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Once again, we have a stay-at-home order for O‘ahu, from now through September 23, 2020. There are some new exceptions carved out in this order, which should involve a personal risk/reward analysis.  For example, you are now allowed to go hiking, but only “solo.” This means you may not hike in any size group, even if you practice physical distancing and wear PPE. Certainly, we all want to get out of the house, however, common sense should compel you to think hard about going on an intermediate or advanced hike, with no partner, even if it is technically permitted under the new rules. Bringing your phone may not be enough either, because not all carriers have service in every valley or corner of the island.  As such, if you want to go for a hike, perhaps tone it down and play it safe for the time being.

Check out these five safety tips from Oahu Search & Research (OSAR):

  1. Do Your Research
    • Review this website for trails
    • Note, that in Hawai‘i only marked State trails are considered legal for hiking
  2. Check the Weather
    • Check the forecast in advance and day of
  3. Pack Your Bag
    • Map & Compass
    • Sun Protection – sunscreen, hats, long sleeved shirts, and pants
    • Extra Layers
    • Flashlight
    • First Aid Kit
    • Fire Starter
    • Repair Kit
    • Extra Food & Water
    • Emergency Shelter
    • Signaling Device – whistle, mirror
  4. Share Your Plan
    • Be sure a friend always knows where you are going, and when you will be back, especially if you are hiking alone (which is something OSAR strongly discourages)
  5. If Lost: S.T.O.P
    • S: Stop/Sit – take a break
    • T: Think – analyze the situation
    • O: Observe – note surroundings and resources
    • P: Plan – create a plan based on your observations

Be smart, be prepared, and stay safe!

We are one week in to the second stay-at-home work-from-home order. The order began August 27 and is currently set to end on September 9. To ensure that the order does not get extended, please do not gather with those outside of your household. Keep this in mind especially with the upcoming Labor Day weekend. Also, follow the CDC guidelines of wearing a face covering when in public spaces, maintaining 6 feet distance from others, and frequent hand-washing.

The new order has many of us questioning what we can and cannot do. Confused about what’s open and closed? See the below list:

Open

  • Essential Businesses
  • Restaurants: take-out or delivery
  • Public Schools, UH Manoa
  • Child Care
  • Construction
  • Religious services, graveyards

Closed

  • Retail Businesses/Bars
  • Personal Services: Hair salons, Tattoo Shops
  • Beaches
  • City & state Parks/Hiking Trails
  • Gyms
  • Golf Courses
  • Private Schools

As an essential business we are open with new operating procedures. We have adjusted to a rotating work schedule. Only two staff members will be present in the office at a time for social distancing measures, while the rest work remotely. We are available to assist you by phone, e-mail and ZOOM conferencing (upon request) during our normal business hours.

Unfortunately, during the first stay-at-home work-from-home order many local businesses had no choice but to shut down. It is anticipated that this new order will lead to more closures. As we work with many small to medium sized business owners in Hawaii, we understand the stress that is caused when making the call to close shop permanently.

If you are considering closing your business, check out our two latest blog posts Throwing In the Towel: Legal Issues to Closing Your Business – Part 1 and Part 2. We hope to be a source of information for you during these uncertain times as we provide a variety of free resources including, blogs, videos and webinars.

Stay safe and healthy!

In last week’s bLAWg: Throwing in the Towel: Legal Issues to Closing Your Business – Part 1, I discussed the duties and obligations of closing a business. If you have recently decided to close your business or are looking for alternative options to closing; the below checklist should provide a basic map of what you need to consider. Remember each business is unique and do not consider the below checklist a substitute for professional advice or as a definitive, exhaustive list.

What steps should I consider to Close my Business?

