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By Wendy Anderson 12 Mar, 2024
You may have read in the news recently that the new federal law, the Corporate Transparency Act, has been held unconstitutional. Well, yes. By a federal judge in Alabama. This new law became effective on January 1, 2024 and applies to the majority of small businesses and their owners in the United States. If you are unaware of this, please read my blog articles here . The Corporate Transparency Act The law requires most small businesses (there are some exceptions) to register with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by providing information about the business entity, its Beneficial Owners, and its Company Applicants. A Beneficial Owner is someone who either (i) owns 25% or more of the entity’s stock or interests or (ii) has substantial control over the entity, as defined by the law. A Company Applicant is the person who files the documentation to form the business entity with - in Arizona - the Arizona Corporation Commission or the Secretary of State. The information required to be filed for a Beneficial Owner or Company Applicant includes their name, address, birthdate, and a photo of their driver license or passport. The Lawsuit Last month, a business owner in Alabama, in conjunction with the National Small Business Association, filed suit against the U.S. Treasury Department in the United States District Court for the Northern District of Alabama. In National Small Business United, et al., v. Yellen, et al., the plaintiffs argued that the CTA’s mandatory disclosure requirements exceed Congress’ authority under Article I of the Constitution and violate the First, Fourth, Fifth, Ninth, and Tenth Amendments. In response, the Treasury Department argued that the law falls within the Commerce, Taxing, and Necessary and Proper Clauses, along with Congress’ foreign affairs and national security powers. The Ruling The Court ruled that the CTA is unconstitutional for exceeding the Constitution’s limits on Congress’ enumerated powers, without addressing any potential violations of the Amendments. Importantly, the ruling applies only to the Alabama plaintiffs in this case and the CTA remains effective and enforceable in all other states unless and until further legal action changes that. What it Means for Arizona Businesses For businesses in Arizona, until there is a nationwide ruling, I strongly recommend compliance with the CTA’s deadlines: Businesses registered with the Arizona Corporation Commission or Secretary of State prior to January 1, 2024 must register its Beneficial Owner Information reports by December 31, 2024. No need to file early, mark your calendar for 4th quarter. Businesses registered between January 1, 2024 and December 31, 2024 must file with FinCEN within 90 days of formation. If your entity was formed in January, that deadline is fast approaching for you. Businesses that register on or after January 1, 2025 must file within 30 days of formation. If you have any questions about the provisions of the CTA or how to determine your entity’s Beneficial Owners and Company Applicants, just give me a call and let’s get together to discuss. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 Contact Me Today
By Wendy Anderson 28 Dec, 2023
In Arizona, any business owner can form a new corporation or limited liability company (LLC). This blog will identify the decisions you need to make and outline the steps required to form a for-profit entity with the Arizona Corporation Commission (ACC). If you are looking to form a nonprofit entity, please contact the Law Office to discuss before completing any online formation. Initial decisions to make before you file 1. Check for name availability. Before you begin, make sure that the name you want for your new entity is available. Click here to enter your desired name and click “Name Availability Check” at the bottom of the page. ACC Name Availability 2. Decide if you want to form a corporation or LLC. (Advice on this question is beyond the scope of this blog.) Other entity forms, such as different types of partnerships, can also be formed through the ACC. 3. Determine who your owners, officers, or directors are. These people will most likely be considered Beneficial Owners of your entity, under the Corporate Transparency Act. (See other blogs on the Law Office website for information on this new Federal law.) a. For a corporation, you must name at least one director, and you can name any officers you have already appointed. b. For an LLC, you must decide what form you will have: i. For Member-Managed, you must name at least one member. ii. For Manager-Managed, you must name at least one manager. You can name the Members if you choose. 4. Determine who will serve as the Statutory Agent. The purpose of a Statutory Agent is to accept service of process if your entity is named in a lawsuit. The Statutory Agent’s address must be listed on the ACC website, and cannot be a P.O. Box, because a process server must be able to serve the Statutory Agent in person. An officer, director, member or manager, in their individual capacity, or any person over 18 with a physical address in Arizona can serve as the Statutory Agent, or you can hire a third-party or different entity to fulfill this role. The Statutory Agent does not have any actual liability for the lawsuit; their role is simply to accept the papers and transmit them to the entity representative. 