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  • What is a Merger Clause in a Contract?

    What is a Merger Clause in a Contract?

    If you have read our previous post regarding whether verbal agreements are enforceable , you know to be wary of any oral or side agreements that are not embodied in a final written document. Merger Clauses, very common in contracts, take it a step further. An example of a typical Merger Clause is:

    The terms of this Agreement are intended by the Parties to be the final expression of their agreement, and supersede all prior understandings and agreements, whether written or oral.

    The effect of such a provision is to merge all prior agreements and understandings into this one, single, document. This means, quite literally, if it is not written in the contract, it is not part of your agreement. Period. If something is missing, or if you require some sort of verbal clarification with respect to the meaning or practical effect of contract language, get it in writing. Verbal clarifications are not binding on the other party in the presence of a Merger Clause, and are most likely unenforceable.

    You can usually identify a Merger Clause because the section heading will be titled something along the lines of Entire Agreement, Complete Agreement, Whole Agreement, Integration Clause, or more simply, Merger Clause. Be aware, these clauses are often confined to the fine print or boiler-plate section of the agreement. This can imply that the clause is standard and/or is not that important to read.

    Generally, there is little to fear from a Merger Clause contained within a well-drafted contract. If the contract has sufficient detail, contains the entire understanding of the parties, lacks ambiguity, and does not require any additional clarification, it should not be a problem.

    However, when a non-attorney drafts the contract, and the other party does not have an attorney review it, Merger Clauses can mean big problems. In the event of a dispute with respect to the interpretation of the agreement, the Merger Clause prevents either party from presenting evidence beyond the literal language of the contract. This means no emails, text messages, telephone calls, or handshake agreements can be used to interpret (or reinterpret) the plain language of the agreement.

    Issues with respect to Merger Clauses most commonly arise in the context of service contracts, where the scope of work to be performed is not defined clearly enough. Both parties believe that they have reached a common understanding of the task to be performed. However, normal people (i.e. non-lawyers), read the language of a contract and usually see what they believe the agreement to be. They are not trained to issue-spot like Attorneys. Attorneys review a contract and identify potential problems (i.e. lack of sufficient detail about the scope of work) and craft solutions for their clients.

    Merger Clauses, when done properly, allow the parties to have their entire agreement embodied in a single document. Such clauses incentivize the parties to be specific ahead of time, which avoids problems in the future. Having professional assistance when preparing a contract is the best way to protect yourself. That is why it is important to consult with a contract attorney before drafting or signing an agreement containing a Merger Clause.

    For more information, or to speak with an attorney about drafting or reviewing your contract, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • 5 Things to Remember When Selling Your Business

    5 Things to Remember When Selling Your Business

    Today’s strong economy and recent tax overhaul may have you considering selling your business while prices are high. With a less restrictive tax code in place, the asking price for businesses could increase even more. Selling a business can be fraught with challenges, so it is important to have a plan to ensure that your sale goes smoothly and does not leave you with seller’s remorse.

    Here are five things to remember before you sell your business:

    1. Have Your Corporate Documents Ready. Before you will be able to close a deal, the parties will participate in the due diligence process. The due-diligence process is where the purchaser, the purchaser’s attorneys, and the purchaser’s accountants review the company’s assets, liabilities and overall financial health before completing the sale. For the most part, you will be able to anticipate what documents the purchaser will ask to review. If you have those documents organized and ready, it will make the due diligence process proceed faster and more smoothly. Standard due diligence documents to have ready are:
    • Corporate Formation Documents (Certificate of Incorporation, Articles of Organization, Bylaws, Operating Agreement, Certificate of Good Standing)
    • Financial Statements (Bank Statements, Payroll Records, Tax Returns)
    • Customer Records
    • Employee Contracts
    • Third-Party Contracts (Contracts with your Vendors and Customers, Equipment leases, Licensing Agreements)
    • Asset Contracts (Real Estate Purchase Contracts, Property Leases)
    1. Purchasers Want Real Value. Purchasers will not pay for what you believe the company is worth. You must be able to demonstrate to them not only the company’s sales, but also its profits. If that is difficult for you, maybe now is not the right time to sell. Biding your time may allow you to generate a better sales record and, thus, a higher purchase price. Having your corporate documents ready before you begin negotiations will give a better idea if you are financially ready to sell.
    2. Be Patient. Finding the right purchaser for your business may take time. Jumping at the first offer could mean leaving money on the table. For this reason, you may want to consider hiring a broker to help generate more interest and more offers.
    3. Consider Your Role Post-Sale. How will you generate an income after the sale closes? Will the sale proceeds be enough to sustain you? Can the business sustain itself without you? Depending on the nature of the business, you and the purchaser may decide that it is best to keep you involved after the ownership change. The business may be in an industry where the personal relationships you have developed will be critical to its future success. Perhaps you have unique skills and capabilities that the business will need in order to be successful. Often a purchaser will make a sale contingent on locking-up a key member of the organization for several years after the sale. Consider what arrangement works best for you.
    4. Have an Attorney Review the Contract. The final contract is the most important piece of the whole deal. Having the contract reviewed by an attorney is the best way to protect yourself from the dreaded fine print . Your attorney can help you identify any traps, provide you with valuable advice, and help you negotiate the best deal possible. Entrepreneurs tend to believe that they can do it all on their own, mostly because early on they had to. When it comes to selling the business, however, the drafting and review of the contract is best left to the professionals.