When closing your business, you want to take time to plan things, and a checklist helps organize that process. In general, the goal is to account for assets and liabilities, and make sure you are using the business assets to pay off its liabilities. You want to eliminate liabilities, prior to dissolving the corporation or terminating the LLC. Consider the following:

  1. If you have advisers, you should talk to them as they can assist or offer advice
    • Attorneys, accountants, Bankers, HR specialists, Financial Advisers, Business Mentors
  2. Sell off your inventory and collect on your accounts receivables – consider during this pandemic you may have to discount or negotiate as cash for others is also tight
    • Finish off your obligations to your clients/customers
  3. Provide notice to the major creditors or those businesses that support your operations;
    • Bank, lenders, suppliers, service providers, and utilities
      • Time your cancellation of credit cards and subscription services
      • Prepare to close your bank accounts
    • Landlord – in this case you may wish to review your commercial lease as these tend to be lengthy conversations depending on the terms
  4. Discuss with your employees and pay them out, and remember payroll deposits
  5. Liquidate everything else possible*
  6. Settle and paying off your debt, as much as possible**
  7. Do Accounting and Recordkeeping
  8. Pay off ALL taxes or prepare what you will need to file for returns
    • For example, in Hawaii, if you sell off all your inventory or certain other assets there is a Bulk Sales Tax Form
  9. Cancel permits and licenses with appropriate government agencies
  10. Consider providing contact information for forwarding purposes related to the closing business so people may contact you if you miss taking care of something
  11. If there is any money or other assets leftover review the internal governance documents (like an Operating Agreement for LLCs) and divvy up accordingly to the business partners – yes, this comes toward the end
    • Overpaying yourself to the detriment of creditors or taxes you owe is again subjugating yourself to personal liability
  12. Dissolve the Corporation or Terminate the LLC – ideally, after this you should be done with your business

What’s with the asterisks? Are there other options?*

Strategically, the decision by a business owner to close just means they are personally done with the business. However, consider just because they do not see value in continuing operations that doesn’t mean there is not value in the business. Consider that you could sell the business or its assets to another. For example, maybe a new restaurant owner wants a deal on kitchen hardware, or the landlord is willing to assign the lease to someone who wants to take over the space. Or consider a budding entrepreneur that sees an opportunity to take an established business and rebrand, so selling off the intellectual property and brand to them.

The bottom line is just closing, selling off assets, and squaring away liabilities, does not have to be the only route. While it is likely the case during COVID-19’s economic downturn that your business will not be as valuable as you want, sometimes you being done with your business does not mean its assets, operations, or brand cannot be of value to another.

What if my Debts and Liabilities are More than My Assets? What about Bankruptcy? **

According to the U.S. Bankruptcy Court in Hawaii, 151 residents and businesses filed for bankruptcy protection in June (up 22%). In July, Hawaii bankruptcies flattened to 140 which is just two fewer than the previous year’s findings. Although, federal and state assistance programs have helped during the shutdown, filings may continue to rise during the next few months and even into the next years as aid slows down and ends.

In instances, where you are truly underwater and the debts and liabilities appear to be insurmountable and/or the creditors are not budging in negotiations where they are demanding the full amount and you cannot pay, then yes, the other option is bankruptcy. If this is something you are considering, then understand that this is an even more significant decision than just closing your business.

Some of the steps to filing for bankruptcy include compiling financial records, credit counseling and filing the petition. Consider working with a bankruptcy attorney to make sure you understand what is required to file for bankruptcy, and feel free to contact us for referrals in the Honolulu area.

Anything Else to Consider?

None of the foregoing comments and lists are exhaustive. Every business, and its business owners are unique and may sometimes have special circumstances. If you have a situation that needs specific legal advice, then consult with an attorney, as soon as possible.

However, if you are still considering your options or want to learn more about the steps to close a business and alternative options, then consider joining our upcoming webinar – Throwing in the Towel: Legal Issues to Consider for Closing Your Business on Thursday, September 3, at 12 pm HST. Register here!

DISCLAIMER: This post provides general information, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained in the post without seeking the advice of an attorney in the 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.

Are you a business owner thinking of closing your store, restaurant, or bar? You are not the only one who has thought about it. In fact, many already have.

In Honolulu, walk around any neighborhood whether it is Downtown, Kalihi, Haleiwa, or Mōʻiliʻili and you will see that some businesses are gone. In some cases, for good. Surveys conducted indicate that approximately 900 businesses in Honolulu have closed either permanently or temporarily since the COVID-19 pandemic has started. Additionally, we know that the pandemic is not subsiding prompting the government to step up its regulations. Just recently bars on Oahu have been forced to close for an additional three weeks due to Mayor Caldwell’s Emergency Order 2020-23.