5. Determine what addresses you will use. Remember that all information you enter on the ACC website is public. You can use your home address, if you want. If you have an office address that is already public, you can use that. But if you want to keep your office and/or home address private, you will need to get an Arizona P.O. Box to use for your entity’s address and for your address. If you take this route, you will need to have someone else serve as the entity’s Statutory Agent, so that you can file the Statutory Agent’s public physical address with the ACC. 6. Decide who will do the entity formation. For an LLC, you have an Organizer; for a corporation, you have an Incorporator. This person can be an officer, director, member or manager, or any outside third party. This person will be considered the Company Applicant when your entity files its Beneficial Owner Information pursuant to the Corporate Transparency Act. 7. And for a corporation only…. a. You will determine how many shares and what class of shares you will authorize. After the entity is formed, you will separately issue shares to shareholders. b. Additionally, as part of the online filing, you will be required to complete a Certificate of Disclosure for all directors and officers that are listed in your filing. Click here to see the questions that you will need to answer online. Certificate of Disclosure Filing with the ACC 8. First, create an ACC account. Once you have your entity’s name selected, click here to create an online account so that you can use the ACC website to form and maintain your entity. ACC Registration 9. Form your entity. Once you are logged in, and are on the “My Dashboard” page, click “Online Services,” then “Start a New Business.” You can click “Frequent User” and the wizard will present the forms for entering the information regarding the controlling persons and the Statutory Agent and their addresses. If you would like the ACC system to walk you through the steps, click on “Guide Me.” 10. Pay for the filing. After approving the information, follow the prompts to pay for the online formation. 11. Statutory Agent Acceptance. Your named Statutory Agent will immediately receive an email from the ACC to accept the appointment. They must accept within 7 days or the entity’s filing will be rejected. How can the Law Office of Wendy Anderson help? Serve as your entity’s Statutory Agent. Provide counsel regarding what type of entity might best fulfill your business objectives. Provide counsel regarding your obligations for reporting pursuant to the Corporate Transparency Act and assist in identifying your Beneficial Owners. Provide information in the form of articles on the firm’s website to explain the Corporate Transparency Act and your obligations as an officer, director, member or manager of an Arizona entity. After your entity is formed, the firm can assist with changes to the information and in filing amendments or annual reports with the ACC. The firm does not serve as an Organizer or Incorporator when initially forming your entity and does not assist in the online formation process. Please understand that the above does not constitute legal advice and there is no attorney-client relationship created when you read this article or if you follow the steps herein; this is only information regarding how to form a new Arizona entity yourself. Once your entity is approved by the ACC, the Law Office would be happy to assist with any other legal business or employment questions or matters that arise. Just give a call or schedule an appointment ! NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509  Contact Me Today
By Wendy Anderson 05 Dec, 2023
As you may know, the Corporate Transparency Act (CTA) is just around the corner – it becomes effective on January 1, 2024. Prior blogs on my website explain the details of this new federal law and what information - pertaining to all Reporting Companies, Beneficial Owners, and Company Applicants - is required to be reported to FinCEN in 2024. But collecting and reporting the information is just part of what should be done by company owners and officers. Because business entities that are subject to this federal law will have ongoing obligations, it would be prudent to review and update your company’s governing documents and agreements to ensure that certain individuals who are classified as Beneficial Owners contractually agree to provide the required personal information and updates to the company (or directly to FinCEN) so that the company can fulfill its mandatory reporting obligations. Some steps to consider: Build CTA and Beneficial Owner Information Reporting compliance into governing documents. Newly created entities often draft and adopt governing documents, like operating agreements, bylaws, shareholder or subscription agreements. You should consider adding a provision that imposes an express obligation on any person that could be classified as a Beneficial Owner - LLC members, corporate shareholders, officers, general managers and others with significant control or ownership – to provide and update the personal information that the company must submit in its Beneficial Owner Information (BOI) forms. Additionally, consider adding representations and warranties regarding this obligation in your agreements and remedies for any breaches. And, the company may want to secure indemnification from its Beneficial Owners for any penalties assessed due to a Beneficial Owner’s failure to provide accurate or timely information or updates. Update Employment Agreements for executive level employees. A high-level executive will likely have substantial control over the entity’s decisions and, therefore, is considered a Beneficial Owner, even if they have no actual ownership stake in the company. Executive employment agreements should be amended to include required reporting and updating of BOI during the term of the employment. Include BOI requirements in entity purchase/sale agreements. If you are selling your ownership interest in your entity, whether it’s an LLC Membership Interest or a certain number of corporate shares, it is important to include a post-closing provision that requires the entity or the new owner to update the Reporting Company information and BOI – since it will no longer include you! Create a plan for filing, updating or correcting Beneficial Owner Information. Reporting Companies will have only 30 days to update or correct Reporting Company and BOI information - whether a name or address change, or issuance of a new form of identification that must be uploaded. Accordingly, companies should implement a process to monitor and track any changes in information among their Beneficial Owners so that an updated report can be timely filed, avoiding any