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Martin Luther King, Jr. on Leadership & Consensus

Aloha and thank you for continuing to visit this blawg, I hope your 2017 continues to be off to a great start.

If you are reading this post hoping it is a continuation from last week’s post on communication it is not directly related, but will still follow in the vein on the topic of communication.  Instead, this week, I would like to briefly turn your attention to one of America’s great leaders, Martin Luther King, Jr. as we head into the long weekend celebrating his contributions to the Civil Rights movement.

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Communicating With Your Business Partners

communicating in contracts

A New Year, A New Business, and A New Of Hope Of Communication

Aloha and Hau’oli Makahiki Hou!

I hope this finds you all well, and I thank you for visiting our legal blog or blawg. How has your first week of 2017? Ready to dive into new projects?  For those of you thinking this is the year or the time to start a business, well then today’s post and the couple of posts that will follow are for you. Specifically for those of you interested in starting a business, especially with business partners who will own the business with you. The overall theme of these posts is about communicating.  The source of this inspiration for the theme? My own partnership with Trejur launched last year my lecturing for a communications class at HPU, and I always get this question: Can my business partner do that?

Part I, Communicating With Your Business Partners

So today’s post is on communicating with your business partners, the one following this post will be on communicating with third-parties outside of the business entity you form with said partners, such as clients, customers, vendors, suppliers, contractors, etc …, and finally, the last post shall be about communicating with the government and various agencies.

Where it All Begins: Communicating, Not the Paperwork

So many of you that know me or have followed me, know that I started out as a solo practice working with small and medium-sized business clients on contracts and compliance work, such as forming limited liability companies. Over the years, as my workload increased I took on other contract attorneys to assist with the workload. Along the way, I met my commercial litigation partner, Trejur P. Bordenave. Trejur and I worked well together, and a lot of it was based on effective communication. This is the foundation that led us to the partnership we have today. In fact, he and I spent a good portion of the early part of 2016 discussing the partnership before formally launching the partnership itself.

Why am I telling you this?

One of the biggest issues I see when clients come to me to form a LLC or a corporation is they just want the documents. Yes, as a business attorney, absolutely I can draft your Operating Agreements or Corporate Resolutions, file your Articles of Incorporation, and/or obtain your Federal Employment Identification Number, and so forth, but typically, when someone like Trejur is called up to represent someone the dispute stems from a breakdown in communication and trust, amongst the business partners. There is not necessarily anything wrong with the paperwork, but the business partners did something, not necessarily maliciously or with intent to deceive, but their expectations about how the business would work, how they would get paid, reimbursed, when that would happen were all at different levels.  Let me use two examples of how this can play out to illustrate.

Example Stories

So these following examples are fictional, but they are issues I have seen before in a wide-variety of starting businesses or in the midst of a business dispute. Again, the point here is to illustrate that good communication is the foundation of a good business relationship, which in turn drives the drafting of the legal documentation.

Example One: Majority Member and Unfair Distributions

Kai and Russell open a new restaurant business. They organize a LLC. The LLC Membership Interest (or Ownership Interest) is divided 60% for Kai and 40% for Russell that is because Kai has contributed more cash and equipment (valued at $60,000.00) into the LLC as his Initial Capital Contribution than Russell. Russell just agrees that he will bring some of his old recipes from a prior business with him and agrees to work for the LLC for the value of his Initial Capital Contribution because they are in a rush to open the restaurant they draw up a generic Operating Agreement that recognizes the 60/40 split and that everything from that, including voting, profit/loss allocation, distributions, etc . . . will be 60/40.

Five months later, after the restaurant has been up and running, Russell quits and wants to terminate the LLC. Why? Well, he feels that Kai treats him more as an employee because he feels he owns the majority of the LLC and that Russell needs to work off $40,000.00 or what Kai believes Russell’s fair share of the contribution should be. Further, due to the majority position Kai takes his cash distributions at the beginning of the month, and gives Russell his distributions at the end of the month and if there is not enough for budgeting purposes states the LLC will just owe him later.

