.


An agreement to purchase real estate should allow for environmental due diligence and include a

provision making the buyer’s satisfaction with the results of any environmental investigation a

condition of the purchase.

Estate Planning

Importance of Estate Planning

It is never too early for a business owner to think about estate planning. Business owners should give

careful consideration to the continuation, sale or liquidation of their business in the event of their

incapacity or death. Indeed, properly drafted estate planning documents will work in conjunction with

existing business agreements to ensure a smooth and efficient transition of the business in the event of

a business owner’s incapacity or death.

Many individuals establish estate plans to avoid probate. Probate is a public process overseen by the

Probate Court. Assets that are owned by a deceased individual (and are not jointly owned or have

designated beneficiaries) are passed along either to the deceased individual’s heirs or those people

named in a Will or a Trust. Probate can be a costly and time consuming process, particularly if

business interests are involved. Information about the value of all assets owned by the decedent,

including business assets, and liabilities is disclosed to the Court, therefore, business owners should

give careful consideration to probate avoidance as part of their estate plan in order to keep

information related to the business confidential.

Revocable Trusts

A business owner who establishes and properly funds a Revocable Trust during his or her lifetime will

allow the business owner’s assets to pass outside of probate. Using a Revocable Trust can also ensure

that assets will be used for the benefit of beneficiaries for specified purposes, rather than distributed

directly to beneficiaries who are either too young or otherwise unable to handle their own financial

affairs. Certain types of Revocable Trusts also permit married couples with significant wealth to

minimize or eliminate federal estate taxes.

Additionally, a successor Trustee can be specifically named and directed to handle any business assets

held in the Revocable Trust in the event of the business owner’s incapacity or death. This will ensure that the business continues at the direction of a qualified individual until such time as a successor can

step in. Alternatively, if the business owner intended for the business to be sold upon his or her death,

then the Trustee will have the ability to preserve and maximize the value of the business until such a

sale occurs.

Life Insurance

Life insurance is an important component of a business owner’s estate plan. Life insurance may be

used to fund a buy-sell agreement, provide liquidity for the business to continue during a period of

transition following the death of the owner or otherwise wind up the business. Life insurance is also a

tool that may provide liquidity for the estate of a deceased business owner in the event that there are


federal and/or state estate taxes due. Depending upon the size of the business owner’s overall estate,

these taxes can be sizable. In some well-known instances, families have been forced to sell business

assets to cover the business owner’s estate tax bill.

Succession Planning

At some point, a business owner may want to step down from the head of the company. When a

succession plan is in place, this transition can occur seamlessly. A successful succession plan is

developed over time to transition the business to the next generation. In the family business context,

a succession plan is necessary to minimize family discord, particularly in families where some, but not

all, of the owner’s children are involved in the business.

A succession plan should be another element of the business owner’s estate plan. In some cases,

transferring ownership of the business over time can result in significant estate tax savings without

immediately relinquishing control of the management of the business.

This booklet provides only a general overview of certain legal issues that may affect your business and does not consider

the particulars of any planned business venture. Because sound legal advice must necessarily take into account all

relevant facts and developments in the law, the discussions in this booklet should not be relied upon to comprehensively

address all legal issues that relate to a particular business situation and is not intended to

constitute legal advice or a legal opinion as to any particular matter.

Copyright 2014, Devine, Millimet & Branch, Professional Association. All rights reserved.

Updated May 15, 2012.

www.devinemillimet.com

© Copyright 2010 Devine, Millimet & Branch, Professional Association – www.devinemillimet.com

CLIENT QUESTIONNAIRE FOR ESTABLISHING

A NEW HAMPSHIRE LIMITED LIABILITY COMPANY (LLC)

The following set of questions is designed to help us structure a limited liability company to best fit the goals of your new business venture and to identify areas that may need further consideration before the new venture begins doing business. This questionnaire is merely meant to provide a framework for formation of the limited liability company with the expectation that changes may be made during the formation process as issues arise and are resolved. Please feel free to attach an additional sheet of paper as needed. 1. NAME OF LLC: 1st Choice: _____________________________ 2nd Choice: _____________________________

(must include “LLC”, “L.L.C.” or “Limited Liability Company”) 2 LLC BUSINESS ADDRESS INCLUDING TELEPHONE NUMBER AND E-MAIL:

Tel: ( ) E-Mail 3. NATURE OF BUSINESS / PURPOSE (short description):

4. MEMBER (i.e., Owners) INFORMATION:

Name/Address/E-mail

SSN/EIN No.