penalties. Each Reporting Company will have to decide who will actually file the reports with FinCEN – will it be a company employee or a third-party facilitator? If the company will be filing its own reports, there must be a secure storage process for each Beneficial Owner’s personal information so that it is safe from a data breach. Appoint a Compliance Officer. Companies that own numerous other entities or that have a number of Beneficial Owners should consider appointing a control person to standardize and simplify the process of providing BOI for the initial report and any subsequent updates. Perhaps this compliance officer can be the person doing the actual filing or can be the company’s liaison to an outside facilitator. Consider requiring all Beneficial Owners to obtain a FinCEN Identifier. If your company requires its Beneficial Owners to obtain a FinCEN Identifier, then the individual will be responsible for ensuring their information is always up to date, rather than the Reporting Company being responsible for that. This will also ease the burden of safely securing a Beneficial Owner’s personal information, as the company will not be handling that information. Next steps. Take some time to think about how your company will be affected by the Corporate Transparency Act. If you’d like some guidance in how to ensure that your company and its Beneficial Owners are compliant, don’t hesitate to contact me and schedule a call or meeting. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509  Contact Me Today
By Wendy Anderson 17 Nov, 2023
The federal Corporate Transparency Act (CTA) will be in effect as of January 1, 2024. More than 32 million registered businesses in the U.S. will be subject to this law. If yours is one of them, continue reading to discover what you need to do. If you’ve not seen previous posts or articles, the purpose of this new regulation is to combat money laundering, human and drug trafficking, terrorism financing and other illegal activities by requiring business entities to disclose information about the individuals who beneficially own and control them to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). As a business owner, here are your next steps: 1. Determine whether your company qualifies as a Reporting Company. Any corporation, limited liability company, or similar entity which is created by filing with a secretary of state (or similar office, such as the Arizona Corporation Commission) or is formed in a foreign country and registered to do business in the United States is considered a Reporting Company. A Reporting Company will have to submit the following information: Full legal name of the reporting company (and any trade names or DBAs); Tax identification number; Jurisdiction of formation; and Current U.S. address. 2. Determine if an exemption applies. Certain entities are exempt from filing: Companies (i) employing more than 20 full-time employees in the United States, (ii) operating from a physical office in the United States, AND (iii) having more than $5 million in gross receipts/sales, as shown on its most recent tax return Federally registered entities such as banks, credit unions, investment advisors, securities broker dealers, insurance companies, accounting firms, and public utilities Tax-exempt entities if registered with the IRS Publicly traded companies that are subject to SEC regulations Additional exceptions apply to certain entities, such as trusts, that do not require the filing with a government agency 3. Determine the Company’s Beneficial Owners. A Beneficial Owner is defined as any individual who either (i) directly or indirectly exercises substantial control over an entity, or (ii) owns or controls at least 25% of the ownership interest in the company. Substantial Control can include individuals who are senior officers, those who have authority over the appointment of officers or board members, or those who have significant influence over important decisions and matters affecting the Reporting Company. Ownership Interest can include shares or membership interests, or any other documentation that establishes a level of ownership in the entity. If your entity was created many years ago, it’s likely that there have been changes to the owner’s names and addresses, and possibly some ownership interests have changed hands through sales or inheritance. Start now to identify the current Beneficial Owners and collect the information listed below. 4. If your entity is created in 2024 or later, determine the Company Applicant. This is the person who files the document that forms the entity and/or the person who directs or controls the filing of the document. This can be an individual at your company, at your attorney or accountant’s office, or a third-party registration company. 5. Obtain information on Beneficial Owners (and Company Applicants, if applicable). For each Beneficial Owner or Company Applicant, the following information must be reported: Name, date of birth, and street address; and Government-issued identifying document, such as a passport or driver’s license and an image of that document 6. Apply for FinCEN identifiers when possible. A FinCEN identifier allows a Beneficial Owner or Company Applicant to enter their information directly with FinCEN, rather than providing their personal information to the Reporting Company. If the Reporting Company collects this information, it will be responsible for safeguarding the information and for updating it with FinCEN when there are changes. If the individual applies for a FinCEN identifier, the individual will be responsible for any updates and the Company does not have to create any process for securing the information. 7. Submit Initial Filing on or after January 1, 2024. The Beneficial Owner Secure System (BOSS) will be available on January 1, 2024 for Reporting Companies to complete their Beneficial Owner Information (BOI) reports. If your company was formed before this date, you have until December 31, 2024 to file your BOI report. If your company is formed in 2024, you have 90 days from the date of formation to file your BOI reports. If your company is formed on or after January 1, 2025, you have 30 days from the date of formation to file your BOI reports. The BOI report will likely not be available to you after submission, so be sure to save your filing as a PDF so that you can reference the information later. 