    For more information, or to speak with an attorney about how to sell your business, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • The Clarence Lifestyle Center: 7 Things to Consider before Signing a Commercial Lease.

    The Clarence Lifestyle Center: 7 Things to Consider before Signing a Commercial Lease.

    You might have heard that the Eastern Hills Mall in Clarence is considering the possibility of undergoing a significant renovation. As development in Western New York continues to surge, the Mall, a 20th Century concept, is positioned to either adapt with the times, or be a relic of the past. This blog post will explore several important things to consider if you are interested in signing a commercial lease.

    Recently, the Clarence Town Board created a Lifestyle Zoning Code, seeking to create an overlay district of both commercial and residential activity. Although no zoning changes have been made to the Eastern Hills Mall property, a zoning change, if approved, would allow development of a modern center for living and commerce with smaller, more upscale retail stores, more walkability, and the possibility for residential living spaces to be developed. Considering that the health of dated Malls in Western New York is not strong, and that Clarence is actively trying to manage the commercial feasibility of the mall, there is great potential for business growth at the new center and even the areas surrounding the property.

    If the Mall underwent such a drastic change, it may provide a fertile ground for investment considering the prime location of the property and the buzz a new mixed-use retail and residential space would generate. Regardless of the location, there are certain things to consider before signing a commercial lease.

    1. Term Length:

    Most commercial developers prefer to lock in tenants to long-term leases. This enables developers to more easily recoup the costs of their investment. Hiring brokers, advertising the space, as well as any time the space is unoccupied, all cost the developer money. Further, a substantial overhaul of existing commercial space may be facilitated through debt financing (i.e. bank loans). This means that due to financial constraints (i.e. loan payments), property owners that recently renovate their space are unlikely to accommodate shorter lease terms for seasonal or start-up businesses.

    1. Rent Increases:

    It is important to review the lease carefully to understand how your rent can be increased. Most lease agreements will have stated rent levels for each year of the lease. Some commercial leases may tie rent increases to inflation, which changes from year to year, but generally has hovered around 2% in recent years.

    Many lease agreements also require tenants to shoulder the costs of improvements made to the overall property. For example, the property owner’s cost to repairs to HVAC systems, elevators, parking, interior structures, or even real estate tax increases may be passed on to the tenants.

    1. Breach, Default, & Legal Action:

    While no new business wants to think about it, it is important to familiarize yourself with the termination and breach sections of your lease agreement. Lease agreements may limit your ability to terminate the lease, go to court, seek damages, or may even require you to bear the property owner’s legal costs in the event of a dispute. As the property owner drafts most lease agreements, they slant heavily in their favor. First time lessees should beware.

    1. Tenant Improvements to the Space:

    Owners of older commercial spaces will likely be more permissive in allowing tenants to renovate or modify the space to improve its overall commercial attractiveness. They are also more willing to negotiate temporary rent abatement in exchange for the tenant bearing the costs of improvement. The catch here is that any improvements must remain after the expiration of the lease. New commercial spaces are different. The property owner may be less willing to offer rent abatement, and may not allow modification of the space. Make sure to be aware of these restrictions before signing, and evaluate how they affect your business.