Example Two: Discussing Officer Duties Prior to Incorporating

Lisa and Jessie want to start a solar design and installation business. They intend to incorporate a corporation, which shall issue 1000 shares, where Lisa would own 550 shares and Jessie would have 450 shares. Lisa would like to be President as she has more local connections and is the one who can bring in more clients whereas Jessie will likely do the grunt work. However, Jessie is concerned that Lisa is President and has more shares so as a minority shareholder she fees unprotected. Lisa and Jessie meet and discuss this issue.

They decide that through their Articles of Incorporation, Bylaws, and Resolutions that the corporation shall only have the offices of President, Secretary, and Treasurer and that Jessie shall be both Secretary and Treasurer. Further, that Lisa as President must submit a marketing budget for the next fiscal year to Jessie as Treasurer on the June 20th before Jessie will cut checks from the corporation’s expense account to where she will have sole authority to cut checks from. They also agree that all 1000 shares (unanimous consent) must vote in favor of declaring dividends before money is paid out as such.  Finally, both agree to sign Employee Agreements stipulating to what their compensation, benefits, work hours, etc . . . on top of their rights and obligations as shareholders of the corporation.  Both are satisfied with this arrangement and move forward to incorporate.

So What Happened? What Should You Consider for your Business Partnership?

In my first example, the business partners were in a rush, failed to communicate expectations, and felt that once they had the paperwork everything would resolve itself. But as trite as it may seem, they did not talk about their feelings and by signing an Operating Agreement that just split everything according the Ownership Interest percentage it did not really reflect on how they were going to do business with one another. In the my second example, discussing how Jessie felt about her worries and concerns allowed them to create a process, a mechanism of a check and accountability that they discussed and agreed to.

At this point, I’d like to put in your mind a lot of people think that once the file their Articles of Organization or they come up with the Bylaws these are set in stone. That is not necessarily the case, the owners of the business can always amend them if they are in agreement. Also consider if you and your partners are not sure what the final arrangement will look like, that is you are in an ongoing negotiations, but you have stipulated to some terms or have an inkling about where your arrangement is heading, you can always use a Memorandum of Understanding or Letter of Intent or whatever document applies to stipulate to what has already been discussed or agreed to, and agree to return to the matter at a later time to finalize. Communicate and trust each other, but keep a record of it.

Often times, people do not slow down to consider how they want to structure their decision making processes, their rights and duties to each other, to the business. Their feeling is that making money will resolve all that, but then the issues come up overtime like . . . Why do you get reimbursed for parking when I take the bus? I bring in all the clients and you do all the work, and marketing and networking is work. The recipes I brought with me are the value of the food company so I should get a majority interest. I’m the older brother so I dictate the operations just like the way our father and grandfather did it. And so on and so forth . . . if you thing your dispute is ridiculous with your business partners, I’m pretty sure there are ones even more crazy.

Sit Down and Discuss Expectations

What isn’t crazy is sitting down and discussing what you expect out of the business relationship and what you expect out of your business partners before forming the business entity and doing business. In many ways having a business partner is like getting married it is for better or worst, and business divorces are ugly affairs like regular divorces. Therefore, it is worth the time to sit-down and talk it out, and then if you are wondering can we arrange our business partnership according to what was discussed that’s when you can give me a call and we can work out . . .

What is the difference between a Member-Managed and Managed-Managed LLC? Can I contribute services in exchange for stock ownership? What are the differences in liabilities for a General Partner versus a Limited Partner? Can we have percentages of Ownership Interests that do not match Distributional Interests? What about having two-levels of Ownership Interests? Should we limit the powers and authority of the President?

Mahalo for reading this post. I hope you have a Happy and Fortuitous New Year! See you next time!

-RKH

DISCLAIMER: This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained in this post without seeking the advice of  an attorney in their relevant jurisdiction.  Hew & Bordenave, LLLP expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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Old Posts: From Ryan K. Hew, Attorney at Law, LLLC

Formalities

From: “Let me provide the formalities.”