8. Submit Updated Filings. If any of the information previously reported to FinCEN changes, the Reporting Company has 30 days to file an updated report. If the Reporting Company submitted inaccurate information, a corrected report must be filed within 30 days of the date it knew, or should have known, that the information was inaccurate. Beware of Penalties. It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent BOI, or to willfully fail to report complete or updated BOI. Such willful actions constitute federal crimes subject to civil and criminal prosecution, including civil fines of up to $500 per day and criminal penalties of a $10,000 fine and imprisonment up to two years. Final Thoughts. These obligations are new to many business owners in the U.S. Take the time now to review the required steps, to determine who your company’s Beneficial Owners are, and to make a plan for obtaining the needed information. The CTA forms are not yet available, so work now to address any issues prior to January 1, 2024 so that you can timely file your BOI report. Please contact me if I can be of assistance. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 Contact Me Today
By Wendy Anderson 13 Jun, 2023
In last month’s article, we discussed negotiation as a time and cost-efficient way to resolve a business dispute. If negotiation is not an option – perhaps the parties are so at-odds that they can’t effectively communicate – then mediation might be the answer. Mediation is an informal and non-adversarial process in which a neutral third-party facilitates the resolution of the dispute, but does not actually make any decisions. With the ultimate goal of coming to a compromise after discussing the issues and exploring potential resolutions with the mediator, the power to actually agree on the settlement rests with the individual parties. Often, if the disputing parties are friends or business partners, using mediation will allow them to maintain that relationship because neither one is seen as the winner or loser. The process itself is voluntary and each party has the authority to accept or reject a potential settlement, which often will not be exactly what either of them wants. But, if the parties do come to an agreeable compromise, it becomes binding upon the signing of a settlement agreement. Unlike using litigation or arbitration to settle a conflict, with mediation there is no submission of evidence, no filing of motions, and no formal proceedings. Because they are in control, parties that settle a dispute through mediation are often more satisfied with the result than if the exact same result was imposed on them by a judge or arbitrator. Mediation generally results in a resolution more quickly than litigation or arbitration, which also means less cost. Of course, if the parties fail to come to a settlement, then other avenues are available for resolving the dispute. But mediation should be considered as a first step. Give me a call if you would like to explore this option for any conflict you may be facing. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 C ontact Me Today
By Wendy Anderson 15 May, 2023
As a businessperson, you interact every day with customers, employees, suppliers, partners, and others. And you know that in every interaction, whether for business or personal reasons, there is the possibility of a misunderstanding or an action (or inaction) that could lead to a legal dispute. Taking your case to court is certainly one way to resolve the conflict. But is it really the best way? A lawsuit can be costly, time-consuming, and stressful, and the result is unknown. A judge or a jury will ultimately decide the winner. Instead, consider one of several Alternate Dispute Resolution options. This article will discuss NEGOTIATION as a method for resolving a business or personal dispute. When you are in conflict with another person, it may be impossible for you to speak to them without your emotions getting the best of you. It may be the same for them. And that makes it unlikely that you will resolve the situation. But negotiation CAN be a non-adversarial way to resolve a dispute, if you have someone representing you and arguing your case to the other side. Often the negotiators are attorneys representing the people involved in the dispute. As outsiders to the conflict, attorneys can communicate in an objective way, creating the opportunity for meaningful discussion. The goal of negotiation is not to determine which party is right and which is wrong. The goal is to come up with a resolution that both sides can live with. It’s a compromise, and it’s very possible that neither side will feel that they got what they really wanted. But in the overall picture, winning the actual argument is not the only consideration. With every dispute, you need to consider how much: time it will take to get to the final resolution; money that will cost; and stress will be created. Every minute of mental energy expended on thinking about the dispute means one minute NOT spent on managing your business or on something else that’s important to you. With negotiation, the disputing parties – not a court or other outside third-party - are ultimately in control of the process and the resolution. And once there is a resolution, the attorneys will draft a settlement agreement, legally binding both parties to what you both agreed on. Negotiating a resolution to a legal conflict often results in an outcome that is good enough to satisfy both parties, and one that is also cost and time efficient. If I can assist in negotiating a settlement on an issue in dispute, don’t hesitate to call. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 C ontact Me Today
By Wendy Anderson 28 Feb, 2023
If you are an owner of a company, the federal Corporate Transparency Act (CTA) applies to you!