Membership Interest Percentages

Consideration

(Voting, tax allocations and distributions are assumed to all be made in accordance with membership interest percentages - please note any exceptions below)


5. MANAGED BY MANAGERS: ________

IF SO, PLEASE LIST (only if different from Members - please indicate if all Members are to be Managers):

Name/Address/E-mail SSN/EIN No.

6. FEDERAL TAX STATUS (Disregarded Entity or Partnership are Default)

7. NUMBER OF EMPLOYEES EXPECTED WITHIN THE NEXT 12 MONTHS: 8. DATE EXPECTED FOR FIRST WAGES: ______________________ 9. NAME AND NH ADDRESS OF REGISTERED AGENT: _________________________

____________________________ ____________________________ ____________________________

10. WILL THE LLC OPERATE UNDER ANY TRADE NAMES? ______

IF SO, PLEASE LIST: 11. DOES THE LLC USE ANY TRADEMARK OR SERVICE MARK? _____ IF SO, PLEASE LIST: 12. SPECIAL PROVISIONS FOR THE OPERATING AGREEMENT (additional fees may apply)? 13. NAME OF ACCOUNTANT:


CLIENT QUESTIONNAIRE FOR ESTABLISHING

A NEW HAMPSHIRE CORPORATION The following set of questions is designed to help us structure a corporation to best fit the goals of your new business venture and to identify areas that may need further consideration before the new venture begins doing business. This questionnaire is merely meant to provide a framework for incorporating the corporation with the expectation that changes may be made during the incorporation process as issues arise and are resolved. Please feel free to attach an additional sheet of paper as needed. 1. NAME OF CORPORATION: 1st Choice: 2nd Choice:

(name must include “incorporated,” “limited,” “corp.,” “inc.,” or “ltd.”) 2. CORPORATE ADDRESS INCLUDING TELEPHONE NUMBER AND E-MAIL:

Tel: ( ) E-Mail:

3. NATURE OF BUSINESS / PURPOSE (short description):

4. NUMBER OF DIRECTORS: 5. DIRECTORS AND INCORPORATORS: Name/Address/E-mail SSN Director Incorporator


6. OFFICERS (must have a President, Treasurer and Secretary - the same individual may simultaneously hold more than one office):

Name/Address/E-mail SSN Office/Title

President

Treasurer

Secretary

(List Other Officers) ___________ ___________

7. NUMBER OF AUTHORIZED SHARES: __________________ 8. SHAREHOLDERS:

Name/Address/E-mail SSN/EIN No. No. of Shares Consideration

9. TAX STATUS: S-CORP _________ C CORP __________ Undecided 10. YEAR-END: ___________________________ 11. NUMBER OF EMPLOYEES EXPECTED WITHIN THE NEXT 12 MONTHS: ______ 12. DATE EXPECTED FOR FIRST WAGES: ______________________ 13. NAME AND NH ADDRESS OF REGISTERED AGENT:


14. WILL THE CORPORATION OPERATE UNDER ANY TRADE NAMES? ______

IF SO, PLEASE LIST: 15. DOES THE CORPORATION USE ANY TRADEMARK OR SERVICE MARK? _____ IF SO, PLEASE LIST: 16. SHAREHOLDER AGREEMENT DESIRED? (Y) ______ (N) (additional fees will apply) 17. NAME OF ACCOUNTANT:

The CrossCurrent Communications team, which incorporated as part of the new Business Launch Initiative at Devise Millimet, Ieftto right Barbara MacLeod, Stefanie Gozikowski and Melissa Paly.

(turns? PhotO

"Then we had tose//itto our marketing team. Wehadtosay, okay, we wan ta budget and we wan tto spend moneyto give away

free/ego/services." � ANGELAB.MARTIN

lesion Miilimet MARTIN

selves.’’ "We had to say okay, wewant a

budget and we want to spend money to give away free legal services," Martin said.