    1. Know Your Competition:

    This Clarence Lifestyle Center will likely have a strong demand for a fitness/workout facility, an upscale health food store, and an entertainment complex for residents or shoppers. If you are in the business of providing any of these services or products, you may want to negotiate a clause with the property owner that restricts other tenants from providing similar services.

    1. Hours and Logistics:

    Consider the hours of operation for the mall or commercial space. Malls typically require tenants to maintain the same business hours, or greatly limit their flexibility to change hours or days of operation. You should consider how these restrictions might affect your operating costs.

    You should also consider the amount of parking available. Does your business experience an even flow of customer traffic? Or does it experience periods of high volume and low volume? If the commercial space does not have adequate parking to accommodate your customers, your business will likely suffer. You may wish to consider negotiating designated reserved parking with the property owner.

    1. Hidden Fees:

    Check if the lease requires the tenant to pay for business essentials such as high-speed internet connectivity, property maintenance, or property taxes. These fees will add up and affect your bottom line.

    Having an attorney review your commercial lease agreement is the best way to protect your interests.For more information, or to have your lease agreement drafted or reviewed, pleasecontact our officefor a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensedattorney for any legal questions you may have.

  • 5 Steps to Buying an LLC

    5 Steps to Buying an LLC

    With the arrival of the new year come new year’s resolutions.

    Is this the year to satisfy that entrepreneurial desire to run your own business? But what if you don’t feel like starting from scratch?

    Purchasing an existing business can present less risk and provide more immediate returns than purchasing a start-up. And, now that tax reform has been signed into law, pass-through entities such as limited liability companies will receive more-favorable tax treatment and could make for especially attractive acquisition targets.

    Here are five steps a prospective purchaser of an LLC should consider before beginning the process.

    1. Identify a suitable LLC for purchase

    Things to consider are how will the acquisition be financed, who will operate the LLC after the purchase, how will such an acquisition affect your personal finances, and what is the long-term viability of the company after the purchase?

    After you have identified such an LLC, you will need to make contact with the owner(s) and determine whether they are interested in selling. If they are receptive, it is time to turn your attention to the details.

    2. Establish the framework of the deal

    Are you going to be buying the entire LLC or just a portion of equity (known as “units” instead of “stock”)? The parties, either directly or through their attorneys, will come to an understanding of the key terms of the deal and reduce those terms to writing.

    This document is called a “term sheet” or “memorandum of understanding,” and the parties’ attorneys will use it to draft the purchase agreement. Items that are commonly found within a term sheet include:

    • The purchase price
    • The structure of the deal: buying only the assets of the LLC vs. buying a portion of equity
    • The length and extent of the due-diligence period
    • The timing and method of payment for the purchase price: cash at closing vs. debt financing vs. a mix of cash and debt
    • The closing date
    • Voting rights post-closing
    • Additional miscellaneous contractual provisions, such as a non-compete agreement for the seller
    • Confidentiality, such that all disclosures made between the parties remain confidential regardless of whether the deal is consummated

    To read the full article, originally published in The Business Journal, please click here.

  • Can inventors lose their patent rights via crowdfunding platforms?

    Can inventors lose their patent rights via crowdfunding platforms?

    Every day new startup companies come up with great ideas they hope will be the next big thing. With the advent of internet based crowdfunding, startup companies and inventors can easily use internet crowdfunding platforms such as gofundme.com, kickstarter.com and many others to market and finance new inventions. As of January, over 14 million people have helped fund $3.5 billion to almost 140,000 Kickstarter projects.

    While these platforms have revolutionized the way startups and inventors finance and market their business plans and goals, entrepreneurs using these platforms can jeopardize their ability to protect those new ideas by disclosing an invention before filing for patent protection. But with proper planning, startups seeking funding can avoid losing valuable patent rights.

    A common scenario is a startup company needs to raise funds and signs up with a crowd-source funding program like Kickstarter. The startup discloses its new ideas through an internet platform and raises funds by soliciting money from the public for a small reward in return. These startups do not offer equity or revenue sharing; they offer promotional items like limited editions or copies of the creative work being produced.

    Once the project is funded and starts to gain traction, the startup entrepreneurs first think about patent protection and learn that it is too late to protect the patentable property. This common tale of woe shows how a startup seeking crowdfunding can lose its patent rights: disclosure and offer of sale.

    How exactly are patent rights lost through disclosure?

    Fundraising platforms enable startups and inventors to acquire financing and exposure but, at the same time, may require inventors or startups to disclose their inventions to the public. Under federal law, an inventor must file a patent application within one year after disclosing their invention.