By Wendy Anderson 21 Jul, 2022
Over the years, numerous clients have asked for advice on how to form an Arizona nonprofit organization. I’m glad they asked, because forming and running a nonprofit is not the same as a for-profit LLC or corporation, and if not done correctly, the nonprofit could run afoul of state and federal laws. The most common form for a nonprofit is a Public Benefit Corporation, which is a charitable or social-welfare organization, including educational, scientific, and religious entities. Nonprofit does not mean that the organization cannot bring in revenue; however any profits are retained by the organization and no individuals (or for-profit entity) can take profits for their own benefit. One of the greatest advantages of operating a nonprofit is that it can be recognized by the IRS and state taxing authorities as “tax-exempt.” This means that, among other things, the organization: Is exempt from state and federal taxes Can accept donations that are tax deductible for the donor Can apply for state, federal and private grants Pays no sales tax on purchases Running a nonprofit properly will protect it from jeopardizing this tax-exempt status. And to run the entity properly, certain policies and procedures should be adopted, and followed, by the board of directors and the officers. Policies Required for Tax-Exempt Status Conflict of Interest/No Self-Dealing Policy The IRS prohibits a nonprofit’s board members, officers and key employees from using nonprofit funds to personally benefit themselves by directing the entity to purchase goods and services from for-profit companies they own or manage. This is called “self-dealing” and it is so important to the IRS that a nonprofit not engage in this practice that having a policy against self-dealing is required for the initial approval of tax-exempt status. Record Retention/Destruction Policy Certain records of the entity must be retained so that the entity can show the IRS or any other governmental body that its practices have complied with the law. Some of these records include financial, accounting and tax records related to donations and expenses, employment records, entity formation documents, contracts and legal records, and the like. On a nonprofit’s annual tax return, it must acknowledge that it has adopted a policy addressing the time frames for retention. Whistleblower Protection Policy Also required on the annual tax return is a policy that encourages staff and volunteers to come forward if they have credible information on any illegal practices or violations of policies committed by any person in the organization. The policy must also protect those individuals from retaliation should they make a formal report of wrongdoing. Additional Policies that are Prudent to Adopt In addition to the above, it is a good idea for a nonprofit to establish the rules by which it intends to operate. While the needs of nonprofits vary from one to another, some of those policies should include: Confidentiality Policy This policy stresses the importance of confidentiality, not only related to the organization’s operations, but related especially to its donor’s personally identifiable information and certainly any HIPAA protected medical information that the organization might collect if the nonprofit’s mission relates to medical research or helping people with certain medical challenges. Compensation Policy While a nonprofit does not distribute profits to individuals, its employees certainly can be compensated with salaries that are reasonable for the job they do. This policy might dictate that salaries are determined only after compensation experts are consulted, market surveys are done, or the board votes on a compensation schedule, to ensure that no individual is personally compensated at unreasonably high levels. Employment Policies Documenting policies related to employees is always a smart idea. For a nonprofit, these may be no different than a for-profit company, but they will communicate the entity’s expectations for its workers and how the entity handles issues or disputes with employees. Travel and Expense Reimbursement Policy This will clarify what expenses are covered by the entity for any employee, volunteer, or fundraiser that incurs expenses as part of their duties. Volunteer Policy This document will make it perfectly clear to a nonprofit’s volunteers that they are donating their time and services, and should have no expectation of pay or benefits, like an employee would. Fundraising Policy If fundraising is a significant component of a nonprofit’s activities, a policy related to this is a good idea. The entity should determine how it will track all fundraising income and expenses, what will be provided to donors to document their donation, and under what terms external fundraising personnel will be hired. Investment Policy Arizona law requires that any person managing and investing institutional funds do so “in good faith and with the care an ordinarily prudent person in a like position would exercise under similar circumstances.” A nonprofit should clearly define what guidelines it will establish to meet this legal standard. Next Steps This is not a comprehensive list, of course, but having these various policies written, adopted by the board of directors, reviewed periodically, and enforced on a regular basis by the officers will go a long way toward protecting that all-important tax-exempt status. If you feel that your nonprofit’s operations could be shored up, or if you are just forming your organization, please give me a call so that we can ensure you have the right procedures in place. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 Contact Me Today