In a recent interview, Cohen picked up the story. "Angela made a great

presentation to our board and our partners looked ales like we had three heads on,’ Cohen said.

"One of them said, let me get this straight, you’re going to setup free incorporations, which businesses charge anywhere from $700 to a

sopowerfulastresth" NEWIIArs’IPSIilRE

S14,,,,L,..wDAy NEWS UnionLeader.com February 12,2012 Vol. 66, No. 13 -8 Sections, 112 Pages $2.00

Free Continued from Page 01

’Incorporation program: Attorneys in Devine Millimet’s small-business practice hit upon a plan to bring dozens of potential long-term clients into the fold - and help launch start-ups in the process.

ByDENISPAISTE New Heep,iv,e Union teed,,

MANCHESTER� Lawyers in Devine Millimet’s small-business practice group took a bold gamble in fall 2010, offering free legal services to help new businesses get started.

"We thought we’d go out and do free incorporation as part of our commit-mentto the community,’ Steve Cohen, who chairs Devine Millirnet’s Chair, mergers and acquisitions practice group, said. "Help people who want to get into business, get into business’

ltwould mean work foryounger lawyers in the finn’s small-business practice group, chaired by Angelo B. Martin. The group is made up of five corporate lawyers, an employment lawyer and an estate-planning laasyer.

But first the Business Launch Initiative had to go through Devine Millimet’sbaard of directors, on which Cohen was serving at the time, to win approval to spend money for prepar-ing materials and advertising.

"Then we had to sell it to our murketingteam,’ Martin said. "We’ve gal this great idea to give away legal services," she said, "and we’re going through some tough economic times, we’re not insulated from that our-

Linda Bournival - - ofKMSActuanes

- LLC, shown at her Manchester office,

/ - -., "-.

-

said her business tsoneufflflnew companiesto receive legal assistance from the Business Launch Initiative

0 during the formation of KMS last year.

w

V SO15VNDOVU wo

couple thousands dollars for, corpo-rations and LLCs, you’re going to do it for free? And we’re going to spend money to advertise that we’re going to give away these services?’ Cohen recalled.

"1 said, but the clients pay the incor-poration fee, the hundred dollars:" he said.

"They thought we were crazy and Angela persuaded them that this is an initiative that’s good for the economy, and even if it’s not good focus, its our commitment to the community, help all these small businesses and people who want to go into business but don’t know how to do it,’ he said.

Fast forward to January 2012, and

See Free. Page 26

Devine Millimnet held a "birth-day party’ to celebrate the 66 new businesses established in the first year of the program.

Among those businesses are KMS Actuaries and Queen City Cupcake in Manchester and CrossCurrent Communica-tions LLC in Portsmouth. (see sidebar.)

"If you can help someone when they are just getting off the ground, they’ll remember that," Cohen said.

Martin said businesses formations were spurred by the post-recession economy in which folks who had been laid off and had severance or other funds to lap decided to try going into business for themselves.

"The timing was just right and! think our timing was right and the market timing was right to do something,’ Martin said.

Cohen said the mix of new entrepreneurs was surprising.

"All different ages are repre-sented by the Business Launch clients,’ he said. "Everything from software companies to breweries to cupcake com-panies. It’s just amazing the breadth of business activity that was there that was not being serviced because they didn’t know how to do it and didn’t want to spend the money to do it.’

Marlin said entrepreneurs face basic decision like wheth-er they should setup as a sole proprietor, LLC or corporation or partnership.

People often don’t have or don’t want to spend money on legal fees when they are doing start ups, she said. "They think I’m smart enough,! can do this, I’ve got it handled.

"More often than not, that’s not true," she said,

"You came to us, we go over your business plan - Are you hiring employees? Are you leasing office space? Are you protecting intellectual

property? Taking a holistic view of what it is that you are doing, not just what type of company do you need,’ Martin said. "Then we actually put the appropriate legal documents into place"

"New Hampshire DRA (De-partment of Revenue Adminis-tration) has some ideas about what specific terms need to be in an operating agreement, which is an operative docu-ment for your LLC, but people just simply don’t know,’ she said. "How would they know, they’re not lawyers’"

After a year, Devine Millimet is committed to continuing the free set-up program.