Hew and Bordenave

To: “Let us provides the formalities.”

From Old Solo to New Partnership

Hey everyone, thanks for visiting our Blawg. I am just letting you know that all the posts prior to January 1, 2017 are from my solo practice. They are from Ryan K. Hew, Attorney at Law, LLLC. In particular, the old: hawaiiesquire.com. I brought the posts to our new site because a lot of the legal information is helpful for business owners and truth be told I loved doing Draw the Law, Boilerplate Blurb, and all the other content. So please continue enjoying them, but I do hope you like the new content from Trejur and me. Mahalo!

-Ryan K. Hew

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Can You Own a Monkey in Hawaii?

Happy Lunar New Year! It is the year of the Fire Monkey! Supposedly, fortune tellers say it is an ear of market volatility, so it is best to make contingency plans and not monkey around! However, enough punning, this post is about owning a monkey in Hawaii.

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Further, no tax advice is given in this post, and you are urged to seek a tax attorney, accountant, and/or tax professional to help you with your tax and accounting needs. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Happy Lunar New Year!

I hope it shall be a prosperous one for you! To celebrate that this is the year of the Fire Monkey, I decided to do a fun post,  as I am born in the year of the monkey (I am sure you can now guess my age, haha). So for this post, I thought a fun question to answer is one that that comes up and now and then among pet-loving friends: “Can I own a monkey, here in Hawaii?”

The answer is: yes, but not as an individual … and certainly not as a pet. 

Hawaii Department of Agriculture and Importation of Animals

As you probably could guess this is a regulated area. So it is not as easy as in you can fly in any monkey you want, then take it home, especially given that Hawaii laws are aimed at preserving nature and preventing invasive species.  Obviously, monkeys are non-native species to the island, so you are you going to have to import one and play by the rules. So none of that “see no evil, hear no evil, speak no evil” shenanigans with the government agents.

To begin with, the importation of non-domestic animals is under the jurisdiction of the Hawaii Department of Agriculture (DOA). See HRS 150A-6.2.  Some animals are banned outright, while others are allowable by permit. Monkey importation is allowable by permit but has an extra step. That step being bonding.

I had to use this image for this post. It is a monkey in a suit at a desk with paperwork. I know what people think of attorneys. Further, I think it was apt for this post. Lastly, I paid licensing fees for the image and had to make use of it (don't worry one post I will devote to licensing fees for you graphic designers, photographers, etc . . . but enjoy and laugh! I had to use this image for this post. It is a monkey in a suit at a desk with paperwork. I know what people think of attorneys. Further, I think it was apt for this post. Lastly, I paid licensing fees for the image and had to make use of it (don’t worry one post I will devote to licensing fees for you graphic designers, photographers, etc . . . however, enjoy and laugh!

 

Hawaii Administrative Rules Chapter 4-71 and Bonding

We turn to the Department of Agriculture’s Administrative Rules, in particular, Chapter 4-71, as the objective of these rules are to implement HRS Chapter 150A. See HAR 4-71-1.  So what do the specific rules say about monkeys?

If we go to HAR 4-71-6.5, we see that we would need a permit, but more specifically we see in Section (a)(3) that certain animals need the securing of a bond, as specified in 4-71-7.  Scurrying down to HAR 4-71-7(1) it indicates that an applicant (for the permit) shall secure the appropriate bond for:

Monkeys, apes, baboons, chimpanzees, gibbons, lemurs, pottos, wallabies, and any other animal that the board or chairperson may require to be bonded as a condition for importation or possession;

Bonding Procedure and Conditions for Bonding

So how do you get a bond, and are there specific requirements? Well, the Administrative Rules continue from 4-71-7 to 4-71-8, Bonding Procedure and 4-71-9, Conditions for Bonding.  In these two sections, you will see much of the specifics you would need to fulfill to get a bond, which would go with the permit, which would, in turn, allow you to own a monkey.