By Wendy Anderson 16 May, 2022
One of the most common questions I get from business owners is whether or not Non-Compete Agreements are legal. Yes, in Arizona they are! There’s a significant body of legal decisions in Arizona to guide us in drafting a Non-Compete that will be held valid if legally challenged at some point. Below are some of the major considerations, but first…. What is a Non-Compete? A Non-Compete Agreement is a contract between an employer and employee (or between a hiring company and an independent contractor) that, following the worker’s termination, he or she will not engage in the same line of work that he or she performed for the company. The purpose, of course, is to protect the employer’s business in the aftermath of the departure of a worker who has skills and knowledge about the industry and the specific company and can successfully compete against their former employer, causing financial harm. But because this restriction can keep the worker from earning a living at their chosen profession for some period of time, the courts will not enforce a Non-Compete that contains unreasonable or overbroad provisions, meaning that the restrictions should only apply to the company’s “legitimate and protectable business interests.” But what does THAT mean? Temporal Restrictions Most Non-Competes define a time frame after the worker is terminated during which they cannot engage in competitive work. While a 2-year restriction might be reasonable for some workers, such as a high-level executive with access to a company’s most sensitive data, it will not be reasonable for a mid or low-level worker with limited knowledge of the company’s operations or confidential information. Your temporal restriction must be reasonable for the position, and generally should be no longer than required for the company to find a replacement worker and get that worker up to speed. A court will not view an unduly restrictive time frame as a legitimate and protectable interest. Geographic Restrictions Additionally, most Non-Competes specify a geographic area within which the worker is prohibited from engaging in competitive work. Of course, this is intended to prevent the company’s clients jump to a former worker’s conveniently located new company. In today’s business world, however, more and more companies have state-wide, national, and even international clients, making a Non-Compete that restricts the worker’s activity around the company’s location potentially irrelevant. If a Non-Compete is legally challenged, a court will want to enforce only the least restrictive terms needed to protect the company. For certain local businesses – medical or personal services, home repair, and the like – a geographic restriction may make sense, but not for companies whose clients are outside the local area. This is no longer a term that should automatically be included, but rather used strategically, where relevant. If a geographic restriction does make sense, an employer should seek to include only those areas actually served by the company - and by the worker. Restricting the worker from working in an area not serviced by the company, or one in which the worker did not actually work, will most likely be considered overly broad. For instance, limiting a sales representative whose territory was the West coast from working for 1 year in a competitive business on the East coast may not be considered reasonable and protectible. So what’s the rule? The “rule” is that there is no “one-size-fits-all” when it comes to Non-Competes. In the 1979 Arizona case Gann v. Morris, the court said, “What is reasonable depends on the whole subject matter of the contract, the kind and character of the business, its location, the purpose to be accomplished by the restriction, and all the circumstances which show the intention of the parties.” Clearly, every Non-Compete must be evaluated on its own. Arizona v. other states While Arizona courts have consistently recognized a business’ right to protect its interests after a worker leaves, the Non-Compete cannot simply be a means of eliminating competition. There must be a valid reason for any term that restricts an individual’s ability to earn a living. Numerous other states have recently enacted laws prohibiting companies from requiring their workers to sign Non-Competes or limiting the restrictions that those companies can include in their agreements. Arizona has not yet done so, but the body of case law in our state clearly outlines the parameters for enforceability. What should I do? If you are a business owner with employees or independent contractors, it’s very risky to use a template Non-Compete Agreement or one with overbroad or unreasonable terms. You could be taking the chance that the entire agreement will be declared invalid (not just the offending provision). You have the right to protect your company – let me know how I can help! NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 Contact Me Today
By Wendy Anderson 20 Mar, 2022