This post is for those thinking that it might be best to get out of the business they are currently in and some of the legal issues they must consider before “throwing in the towel.”  

The decision to close your business is not something to take lightly. While, you may have been one of those people that woke up one day and said, “I’m going to start a business,” while learning how to run the business along the journey. This wisdom and experience should have also taught you that the process of closing a business is not necessarily easy or straightforward. It is a process.

The worst decision to make is running and hiding from responsibility or closing too quickly without wrapping up your duties and obligations.

What are my Duties and Obligations?

If you’ve been running a business for several years, especially one that has some physicality to it, such as a storefront, inventory, or employees that report to you, then you realize all the responsibilities you have. First, you should make a checklist of the relationships that you as the business owner and the business itself has with others. This will help you map out all the people you will need to deal with as you wind down operations and move to closing the business. Especially, if you have an LLC or corporation that exist, then understand that your limited liability protection comes from the fact these entities are separate legal persons from the owners. The entity is on the hook for some of the contractual obligations and duties set at law.

Ask yourself about these relationships and what contractual and/or legal obligations and duties you have to:

  1. Business Owners – who needs to decide to go through with closing the business? Consider business entities that require votes by the partners, members, or shareholders to formally begin the process.
  2. Customers/Clients
  3. Vendors/Suppliers
  4. Landlord
  5. Financial Institutions, Banks, and Credit Card Companies
  6. Utilities and Service Providers
  7. Other Lenders (e.g. friends and family give you a loan?)
  8. Employees and Contractors
  9. Federal, State and County Governments (e.g. your taxes, licenses, and permits)
  10. Outstanding Lawsuits (if your business is currently in a lawsuit you may have to delay your plans of closing the business till this is resolved)
  11. Business Owners (e.g. if you are Managing-Member of an LLC members group, you have certain obligations to them prior to closing the LLC)
  12. Anyone other creditors

Consider that anyone of these may have a cause of action (lawsuit) against you or the business if you do not properly deal with them. Many of them are creditors and in some instances if you don’t pay or do what you are supposed, they will sue you to attempt collect their money. Did you give your customers coupons to use? Did you buy inventory on credit? Is the credit card paid off? How long is left on the term lease? Do you have enough money to cover payroll? And so forth.

The business owner is responsible to figure out how to end these relationships and the outstanding liabilities on them. However, what you should not do is run to dissolve the business entity first just because the liabilities are so big and onerous.

Why is Proper Notice so important?

Too many times I have seen LLC members think it is a good idea to terminate their LLC when they have not notified their creditors. They don’t understand doing the “hard stuff,” that is notifying creditors is really saving them from personal liability. They have a duty to notify creditors that they are closing to limit debt, not terminate the LLC and run and hide. This latter choice creates personal liability – in effect, you are causing the business entity to cease to exist without taking proper steps, thus eliminating the limited liability shield.

Anything Else to Consider?

None of the foregoing comments and lists are exhaustive. Each business, and its owners are unique and may sometimes have special circumstances. If you have a situation that needs specific legal advice, then consult with an attorney, the sooner the better.

However, if you are still considering your options or want to learn more about how to close a business, then consider joining our upcoming webinar – Throwing in the Towel: Legal Issues to Consider for Closing Your Business on Thursday, September 3, at 12 p.m. Register here!

Also, stay tuned for our bLAWg next week, that will cover: (i) a checklist of steps to consider when closing your business; (ii) other options instead of closing your business; and (iii) what to do when the business’s debts and liabilities vastly exceed its assets.

DISCLAIMER: This post provides general information, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained in the post without seeking the advice of an attorney in the 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.

Where is the Hawaii economy for reopening? Where can an owner get guidance to reopen?

So here in Hawaii the economy is beginning to reopen. In Honolulu, hair, nail, lash, and in general beauty operators and services were allowed to re-open past Friday. In Maui, most businesses will be allowed to reopen on June 1st, whereas in Hawaii island personal services and restaurants (excluding bars and night clubs). On Kauai, salons and barber shops, retail and mails, and cleaning and construction have been reopened since May 22nd.