    Disclosure can be a publication or a public use of the invention. If a patent application is not filed within a year of the disclosure, it is considered a novelty defeating event and the invention is no longer patentable.

    However, not all disclosures are significant enough to trigger the filing requirement. To be a sufficient disclosure, there must be enough information disclosed to enable a person having ordinary skill in the art to make and use the invention.

    It should be noted that losing patent rights is not exclusive to fundraising platforms. The same legal repercussions, such as novelty defeating events, can result by simply publishing an invention anywhere on the internet or actual use in a public place.

    Another problem with disclosure is the risk of another entity filing a patent application based on the disclosure. The United States and most other industrialized countries have a first to file patent system. If another entity wins the race to the patent office, all rights to the invention are lost.

    What is a novelty defeating event?

    Novelty defeating events render the invention no longer new or novel. An invention is no longer considered novel or new when it is considered known to the public. What does this mean exactly? An invention is considered known to the public when there are pre-existing inventions or references that already describe the components of the disclosed invention. Even if it was the inventor who disclosed the invention, it is considered a novelty defeating event.

    Offer of sale as novelty defeating event

    Disclosing your invention on a fundraising platform is not the only potential way to lose your patent rights. Even if you do not disclose enough information to enable a person having ordinary skill in the art, you can still lose your patent rights through an on-sale bar. On-sale bars occur when the invention is sold or offered for sale one year before the filing of the patent. The on-sale bar requires that the invention is ready for patenting, which means either some tangible model of the invention is produced or the inventor has enough information to create the invention.

    So even without a sufficient public disclosure to enable someone with skill in the art to make the invention, patent rights can still be lost when the invention is ready for patenting and offered for sale.

    But is there really a sale?

    The question of whether an invention is the subject of a commercial offer of sale is analyzed under the generally understood law of contracts. The Federal Circuit Courts have held that a sale occurs when there is a contract between parties to pass rights of property for consideration which the buyer pays the seller for the thing bought or sold. Whether a sale occurs will vary with each case.

    The Federal Circuit has also established a framework for determining whether or not there is an offer for sale, and identified several factors for consideration in the analysis. In doing so, it stated that such a sale must bear the hallmarks of a sale pursuant to the Uniform Commercial Code.

    The commercial code defines a sale as the transfer of title. A transfer of title suggests that the inventor has given up some or all of its interest and control over the product.

    Postings on crowdfunding platforms in and of themselves do not appear to constitute a sale. Rather, it is the language of the post, and the description of the project, that can make or break an inventor. Here is where the tension arises. In order to obtain funding, an inventor must generate attention and excitement for their project. The inventor must provide sufficient detail as an enticement for prospective funders to feel comfortable sending money.

    A general search of crowdfunding sites reveals that while you cannot immediately buy the products, if you donate a certain amount, you receive a product or prototype when production begins. It could be argued that such an exchange of money for a prototype or finished product (regardless of the timing) would constitute a sale sufficient to start the clock running.That is not to say that you cannot raise money on these platforms without harming your rights. On the contrary, it all depends on the phrasing of the post and what you are offering the contributors. And of course the timing of the patent filing.

    Measures and safeguards to protect patent rights

    Generally, once patent rights are lost, there is no way to reclaim them. Thus, it is imperative that inventors and startups take the proper steps and precautions to ensure that novelty defeating events do not occur. However, it may be impossible to keep information pertinent to the invention strictly confidential while asking for funds through crowdsourcing. Therefore, the pivotal step in retaining any potential patent rights would be to file a patent application before any disclosure or offer of sale.

    Registered patent attorneyVincent LoTempiois a partner at Kloss Stenger & LoTempio: vglotempio@klosslaw.com.Justin Klossis an associate attorney at the firm who focuses on litigation: jdkloss@kloss.com. Law clerk Anthony Vu contributed to this article.

    This Column also appears in Buffalo Business First.

  • Will You Have To Start Paying Online Sales Tax in 2018?

    Will You Have To Start Paying Online Sales Tax in 2018?

    That is the question that the Supreme Court last week agreed to consider in a case (South Dakota v. Wayfair, Inc., et al) that will have national implications for online retailers as well as brick and mortar businesses.
    The Supreme Court had previously held that states could only tax a merchant’s sales if that business had a physical presence within the state. A physical presence could mean a warehouse, a distribution center, or an office. This previous line of cases, decided between 1967 and 1992, generally involved mail-order sales in the pre-internet era.