Of course, even if you meet these requirements, and successfully import and own a monkey, you have to realize you have to comply with all the bond conditions. Failure to do so would mean the Department could seize it, as given their power under HAR 4-7-10.  Interestingly enough, if your monkey were to escape it is your responsibility to recapture it, and you have a week to do so, or else the Department will use its resources to recapture. Additionally, they can sell, ship, donate, or destroy it.  See HAR 4-71-10.

Are there Any Other Restrictions?

Yes, one of the biggest caveats to all this is that monkeys as a species are placed on the DOA’s List of Restricted Animals – For Private and Commercial Use.

What does “Private and Commercial Use” mean? In the case of the definition section of the Administrative Rules “Private Use” is for example, non-profit research, but is specifically not for “individual possession of an animal as a pet.” Further the restrictions makes clear that all members in the order of primates can only be brought into the state for primate sanctuaries or for research by universities or government agencies, exhibition in municipal zoos, etc … Also a primate sanctuary must maintain a 501(c)(3) not-for-profit federal tax-exempt status and have any permits or licenses required by federal state, or municipal law.  Therefore, if you are intending to bring a monkey into the State of Hawaii it has to be with the purpose of this Private and Commercial Use, which in turn you can see means you will have to jump through additional regulatory procedures (i.e. setting up a non-profit corporation and gaining tax exemption status).

Clearly, “owning” a monkey in the State of Hawaii not a process of monkey see, monkey do like with dogs or cats, but a Department of Agriculture procedure of permitting and bonding and understanding that an individual cannot possess the monkey as a pet, but that the importation of them would be solely for Private and Commercial Use.

Mahalo for reading!

-RKH

 

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“Nonprofit” does Not Mean “501(c)(3)”

Non-Profit Organization

As it is the giving time, I took some time to give a donation through the Friends of Hawaii Charities, Inc. page. As I was going through the process, this triggered my busy-filled brain that I was going to do a series of one-sheets and posts about nonprofits, tax-exemption status, and the meaning of 501(c)(3) . . . Which as you can see I have not done.

So I figured let’s just do a short post on one aspect:  namely, terminology and use of phrases of “nonprofit,” “non-profit corporation,” and “501(c)(3)”.

Be Specific: The Importance of the Right Word

Sometimes the “officialness” of a word tends to confuse rather than help. However, for attorneys, especially transactional ones, like myself, we often correct clients that conflate a “corporation” with an “LLC.”  They are NOT the same entity.  Further, this translates into a shareholder owns stocks/shares in a corporation whereas a member owns membership/ownership interest in their LLC.  While this can get confusing to the average businessperson, we attorneys use it to understand what type of situation we are facing for the purposes of ownership, rights, obligations, taxes, etc.

So this brings me to the point of this post.  I hear many times people use the word “nonprofit” to mean the same thing as “501(c)(3)” and vice versa.  While a 501(c)(3) is a nonprofit, not all nonprofits are 501(c)(3) organizations.  (If you remember nothing else of this post, just remember that sentence!)

What is a Nonprofit?

Many people think that “nonprofit” means that the organization does not make money. While, in a sense true, that does not paint the whole picture.  Like many lay people’s interpretation of the mechanics of law that is oversimplified.  The designation of being a nonprofit does NOT mean that the organization does not intend to make a profit.  What it means is that the organization has no owners (like shareholders or members of for-profit corporations or LLCs) and that the revenues earned by the organization do not inure to any particular owner.  In fact, there are some large revenue-generating nonprofit organizations out there, and one has had some headlines recently is the National Football League (NFL).

Yes, the NFL is a nonprofit; specifically, under the US Tax Code, it is a 501(c)(6).  I will get to the 501(c) thing in a minute.  I’d like to finish this thought on “nonprofit” before segueing to the 501(c).  Because business entity formation happens at the state-level (here in Hawaii you go through the Department of Commerce and Consumer Affairs, and in other states through the secretary of state), nonprofits first step toward 501(c)(3) status is to become a nonprofit corporation.