"I think it’s still in the in-fancy. For 201 2, we’ve already decided to run this program,’ Cohen said.

The program has been so popular that banks, account-ing firms and insurance agen-cies have contacted Devine, Millimet to connect with busi-

ness launch clients. Cohen, who helps owners

buy and sell businesses, said as businesses are built up and successfully sold off, the firm needs to replenish those clients.

"I probably do about 1210 20 transactions a year, where I sell companies," he said.

Among other clients, Cohen represented Insight Technol-ogy and C.B. Sullivan, both sold to new owners in 2010.

The set-up program helps attract new clients, some of whom have gone to paying for other services such as estate planning, leases and employ-ment agreements.

"So they’re actually spend-ing their money on their business, which is the way it should be,’ Cohen said.

"You’ve to take a long-term view of this,’ Martin said, not-ing that attrition might thin the ranks. Still, she said, "We’re helping establish a foundation

of small-business clients for the firm, and those clients are going to grow’

Cohen has a vision for where the program’s graduates will be in five years.

"I’d like to think that five to sin years from now, some of these 66 businesses that we set up in the first year will he well-recognized, established, growing businesses with lots of employees, maybe multiple locations, maybe work outside ofNewHampshire, ... Cohen said.

and when someone asks them how did you get started, they’ll say, you wouldn’t be-lieve it, some crazy lawyers in Manchester, New Hampshire, incorporated us for free."

Devine, Millimet has offices in Manchester, Concord and Newport (estate planning).

OntheNeewass.desiremiiF,rntson,

[email protected]

"You said 0

’. Years from now... they’ll say,

I I ’You wouldn’t believe it, some crazy lawyers in Manchester,

v.- New Hampshire, incorporated us for free."

STEVE COHEN twine MilIie,t

COHEN

FOR IMMEDIATE RELEASE October 23, 2013

CONTACT: Billie Jean Potter

Director of Marketing Devine Millimet 111 Amherst Street Manchester, NH 03101 E-mail: [email protected]

DEVINE MILLIMET NAMED A “BUSINESS EXCELLENCE” AWARD WINNER

. . . New Hampshire Business Review Recognizes Firm’s

Small Business Team and “Business Launch” Initiative. . .

MANCHESTER, NH – Last night, on October 22, 2013, Angela Martin, Esq., and the Devine Millimet Small

Business team were named a “Business Excellence” award winner in the professional services category by the

New Hampshire Business Review. The Small Business team was lauded for its Business Launch Initiative, which

offers free business formation services to startup business ventures in New Hampshire. The team was cited for

its “determination, industriousness and creative business solutions” for creating the free Business Launch

initiative in 2010, “in spite of economic conditions.” The Devine Millimet Small Business team has launched

more than 250 new businesses in the state of New Hampshire, helping budding entrepreneurs launch their

startup ventures while protecting their interests and positioning them for the future. Angela Martin, chair of

the Small Business practice group, accepted the award on behalf of the firm.

This is the 11th year of the Business Excellence awards, which recognize New Hampshire’s small business

owners and operators whose “imagination, industriousness, and innovation have helped their companies to

grow, thrive, and give back to their communities and the state.”

Editor Jeff Feingold said, last night, “The awards this night enable us to take the time to honor those people

running businesses, helping, them, and helping their communities. These winners are living proof of the

creativity and innovation of our state’s small business owners.”

The team, headed by Attorney Martin, includes attorneys Harper Marshall, Steve Cohen, Sean Flanagan, Claire

Howard, Kristin Mendoza, Peg O’Brien, and Jennifer Schick from the firm’s Manchester office. Teresa

Rosenberger, head of Devine Strategies in Concord, is also on the team.

Established in 1947, Devine Millimet has grown to its premier status as one of the largest business and litigation

law firms in northern New England with offices strategically located in Manchester and Concord, NH.