    Since then, online sales have proliferated and are consuming an ever-increasing share of total retail sales. This has negatively affected both state finances and brick and mortar businesses. States rely on consumption taxes, like sales tax, to help fund government operations. With more online sales, that means less tax money. Brick and Mortar businesses are hit twice as hard. First, they pay to have products shipped to a physical location within the state which raises prices (consumers usually pay for shipping separately in online sales), and second, because brick and mortar businesses have that physical presence, they have to charge their customers sales tax. However, consumers love it because they are saving money.

    Which brings us to South Dakota.

    South Dakota estimated its tax loss related to online sales at upwards of $50 million dollars per year. In response, South Dakota passed a lawin 2016 that required online merchants to collect and remit sales taxes to the state. The state then sued to enforce the law by naming online merchants such as Overstock.com and Newegg.com as defendants. The result of the state’s action was to produce a test case for the Supreme Court to potentially overturn its previous decisions.

    The test case garnered enough attention that 35 other states joined in asking the Supreme Court to hear the appeal and potentially, overturn the rule. In addition to New York, the other states are: Alabama, Arkansas, California, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah, Vermont, Washington, Wisconsin, and Wyoming.The Court granted Certiorari to the State’s petition last week. You can read the Petition here.

    South Dakota Petition

    Brick and Mortar retailers have also joined in urging the Court to hear the case. The National Retail Federation, the Retail Litigation Center, and the American Bookseller Association have all filed separate Amicus Curie briefs in support of South Dakota’s efforts.

    Supporters of the 2016 law argue that the retail environment has changed so dramatically since the 1992 decision, that the rules set forth over 25 years ago need updating for the modern era. While few people would disagree with that premise, one of the original problems facing mail-order retailers in 1992 has not changed; there are thousands of individual sales tax jurisdictions, each with their own set of unique laws.

    States and retailers will need to determine which sales tax laws should apply to the transaction. Should it be the billing address of the purchaser or the shipping address? What if an in-state purchaser has the product shipped to a different state? Where does the transaction actually occur?

    Should the Supreme Court decide to overturn its prior decisions, it will add further uncertainty to the tax climate in the aftermath of the recent federal tax reform law.

     

  • 7 Things to Remember When Buying a Home

    7 Things to Remember When Buying a Home

    #1. Be Patient.

    Buying a home can be one of the most exciting and stressful times of your life. It is easy to become overwhelmed. Through it all, the most important thing to remember is to be patient. The average closing takes between 30-60 days from the signing of the contract to the closing table. This may seem like an eternity, but rest assured, there is a lot to do in that period, as you will see below.

    #2. Get Pre-Approval for a Mortgage.

    Before submitting an offer on a house, you should apply for a mortgage pre-approval. It is better to work with a local lender if possible, as closings will typically move faster. Your lender will guide you through this process, and you will need to work diligently with them to secure financing. The pre-approval process will also allow you to better understand how much house you can afford.

    #3. Do not make any drastic career or financial decisions during this time.

    Changing jobs or careers during the home buying process can affect your ability to obtain a mortgage and close on the sale. Lenders will look at your financial history and any disruptions or significant changes can make them more reluctant to lend.

    #4. Do Your Homework when House Hunting.

    Do your homework when searching for a house. Make sure that the house is not just the right house, but that it also fits within your budget. You should compare prices of similar homes in similar neighborhoods. It is also a good idea to see what price homes in the neighborhood have sold for in the past.

    After you have toured several houses, and narrowed your choices down to one, it is time to submit an offer. Once your offer is accepted, you will sign the purchase contract. Now things will move quickly for the next two weeks.

    #5 Have an Attorney Review Your Contract.

    The very first thing you need to do after signing your contract is to contact an attorney. This is very time sensitive. The standard real estate purchase agreements have an attorney approval contingency requiring attorney approval within 2-3 business days. This means that your attorney needs to review and approve the sale within that time.

    Your attorney will review your contract to make sure that it is fair to you and identify any potential issues. After the attorney completes the review, they will issue a letter to the seller’s attorney approving the contract or disapproving the contract with proposed changes. This process usually takes a day or two. A good thing to do during this time is to speak with your attorney or their paralegal regarding what documents they will need from you.