At that point, after your Articles of Incorporation are filed, you have a non-profit corporation in your state, BUT you are NOT a 501(c) tax-exempt nonprofit organization.

What are 501(c)s? and Specifically What is a 501(c)(3)?

After you have a non-profit corporation most organizations try to determine whether or not to seek further 501(c) status due to their purpose.  Notice that I mentioned that the NFL is a 501(c)(6), which is a Business League,  but in total there are about 29 different types of 501(c)s of varying use.  The most well-known is what everyone thinks of as a nonprofit, which is an organization organized for charitable (or similar purposes) and has 501(c)(3) status.

If the nonprofit corporation has a charitable purpose, its board of directors will seek 501(c)(3) status form the IRS. This tax-exempt status confers a benefit to people who donate money to the organization.  If you look at the website that I made a donation to this is the language they use:

Your donation is made to Friends of Hawaii Charities and is tax-deductible because Friends of Hawaii Charities is a 501(c)(3) tax-exempt charitable organization.

For charitable organizations, that is the key feature of a 501(c)(3) tax-exempt status, allowing the donors to get a tax deduction.  To receive this special status the nonprofit corporation has to meet certain criteria, and even after it gets its 501(c)(3) status the organization needs to abide by standards set out in the tax code.  For example, 501(c)(3) organizations cannot support political candidates and conduct extensive lobbying whereas the 501(c)(4), civic leagues, aka “Super PACS,” are not barred from these activities (yet).

Last Word: Know the Terms

I hope this clears the confusion when you use the words “nonprofit” and “501(c)(3)”. Nonprofit is just a general catchall and consider the fact that the term can just as easily apply to a casual association as well as a formal organization (i.e. one that has filed Articles of Incorporation to become a nonprofit corporation).  Then, you take your non-profit corporation and apply for 501(c)(3) tax-exempt status.  If that does not help, as always seek an attorney or professional and they may explain it better than me.

P.S. If you are feeling giving, be sure to check out the Friends of Hawaii, Inc. site and give to a Hawaii nonprofit through Friends of Hawaii, Inc., which is a 501(c)(3) charitable organization!

Social Media & the Law Update 09-18-13: Upcoming PNM Class, FB ‘Like’ Constitutionally Protected

FB 'Like' Constitutionally Protected

LEGAL DISCLAIMER: The following information is provided to be just general information, and therefore, should not be taken as specific legal advice that pertains to any particular situation.  The reader should not base any decisions on the information here to act or refrain from acting regarding a legal problem.  If you believe you have a legal problem please seek legal advice from a licensed attorney in the relevant jurisdiction.
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Exciting news everyone!  My Pacific New Media (PNM) class on Social Media and the Law is next week!  So there is still plenty of time to sign-up.  Here is the general info:

Sep 25, 2013 • Wed • 7:00-9:00pm • 1 mtg • UHM Krauss 012 • $50 (SMCHI $45)

What will I be covering?  Well, as it is a general survey class, I will touching upon areas where the law has inserted itself in the social media sphere, such as today’s more exciting news.

4th Circuit Court of Appeals Rules the “Liking” on Facebook is Constitutionally Protected

For instance, like how a Facebook ‘Like” is protected by the 1st Amendment of the U.S. Constitution (i.e. it is a freedom of speech).  Today, the 4th Circuit Court of Appeals issued a ruling in favor of a former deputy sheriff who had been fired from his job due to “liking” the Facebook page of the man running in opposition to his boss.  Basically, the court felt that by “Liking” a campaign page, it was the “Internet equivalent of displaying a political sign in one’s front yard, which the Supreme Court has held is substantive speech.”  Further, the court, in its unanimous ruling, as to this Facebook issue, stated that, “On the most basic level, clicking on the ‘like’ button literally causes to be published the statement that the User ‘likes’ something, which is itself a substantive statement[.]”

To read the complete ruling, check it out here.