In general, what is clear is the Hawaii economy is heading toward reopening, with the likelihood of gyms, bars, night clubs, and large gathering places where intimate contact is involved of remaining closed until government officials can come up with plans and guidelines. This is something determined between the governor and the mayors, as the mayors submit their proposals to the governor for approval. Therefore, the industry re-openings are not uniform between the islands.

The best thing for a Hawaii business owner that needs guidance as they consider reopening is to review the State of Hawaii COVID-19 resources, and then depending what county you are in, review the county orders and guidelines. Further, for many industries their trade groups and associations, provide industry-specific guidelines on dealing with these regulations. Finally, of course professional advisors, such as attorneys and human resource companies are there dealing with the customer/client and employee aspects of reopening.

Is there a place where the local rules and regulations are at?

Yes, the State of Hawaii and the 4 counties have websites going over the various order, mayoral proclamations, and guidelines to assist businesses in their reopening and future plans to reopen the economy. Of course this information constantly changes due to the virus. Further, the government frequently issues clarifications on unclear rules or plans as people and businesses provide feedback.

What are some of the specific requirements a business owner needs to prepare for reopening?

For the business owner that is committed to reopening soon, and especially dealing with direct interactions with clients and customers if you’ve reviewed some of the state and counties’ guidelines, then you know there are a number of changes you will have to make. This is especially true for retail, restaurants and food courts, beauty and personal health services. The following are some of the social distancing requirements a business owner in these industries need be keenly aware about:

  • 6-feet distancing;
  •  Limited occupancy;
  •  Face coverings
  • Providing of hand sanitizer and sanitizing products
  • Regular disinfecting; and
  • of course signage to notify all employees and customers of these requirements.

Again, this is a partial and general list and so a business owner needs to spend some research and review time for their business plan to reopen. One Oahu has a Business Guidance Page: https://www.oneoahu.org/business-guidance

CDC Reopening Guidance for Cleaning and Disinfecting Public Spaces, Workplaces, Businesses Schools, and Homes: https://www.cdc.gov/coronavirus/2019-ncov/community/reopen-guidance.html

DISCLAIMER: This post provides general information, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained in the post without seeking the advice of  an attorney in the 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.

Riding a bike on a sidewalk can negatively impact a person’s personal injury claim and could your chances of recovery.

I enjoy walking around our office neighborhood a lot, and watching the protected bike lane on King Street & Punahou brings a couple thoughts to mind. Personally, I am glad to see the number of bike share users increasing. I also wish the City and County of Honolulu would add more bike lanes. I’ve also hear  from many friends, clients, and neighbors about bike users on the sidewalks.  On the flip side, traffic congestion  explains the desire to ride on the sidewalk. The streets in Honolulu (and in Hawaii) are scary for bike riders!

However, as a personal injury attorney, I am concerned for the general public, and particularly motor vehicle accident (MVA) clients. Why? Because where you ride your bike matters. If you ride your bike on the sidewalk, and are hit by a car, that may impact your ability to seek recovery. Compensation from insurance is often determined by variables.  One important variable is what you chose to do to contribute to the accident. Like the choice of where to ride your bike.

Why Does It Matter Where A Bike Is Ridden?

The State of Hawaii and the City and County of Honolulu put a lot of energy into encouraging alternative transportation. More bikes, buses, and walking are all goals for a livable community.  The City and County even has a dedicated page to a Bicycle program here.

These efforts are made with safety in mind.  Protected bike lanes, enlarged sidewalks, and clear street signs makes streets and sidewalks safer. If you follow the traffic laws, then getting around is predictable for all.  However, when a person walks down the middle of the street, or a rides their bike on the sidewalk, it creates an unsafe situation.  Why?  It makes traversing the area unpredictable. Additionally, it can create animosity between the various roadway users.