    #6 Get Your Home Inspected.

    After the attorneys send their approval letters, you should arrange to have the house inspected. If you do not know any inspectors, your attorney can recommend one to you.

    Your inspector should be thorough and not afraid to get on a ladder and poke around. After your inspection, a Property Inspection Notice and Addendum (PINA) will be completed by you and the seller. The PINA will be included with the purchase contract.

    #7 Have a Closing Checklist and Use it.

    Then the process will slow down – a lot. Draft a checklist during this time of all of the items that you will need to complete before closing. Ensure that your lender’s requirements will be met, price out and pay for your first year of Homeowner’s Insurance, start packing, pick up a new hobby or just relax. While this is going on, your attorney is working to obtain approval to close on the house from your lender’s attorney.

    And, then the fun begins again.

    Once you get the final clear to close, and the closing is scheduled, arrange for a final inspection of the house. At this time, you and the seller will need to determine who will have the keys, garage door openers, key codes, etc. to the house post-closing. A day or so before the closing, you will need to call the utility companies and municipal water to have the bills changed to your name.

    Your lender will give you a Closing Disclosure Statement three days before closing that lays out how your loan is going to be disbursed and any checks you will need to bring to closing. Your attorney will walk you through this and answer any questions that you may have.

    Attend the closing, sign your name 200 times (give or take 100) and, surprise! You are now a homeowner.

    Having an experienced attorney review your contract and guide you through the home buying process is the best way to ensure a successful closing.For more information, pleasecontact our officefor a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensedattorney for any legal questions you may have.

  • 3 Reasons Sole Proprietors Should Avoid DBAs

    3 Reasons Sole Proprietors Should Avoid DBAs

    New York State Business Law Section 130 prohibits anyone from doing business under a name other than his or her own unless an Assumed Name Certificate (more commonly referred to as a DBA) is filed. For example, if John Smith would like to sell seeds under the name “Johnny’s Apple Seeds”, he would have to file a DBA certificate before he could start selling. Sole proprietors, LLCs, and corporations can all use a DBA to conduct business. However, for the purposes of this post, we will focus more on sole proprietors.

    DBA Assumed Name
    Sample DBA (Assumed Name) Certificate

    What information is contained within a DBA?
    In New York, a DBA certificate must contain 1. the name of the business, 2. the address of the business, 3. the name and signature (notarized) of the individual (or partners), and 4. the individual’s (or partners’) personal address. Click left to see a sample certificate.

    What is the cost and where to file a DBA?
    For a sole proprietor filing in a single county, the fee is between $25-35 depending on the county. The fee for filing in Erie County is $35. For corporations filing a DBA certificate with the Secretary of State, the filing fee is $25 plus an additional $25 for each county that the corporation will operate in outside of New York City. If the corporation wishes to operate in a county within New York City, the filing fee is $25 plus an additional $100 for each New York City county(Bronx, Kings, New York, Queens, and Richmond Counties). There are no county fees for LLCs.

    A certificate may be filed either with the Secretary of State or with the Clerk’s Office for the county in which the business will be operating. Now that we know what is needed to file a DBA certificate, we will discuss 3 Reasons Sole Proprietors Should Avoid DBAs.

    3 Reasons Sole Proprietors Should Avoid DBAs:

    #1 – Personal Liability

    Sole proprietors often fail to realize that a DBA certificate does not confer protection from personal liability. Despite doing business under a different name, the proprietor remains personally liable for the debts and conduct of the business. If the proprietor’s business is sued for any reason, whether it be for breach of contract or a personal injury, their house, car, bank account, and other personal property are at risk. This means that the proprietor’s personal assets could be used to satisfy a judgment or claim. Personal liability is by far the greatest danger to sole proprietors using a DBA.

    #2 – No Rights to Business Name

    Filing a DBA certificate does not provide a sole proprietor with exclusive rights to the business name. Even if they have been operating for several years under the DBA name, another business can register their LLC or corporation using that same name, and will be able to conduct business statewide.

    #3 – Geographic Restrictions

    As discussed earlier, sole proprietors utilizing a DBA filed with the county are geographically restricted from doing business outside that county. Having to refile in county after county can be time consuming and expensive. That is why many do not bother to refile. What should be obvious by now is that if a sole proprietor wishes to conduct business under a different name, they are much better off registering as an LLC or corporation. This will provide personal asset protection, confer business name rights, and are free to operate statewide.