Other Topics at my Class

As stated in my post on Trademark Usage, I attended the ABA’s Annual Conference, so I sat in on a seminar on “Social Media Terms of Use: Case Law Round Up”.  Many of the issues discussed at that seminar are ones I will be focusing on for my PNM class, such as various social media platforms’ terms of use, policies, etc . . . . I have a Slideshare that covers basics on the differences between Policies and Contracts.   What many users fail to realize that Terms of Use are generally binding and enforceable contracts, but that a Privacy Policy tends to be just a company’s call toward a prescribed action.  This is something that social media marketers, consultants, small business owners, and those who use social media as one of their primary marketing tools should consider.  Finally, if you are a responsible decision maker for your organization/business, you really consider having internal dialogue on handling social media in general (whether it be employees, PR, marketing, etc . . .).

Anyway, that is just a sliver of one of the many topics to be covered in my class.  So if you are interested in signing up click here.

Mahalo!

-RKH

What’s the Purpose of a Trademark? How is it Used?

What's the Purpose of a Trademark

LEGAL DISCLAIMER: The following information is provided to be just general information, and therefore, should not be taken as specific legal advice that pertains to any particular situation.  The reader should not base any decisions on the information here to act or refrain from acting regarding a legal problem.  If you believe you have a legal problem please seek legal advice from a licensed attorney in the relevant jurisdiction.
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So it’s amazing how time flies when you have a lot of work to do.  I have been very grateful for these past couple of months for the clients that have come through my door (or via electronic means), but more work means less time for blogging and sharing information to all you interested soon-to-be or current business owners.

Anyway, as some people know I was fortunate last month to attend the American Bar Association’s Annual Conference in San Francisco.  I attended many Intellectual Property, Business Law, and a couple of Employment Law seminars.  When I can, I will update my blog or provide one-sheet resources on the information I obtained from these seminars to share with all of you.

So today’s post is about the use of trade and service marks.  A prior Draw the Law post covered the difference between a trade name and trademark and I have a one-sheet on What is Trademark?.

Purpose of Marks

Before we get to the using of a trademarks, let’s first consider that the purpose of a trademark.  The point of a trademark is to distinguish one company’s set of goods and/or services from another company’s.  Basically, it is meant to avoid confusion to consumers, so they can readily ascertain from the mark which company the goods and/or services are originating from.

So How are Marks Used in Commerce?

A mark can be used on goods (products), which would make it technically a “trademark”.  Specifically, this would mean the mark is applied, engraved, embroidered directly on the goods, POS displays, the use of labels or tags affixed to the good, or shipping labels when sending the goods through commerce.  It is not just merely advertising, but must have a Point of Sale component.

In the case of a mark used in connection with services, clearly there is no tangible part to a service.  Therefore, service marks are found on websites, brochures, advertising (but not printer’s proofs), on or at locations associated with the services, such as vehicles used with the service, or on the uniforms of employees while they perform the service.

How do I Properly Use my Trademark?

You can use ℠ for service marks, ™ for trademarks, and registered trademark symbol (the ‘R’ that has a circle around it) ONLY for registered marks (it is a violation of the law to use the registered symbol when your mark is NOT registered).  Further, the mark should be distinguished from regular text, through the use of quotation marks, larger print, all capital letters, or through colorization of the wording.  Also your grammar lessons are important for trademark usage.  A noun should ALWAYS follow a mark.  The mark should NEVER be used as a verb.  For example, it is a XEROX copier and NOT xeroxing. Or perfect for the web as another example, it is NOT you googled the answer, but it is rather you ran a GOOGLE search.  Finally, the correct spelling should be used and moreover, the mark should not be pluralized.

The point of all this proper usage is to avoid a loss in rights in the mark.  Many trademarks of famous brands have become generic, and generic terms are not entitled to trademark protection.  Consider that the word “escalator” used to be a registered trademark, but the Otis Elevator Company has lost that mark due to it becoming generic.  Therefore, you should be actively policing your trademark usage and avoid losing rights that you worked so hard to create with your brand.

That’s it for this time.  I hope to be back soon with more information to share.

Mahalo for stopping by!

-RKH