# # #

FOR IMMEDIATE RELEASE May 8, 2013

CONTACT: Billie Jean Potter

Director of Marketing Devine Millimet 111 Amherst Street Manchester, NH 03101 E-mail: [email protected]

DEVINE MILLIMET RECOGNIZED AS 2013 NH SMALL BUSINESS CHAMPION

. . . U.S. Small Business Administration Recognizes Firm’s

“Business Launch” Initiative. . .

MANCHESTER, NH – Devine Millimet, one of New Hampshire’s leading law firms, will

receive the U.S. Small Business Administration’s 2013 New Hampshire Small Business

“Champion of the Year” award. The award recognizes the firm’s support of small

businesses in the state via its Business Launch Initiative. The Devine Millimet Small

Business team will be honored at an awards celebration on May 22, sponsored by the

NH Small Business Development Center, to be held at the Crowne Plaza Hotel in Nashua.

The Business Launch Initiative, which offers free business formation services to startup

business ventures in New Hampshire, was lauded for “understanding and supporting

the importance of obtaining sound legal advice before the foundation of a business is

set” and for the fact that Devine Millimet has a team of attorneys “focused on serving

the needs of their small business clients.”

Angela Martin, chair of Devine Millimet’s Small Business practice group notes, “To date,

our Small Business team has launched more than 200 new businesses in the state of

New Hampshire, helping budding entrepreneurs launch their startup ventures while

protecting their interests and positioning them for the future. We firmly believe that

small businesses are the backbone of the New Hampshire economy, and we are proud

to play a part in helping them get started on the right path toward growth and success.”

The team is headed by Attorney Martin, and includes attorneys Harper Marshall, Steve

Cohen, Claire Howard, Kristin Mendoza, Peg O’Brien, Jennifer Schick, and Sean Flanagan

from the firm’s Manchester office. Teresa Rosenberger, head of Devine Strategies in

Concord, is also on the team.

Established in 1947, Devine Millimet has grown to its premier status as one of the

largest business and litigation law firms in northern New England with offices

strategically located in Manchester and Concord, NH.

# # #

Startup Team

When Should Our Company Adopt an Employee Handbook?

A frequent employment law question from new and emerging small businesses is: When should we adopt an employee handbook? There is no hard and fast answer to this question. An employee handbook is not required under federal or New Hampshire state law. However, there are many advantages to creating an employee handbook at the time a company hires its first employee. Then, the company can review and expand the handbook as it grows.

Below are just a few of the reasons in support of early adoption of a handbook, regardless of a company’s size.

Increased Communication. Employers generally benefit from increased communication with employees regarding company policies, benefits, and work rules. An employee handbook is an opportunity for an employer to establish in one central location workplace expectations for conduct, attendance, dress codes, timekeeping, and safety, and to caution employees on the consequences they will face if these standards are not met. Employers can also describe the various benefits the company offers, and how to request time off from work and take advantage of various benefits. This is particularly helpful to new employees who can become better acquainted with workplace practices and benefits at the outset of their employment.

Decreased Legal Disputes. In addition, use of an employee handbook can be particularly helpful in decreasing the potential for litigation. It allows employers to clearly communicate in writing certain policies which may be required by law. For instance, in New Hampshire, employees must be informed, in writing, of the rate of pay or salary, the pay period, permissible deductions, the place of payment, the employer’s practices and policies as they pertain

NEWSLETTER RESOURCES

OUR STARTUP TEAM

Angela B. Martin, Esq., [email protected]

Harper R. Marshall, Esq., Vice [email protected]

Steve Cohen, [email protected]

Sean P. Flanagan, [email protected]

Claire R. Howard, [email protected]

Rebecca S. Kane, [email protected]

Margaret A. O’Brien, [email protected]

Jennifer Rivett, [email protected]

Teresa R. RosenbergerPresident of Devine [email protected]

to paid vacations, holidays, sick leave, bonuses, severance pay, personal days, payment of the employee’s expenses, pension, and all other fringe benefits. In light of this, a handbook is a good place to achieve compliance with these laws. The New Hampshire Department of Labor usually requests to see the employee handbook when conducting an audit.