Most drivers, or pedestrians, do not expect to see bikes on the sidewalks.  If a bike user rides on the sidewalk and is involved in an accident, they could be deemed more at fault than the other person involved. This could mean a bar to recovery for the bike rider.  Putting it another way – it may be found that it was the bike rider’s choice to ride on the sidewalk, and getting hurt was their fault, and thus, no recovery.

What Does Honolulu Law Say About the Situation?

Following the law and knowing where you can ride your bike is critical to everyone’s safety.

Specifically, City and County provides the following on their FAQ page:

Q: Are bicyclists allowed to ride on the sidewalk?

A: The City and County of Honolulu prohibits bicyclists from riding on sidewalks within business districts or where prohibited. In all other areas, bicycles may be ridden on sidewalks provided the speed is 10 mph or less. The bicyclist must yield the right-of-way to pedestrians, giving an audible signal before overtaking them. ROH 15-18.7 

The State of Hawaii defines business districts as “the territory contiguous to and including a highway when within any six hundred feet along such highway there are buildings in use for business or industrial purposes, including but not limited to hotels, banks, or office buildings, and public buildings which occupy at least three hundred feet of frontage on one side or three hundred feet collectively on both sides of the highway.” HRS 291C-1

The Government Should Continue Their Effort To Better Educate Tourists

You can park your bike on sidewalks, but you cannot ride it in certain areas.

Many people ride bikes on the sidewalks.  My understanding, from transportation specialists, is that in many other countries riding on the sidewalk is the norm.  My business partner, Ryan, recently attended the Honolulu Society of Business Professionals (HSBP) Multimodal Transportation Luncheon.  The attendees and presenters echoed the same in their experiences. Todd Boulanger, the Executive Director of Biki (Honolulu’s bike share service) understands this issue as well. Biki  is working on ways to educate their customers, so they do not hurt themselves by riding on sidewalks when they should not. Perusing Biki’s website, I see they provide information in other Japanese about Biki services.

However, the government can and should continue to better educate the public about where to legally ride their bike. Ideally, this will help prevent accidents, whether riding on sidewalks is due to this cultural difference or not. Further, for educated bike riders that do get into accidents, at least they were following the law, and the path to recovery is more predictable.

Honolulu’s roads will likely become more busy and crowded as additional alternate means of transportation become available. There will be cars, bikers, rider sharers, bus riders, rail users, and pedestrians.

What Else Do You Think Can Be Done: Improving Cyclists’ Safety And Transportation Means

What can Honolulu do to alleviate these problems?  Please email me your thoughts. I am happy to discuss this issue with you. Or if you have ideas, maybe we can approach a legislator to introduce a bill for the legislative process. I think there are opportunities to make Honolulu a safe bike riding city for all.

DISCLAIMER: This post provides general information, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained in the post without seeking the advice of  an attorney in the 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.

Chinese Rooster

I’m sure you’ve seen the odd chicken or two crossing Honolulu’s roads!

Happy Lunar New Year All!

If you’ve been following me, you may recall I did a blog post on my old website (also found here) celebrating last Lunar New Year’s animal, the monkey. It was a post about “Can You Own a Monkey in Hawaii?” Keeping with that theme this post discusses the laws of the City and County of Honolulu related to this Lunar New Year’s animal, the Rooster. Or more precisely, chickens.

Can You Keep Chickens?

This post is limits discussion to the jurisdiction of the City and County of Honolulu (the island of Oahu).  Additionally, the post focuses on residential areas only. If you are raising chickens for commercial purposes you have compliance issues regarding zoning and permitting, which is a different discussion then today’s post.

Nuisance Law

When keeping chickens, the law is not related to the animal itself, but more has to do with the City government’s ability to regulate nuisances. Old English common law had it that when some type of action by a defendant was either causing a substantial and unreasonable interference with people’s use and enjoyment of the land (private nuisance) or the action had a materially affect the reasonable comfort and convenience of life of the people (public nuisance). Flash forward to today, our city government has the ability to regulate nuisances, in our case for this post, Animal Nuisances. You can find it in Chapter 7, Article 2 of the Revised Ordinances of Honolulu.