If you are a business owner, disputes with customers, business partners or workers are inevitable at some point. And if you allow it, that dispute could turn into a lawsuit that is all-encompassing in terms of your attention, finances, and time - for many months or even years. Arbitration is a process where a neutral third-party decides the outcome of your dispute. This third-party may be an attorney, a retired judge, or another legal professional, but it is someone that the disputing parties jointly select. The arbitration process is similar to litigation, because each party submits its evidence, witnesses may be called, and there is a final decision, declaring which party prevails. The procedural rules may be more relaxed than with a court case, and often the arbitrator has discretion to determine how the process will go without being strictly tied to the formal rules of court. Arbitration Two contracting parties can agree, in advance, that if a dispute arises, the aggrieved party will NOT file a lawsuit, but instead, will initiate arbitration proceedings. Arbitration, for business owners, is preferable to litigation for numerous reasons: Lawsuits can take years to resolve. Arbitration is likely faster. The losing party in a lawsuit in Arizona has the statutory right to appeal the decision to a higher court. Arbitration decisions are final and binding. Costs tend to be lower and can be controlled by the terms included in an arbitration agreement. Court records are public. Arbitration is private. Arbitration Agreements But this understanding between parties may be ineffective unless there’s a written and signed document, binding the parties in advance of any dispute. This arbitration provision can be a stand-alone document or can be included in an overall services or partnership agreement. In addition to the promise that neither party will initiate a lawsuit, other clauses may include the process for selecting the arbitrator, rules or process for the proceeding, and what damages and legal fees the arbitrator is permitted to award. Importantly, the agreement needs to make clear that there is no option to submit disputes to the courts – arbitration is the agreed-upon and exclusive dispute resolution forum. Employment Arbitration Agreements For those companies with employees, arbitration agreements are equally beneficial and your policy should be clearly outlined in your Employment Handbook and in any employment contracts. Employees may bring allegations against the company for any number of reasons: Unpaid wages Adverse employment actions, such as termination or demotion Alleged discrimination or harassment related to an employee’s age, gender, religion, race, national origin, disability, or other protected class Breach of the terms of an employment contract or other promise made to the worker Disputes over entitlement to and receipt of benefits Under the law, an employer may require an at-will employee to agree to mandatory arbitration as a condition of new or continued employment. Additionally, the employer can prohibit class-action arbitrations in which multiple employees demand joint arbitration over a common work-place grievance. Be sure to include these provisions in your Handbook and in the agreement. New Federal Law Just 3 weeks ago, on March 3, 2022, President Biden signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 . This law is limited in scope and applies only to arbitration agreements between employers and employees. Effective immediately, the employer can no longer require arbitration for claims of work-place sexual assault and sexual harassment even if an employee has already signed a mandatory arbitration provision. Employers may continue to require arbitration for other grievances, if there is a signed arbitration agreement, however an employee is now legally entitled to file a lawsuit for sexual harassment and assault claims if he or she chooses to do so. What Should Business Owners Do? Business owners should consider whether or not they want to require that arbitration will be the exclusive resolution method for disputes with customers and business partners. If so, drafting an agreement, or including a new clause in an existing contract, is critical. Employers that want to institute a mandatory arbitration policy should consult with their human resources expert or employment attorney to ensure the policy complies with the new federal law related to employee claims of sexual assault or harassment. In order to enforce the arbitration policy when a dispute later arises (over a different matter), an employer will need to have the employee’s signature, as his or her voluntary and knowing waiver of their legal right to bring a lawsuit, prior to the occurrence of the dispute.  Additionally, for those companies that already use arbitration agreements in their employment-related documents – such as non-disclosure, non-solicit, non-competition, employment agreements and any other agreements utilized by the company – an immediate review and update is recommended. If the arbitration clause attempts to mandate arbitration for sexual assault or harassment claims, a court could invalidate the entire clause. Make sure that your company’s policies regarding dispute resolution are legally enforceable and that you have the documentation to support them. Don’t hesitate to call if you have questions or if you need your policies and documents reviewed or created. NOTE: THIS ARTICLE IS FOR GENERAL INFORMATIONAL PURPOSES. IT DOES NOT CONSTITUTE LEGAL ADVICE, NOR DOES IT CREATE AN ATTORNEY-CLIENT RELATIONSHIP. EACH SITUATION IS DIFFERENT. YOU SHOULD CONSULT WITH AN ATTORNEY TO DETERMINE YOUR LEGAL RIGHTS, REMEDIES, AND DUTIES. By Wendy M. Anderson, Esq. Law Office of Wendy Anderson, PLLC 480-825-4509 Contact Me Today
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