    To learn more, or to discuss filing for your own LLC or corporation, please contact us for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • What is a Business Registration Certificate?

    What is a Business Registration Certificate?

    Preparing and filing a business registration certificate is the first step towards starting a business. Each business entity requires a different “certificate”. For this post, we will focus on the two most popular types of business entities in New York, a corporation and a limited liability company (LLC) (What is a LLC?).

    Generally speaking, a business registration certificate is what allows the state to identify and recognize your business as a separate legal entity. Upon the successful completion of the filing process, the state will confer the legal benefits of registration on your business. So what type of information is contained within the certificate?

    Business Registration Certificate – Corporations

    Corporations file a “Certificate of Incorporation” with the Secretary of State. On this certificate, you will need to provide the following:

    1. The name of the corporation,
    2. The purpose of the corporation,
    3. The number of shares of the corporation,
    4. The business address,
    5. The county of the business.

    Business Registration Certificate – LLCs

    LLCs file “Articles of Organization” with the Secretary of State. Despite the name, the information is nearly the same as a Certificate of Incorporation. For the Articles of Organization, you will need to provide the following:

    1. The name of the LLC,
    2. The business address,
    3. The county of the business.

    For both business registration certificates, you will need to provide the name and address of the individual(s) filing the paperwork. The “Incorporator” files on behalf of a corporation. The “Organizer” files on behalf of a LLC.

    Lastly, you will also need to submit the New York State filing fee, which varies by entity and changes periodically. However, filing the certificate and paying the fee are not the only steps to registration. We will cover those additional steps in a future post.

    For more information about the preparation and filing of business registration certificates, including our Flat Fee pricing for business formation, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

  • Are Verbal Agreements Enforceable?

    Are Verbal Agreements Enforceable?

    “Verbal agreements aren’t worth the paper they’re printed on.”

    – Unknown

    Small business owners and entrepreneurs often rely upon “handshake” or verbal agreements to conduct business. But are those agreements really enforceable? The answer is it depends.

    Technically speaking, verbal agreements are enforceable in New York with certain exceptions as described by the Statute of Frauds. Practically speaking, it is very difficult to enforce such an agreement. For the purposes of this blog post, we are assuming that all of the requisite elements of a contract are present.

    New York General Obligations Law 5-701 (the “Statute of Frauds”) lists the types of agreements that must be in writing. Some examples are:

    1. the sale of an interest in real property,
    2. the sale of goods for $500 or more (under the U.C.C.),
    3. a contract that cannot be performed within one year,
    4. contracts of suretyship (a guarantee)

    These types of contracts must be in writing or they are unenforceable (with some exception).

    So How Do You Enforce a Verbal Agreement?

    Verbal agreements by their nature lack clear written terms. Parties will often dispute what the terms of the agreement actually were. Faded memories and changes in circumstances can cause these disputes. Without some additional proof, a “he said…she said” argument is not likely to be successful.

    The type of evidence you can use to enforce a verbal agreement is varied. You can use emails or text messages to demonstrate the agreed upon terms. Additionally, the parties’ actions in performing the terms of the agreement are very persuasive.

    For example, suppose you enter into a verbal agreement with a builder to build a fancy new showroom for your business. The builder has until the end of the month to complete it. You and the builder shake hands, you let him into your building, and he proceeds to complete your showroom on time. You cannot then refuse to pay him because there was no written agreement.

    The builder, under the terms of the oral agreement, has fully performed. Further, your actions in permitting the builder to fully perform his obligations under the agreement demonstrates the existence of an agreement.

    Which Type of Agreement Offers the Best Protection?

    Regardless of its technical legality, a verbal agreement is difficult (and expensive) to enforce. A written contract is always better at protecting the parties because it clearly and unalterably describes the parties’ intentions and obligations. While it will require some time and effort upfront, a written contract can help to avoid problems later.

    Having an experienced contract attorney prepare your agreement is the best way to protect your interests. For more information, or to have your agreement drafted or reviewed, please contact our office for a free consultation.

    Disclaimer: This blog is made available by Kloss, Stenger & LoTempio for educational purposes only. It is not intended to provide legal advice nor form any attorney client relationship between the reader and Kloss, Stenger & LoTempio. You should always seek professional advice from a licensed attorney for any legal questions you may have.

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