Additionally, an employer will have a distinct advantage if it can establish that an employee had notice of an employer’s rules and policies. It is much easier to defend disciplinary action, including termination, taken against an employee when the employer can show that the employee had full notice of the rule or policy that the employee violated.

Further, courts and agencies, such as the New Hampshire Commission for Human Rights, expect employers to have written anti-discrimination and harassment policies. The New Hampshire Law Against Discrimination, found at New Hampshire RSA 354-A, applies to employers with six or more employees. Once an employer reaches that threshold it is strongly recommended that it adopt an anti-discrimination and harassment policy. A well written harassment policy may provide an employer with an affirmative defense in case of a lawsuit. Again, a handbook is a good place to store and publish these types of workplace standards.

Reiterate Employment At-will Policy. Finally, the employee handbook offers an opportunity to state affirmatively and confirm that employment is at-will, thereby possibly insulating the company from many claims. This helps to put all parties on notice as to the nature, scope, and rules of the working relationship from the outset.

Conclusion. Having an up-to-date, well-written, legally compliant handbook benefits both employers and employees. At a minimum, employee handbooks should contain these six basic chapters: (1) Discrimination and Harassment Policies; (2) Pay practices; (3) Time Away from Work; (4) Benefits; (5) Safety; and (6) Conduct/Employee Relations. Within each chapter, the employer can then create specific workplace policies to inform employees of their rights, responsibilities, and any consequences for failing to follow the company’s policies. As noted above, the handbook is extremely valuable for managing the overall employer-employee relationship.

This is not a legal document nor is it intended to serve as legal advice or a legal opinion. Devine, Millimet & Branch, Professional Association makes no representations that this is a complete or final description or procedure that would ensure legal compliance and does not intend that the reader should rely on it as such.

© Copyright 2015 Devine Millimet & Branch, Professional Association

Startup Team

111 AMHERST STREETMANCHESTER, NH 03101

T 603.669.1000 | F 603.669.8547

15 NORTH MAIN STREETCONCORD, NH 03301

T 603.226.1000 | F 603.226.1001

30 PENHALLOW STREET PORTSMOUTH, NH 03801

T. 603-555-5555 | F. 603-555-5556

Startup Team

IS IT TIME TO “B” A PART OF THE SOCIAL RESPONSIBILITY MOVEMENT?

Anyone who has ever looked into or started a business can probably recall having a conversation with either their lawyer or accountant (or both) about whether to form their new company as a “C” corporation or an “S” corporation. Oftentimes, that discussion focuses on issues of taxation and limitations on corporate structure.

Recently, Governor Maggie Hassan signed into law Senate Bill 215, and New Hampshire has now joined the growing movement to add another letter of the alphabet into the mix, and with it, a new dimension to business structure and management — the B corporation, also known as the Benefit Corporation, codified as RSA 293-C and to be effective January 1, 2015.

What Is a B Corporation and How Is It Different?

B corporations are a new form of corporation with greater focus on social responsibility. Under the traditional corporate governance model, a board of directors has a duty to manage the corporation and to maximize its value for the overall benefit of its shareholders. This standard can cause practical dilemmas for the board, however, when faced with conflicts between competing interests (shareholders, employees, consumers, suppliers, community members, the environment etc. collectively, “stakeholders”). Protection of employee interests, donations to charities, maintaining local supply relationships, and adopting environmentally-friendly practices all can reduce profit distributions to the shareholders, and under the traditional corporate governance model, the board risks liability from shareholder suits when it prioritizes non-financial interests over the bottom line for its shareholders.

The B corporation legislation embodies a more modern view of corporate governance, namely that the concerns of stakeholders other than shareholders should also be taken into account when determining whether the corporation is meeting its mission.

What Is Required of a B Corporation?

B corporations are required to have a Benefit Director who is responsible for preparing the annual Benefit Report. The Benefit Report addresses whether the board acted consistently with its obligation to create general and specific public benefit purposes, and it must be annually published on its website, filed with the Secretary of State’s Office, and distributed to its shareholders.


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By: Rebecca S. Kane, Esq.

The Benefit Report distributed to its shareholders must also include the compensation paid to each director.

Is There Any Tax Benefit for B Corporations?

At present, there are no special tax benefits to being a B corporation in NH, but other jurisdictions have provided tax incentives, and it is not improbable that more cities and states will follow suit.

Why Would a Business Become a B Corporation?

The growing social responsibility movement encourages businesses to adopt a mission statement that benefits the general public, and frequently consumers will choose to pay more for goods and services from these businesses than those businesses driven entirely by profits. Designation as a B corporation allows those consumers and businesses to be able to tell the difference between the two.

It is clear that the movement toward corporate social responsibility continues to take root and grow. Businesses interested in joining this movement should consult with their legal advisor on how best to align their corporate governance structure with their corporate mission of social responsibility.

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Rebecca Kane is an attorney in the Corporate Department of Devine, Millimet & Branch, P.A. in Manchester, N.H.



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5 Things You Should Know About the New Crowdfunding Rules

On October 23, 2013 the U.S. Securities and Exchange Commission (SEC) issued the long-awaited proposed rules to implement the crowdfunding provisions of the JOBS Act. The intent of crowdfunding is to make it easier for startups and small businesses to raise capital from a wide range of potential investors without having to undertake an initial private offering (IPO). For those interested in raising funds for their business through the crowdfunding exemption, here are five key points that you should know:

1. Limitations on Capital Raised

The JOBS Act specifically provides for a maximum aggregate amount of $1 million that may be sold by a company through crowdfunding in any 12-month period. In determining whether the $1 million cap has been reached, a company would need to include amounts sold through crowdfunding by it (and any predecessors) as well as amounts sold through crowdfunding by entities controlled by or under common control with that company, during that same 12-month period. Capital raises in reliance on other securities exemptions, such as Rule 506, will not be counted towards the $1 million cap.

2. Use of an Intermediary

Crowdfunding offerings will need to be conducted through a broker or funding portal. Only one intermediary can be issued to conduct the offering and if a company is making several offerings concurrently, all offerings must be placed with the same intermediary.

3. Disclosure Requirements

Specific disclosures, including financial disclosures, will need to be made both to the SEC and prospective investors through a broker or funding portal at the time of the offering. Those disclosures will need to include:

• Basic contact information for the company


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• The identity of all directors, officers and persons holding more than 20% of the shares of the company

• A description of the business and anticipated business plan

• A statement on the use of proceeds raised from the offering

• The target offering amount, the deadline to reach the target offering amount and regular updates on the company’s progress in meeting those targets

• The price to the public of the securities or the method for determining the price

• A description of the ownership and capital structure of the company

In addition, a company will need to make disclosures about its financial condition. The amount of detail that a company must include concerning its financial condition will depend on the size of the offering. For offerings of more than $500,000, audited financial statements will be required.

4. Ongoing Reporting Requirements

The new rules will also require the filing of annual reports with the SEC and to the company’s investors. The annual report will need to disclose information about the company’s financial condition similar to the information required in the original offering statement. Reports will be due within 120 days after the end of the company’s most recent fiscal year and will also need to be posted on the company’s website. The SEC is proposing that this annual reporting obligation continue until one of the following occurs: (i) the company becomes a reporting

company under the Securities Exchange Act, (ii) all of the securities issued under the crowdfunding exemption are redeemed or purchased, or (iii) the company liquidates or dissolves.

5. Exclusions and Limitations on Crowdfunding Transactions

Companies that are not organized under the laws of a state or territory of the United States are not eligible to rely on the crowdfunding exemption. Likewise, companies without a specific business plan or indicating that its business plan is to engage in a merger or acquisition of unidentified companies are also ineligible to undertake crowdfunding offerings. Companies that are eligible to make crowdfunding offerings will be subject to limitations on advertising the terms of an offering and will need to comply with specific notice requirements.

Final rules permitting crowdfunding are not in effect at this time. It is expected that the final rules will be issued by early to mid-2014 and that crowdfunding transactions may begin sometime thereafter.



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Can I Use Stuff I Find on the Internet for My Business?

CAN I USE STUFF I FIND ON THE INTERNET FOR MY BUSINESS?

Today most of us have some presence online, whether it is through a website or social media. Many times, we copy an image or text that we feel is suitable for the message that we are conveying on our own website without considering who owns that image or text and what rights they may have to limit the material’s further use. Just because we have the technical ability to copy and paste a photo or text, does not mean that we have a legal right to do so. It is important for all of us to stay mindful of what constitutes copyright infringement of another’s work (e.g., photos, quotes, etc.) and what “use” might be considered “fair” under the law.

What is Copyright?

Copyright protects original expressions of ideas once fixed in an electronic or physical medium. Copyright is actually a bundle of rights including, the right to copy, the right to distribute, the right to publicly perform or display the work, and the right to create enhancements or improvements to the original work (also known as creating derivative works). These rights exist upon creation of the work.

Copyright protects original works of authorship in many different forms including literary, musical, dramatic, pictorial, architectural and sculptural works. Copyright does not protect the underlying ideas themselves. For example, the Harry Potter novels are copyright protected works, but the idea of a story where young wizards attend a school for the purpose of learning magic and join together to overcome a powerful and evil enemy is not. Others would be free to develop new works based upon this idea as long as the expression (setting, characters and plot lines, etc.) were not substantially similar to the Harry Potter characters, settings, and plot lines.

Formal registration of a copyright is not required. The lack of formal registration can make finding the identity of a copyright owner challenging but it is important to understand that just because the owner is not identified, it does not mean that the work is available for use without permission.

What is Copyright Infringement?

Copyright infringement is when any one of the exclusive rights in copyright is exercised by someone without the copyright owner’s permission. Exact, word-for-word or line-for-line copying is


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clear infringement. Copyright infringement can also occur when someone has access to a copyrighted work and then creates a substantially similar work on his or her own. A well-known example is the case where McDonalds was accused of stealing the characters Hamburglar and Mayor McCheese from the copyrighted characters in H.R. PuffinStuff.

At trial, a jury decided that Hamburglar and Mayor McCheese infringed upon the H.R. PuffinStuff characters on the basis of substantial similarity and the fact that McDonalds had admitted to using the PuffinStuff characters as a source of ideas for its own character development.

If the work is federally registered, the remedies for the copyright owner in an infringement action can include monetary damages, injunctions, costs and attorney fees, and even jail.

What is Fair Use?

Fair use generally falls into two major categories: 1) parody and 2) commentary and criticism. Fair use is a subjective balancing test applied by the courts and is very fact-specific. The fair use factors that are considered by the courts include: 1) the purpose and character of the unauthorized use, 2) the nature of the copyrighted work, 3) the amount and substantiality of the portion used without permission, 4) the effect of the unauthorized use on the potential market for the copyrighted work, and 5) any other relevant factors that the court wishes to consider.

The first major category of fair use, parody, is typically a piece of writing or music that deliberately copies another work in a comic or satirical way. By definition, parody requires that a substantial amount of a relatively well-known work be used. Parody can be difficult to show - just because something is funny does not make it a parody.

The second major category of fair use, commentary and criticism, encompasses news reporting and educational uses as well. If you are commenting on or criticizing a copyrighted work, then fair use allows some of the work to be reproduced to achieve that purpose. Generally, the court takes the

position that you should use only what is necessary. As you might imagine, what is “necessary” depends on the situation. Some examples of commentary and criticism might include quoting lines from a song for a music review, summarizing a scientific study for a news report, or copying a portion of an article for a class you are teaching, etc.

What is generally not fair use is posting copies of other’s photos, quotes, or writings on the web without permission, especially on your business website. Similarly, posting items on a social media site may create a problem because, for example, the simple act of “liking” something is unlikely to qualify as commentary or criticism. Again, a fair use analysis is very fact-specific.

It is important for all of us to seek the owner’s permission before using his or her work. It is no defense to infringement to say that you diligently tried to get permission but could not. This is true even if you could not find the work’s owner. It is generally better to choose another work or create a work yourself for a particular purpose if you cannot obtain written permission. It is also important to ensure that anyone you hire to create a website for your business, for example, is clear on the risks involved in a copyright infringement action and will not use past work done for other clients in creating a website for your business.



Startup Team


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startup team & business launch initiative · 2016-04-28 · new business owners are familiar...

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