So the laws approach to the situation is to make it unlawful to own poultry, which includes chickens, pigeons, turkeys, geese, ducks and peafowl so long as they are an “animal nuisance”.  See Sec. 7-2.3.

Short answer: yes, you can keep chickens if you are in Honolulu.

Slightly longer answer: yes, you can keep chickens in Honolulu, so long as they are not a nuisance. If they are a nuisance, then you cannot keep them.

So What’s an “Animal Nuisance”?

Article 2 also defines “animal nuisance.” There are three (3) definitions, but I’m going to focus on the first two definitions which is:

  • Makes noise continuously and/or incessantly for a period of 10 minutes or intermittently for one-half hour or more to the disturbance of any person at any time of day or night and regardless of whether the animal, farm animal or poultry is physically situated in or upon private property;
  • Barks, whines, howls, crows, cries or makes any other unreasonable noise as described in Section 7-2.4 (c) of this article;

See Sec. 7-2.2.

So it is clear that a chicken making noise continuously for 10 minutes or intermittently over one-half hour (30 minutes) is a nuisance, but what is that second definition about?

Again, we are now defining another concept, which is what constitutes “unreasonable noise”. Sec. 7-2.4(c) says that:

Noise is unreasonable within the meaning of this article if considering the nature and the circumstances surrounding the animal nuisance, including the nature of the location and the time of the day or night, it interferes with reasonable individual or group activities such as, but not limited to, communication, work, rest, recreation or sleep; or the failure to heed the admonition of a police officer or a special officer of the animal control contractor that the noise is unreasonable and should be stopped or reduced.

What does this Mean for an Owner of a Rooster that cock-a-doodle-doos at 11:00 p.m. in an Apartment Building?

If we consider the nature and the circumstances: (a) it is a building where everyone is close by; (b) the rooster’s noise is at night; and (c) that most people are sleeping at that time; and (d) that the neighbors would likely call the police or animal control personnel. Then the likely outcome is those officials would instruct the owner to have the animal stop. If the owner did not stop the problem, then it would be deemed as “unreasonable noise.” See Sec. 7-2.4. This turns into an “animal nuisance” and then the owner would be prohibited from keeping the rooster.

What Could Happen if you Violate the Law?

Generally, a monetary fine. If you keep stacking offenses within a certain time frame you actually be imprisoned. Additionally, you can be ordered to go to a training program or retain a contractor to help you train the animal to stop the nuisance. Further, such training programs or contractors are paid for by you. See Sec. 7-2.10

How Many Chickens can I Have?

Sec. 7-2.5(d) states that for chickens and peafowl: “The number of chickens or peafowl shall not exceed two per household.”

So yes, while you can keep a couple of chickens in Honolulu residential areas, they better be quiet chickens!

How do I Handle Chicken Noises Bothering Me?

If you have an animal noise complaint for Oahu, then contact the Honolulu Police Department or the Hawaiian Humane Society. The Hawaiian Humane Society recently has started responding to chicken noise complaints: http://www.kitv.com/story/34311091/hawaiian-humane-society-now-responding-to-chicken-noise-complaints

If you want to find more about Honolulu’s Animal Nuisance law, click here.

Thanks again for stopping by and I hope this is a fortuitous and good year for you!

-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.

Congratulations to all winning teams at this past weekend’s Startup Weekend Honolulu.  I look forward to meeting you all. Good job by The Box Jelly for hosting a great event!
So last week was trade name versus trademark.  Today is another area that a lot of startups get confused.  They find a programmer, designer, consultant, and other similar professions to help them bring their idea to reality, but want them only as an independent contractor, and if they have enough capital, possibly an employee.  However, no ownership, thus how do they protect their most sacred moneymaking idea that they slaved over a weekend trying to pitch?

Make them sign a nondisclosure agreement (NDA), is usually the first conclusion, then when a Client comes to me to draft them a NDA. I then ask them what they want to protect with the NDA, and they then to proceed to tell me everything including the kitchen sink . . . isn’t everything internal a trade secret?

No, just because you don’t want your competition to know does not make it a trade secret.

So What IS a Trade Secret?

Where we start off with trade secrets is the legislative definition, which is found in Hawaii at HRS §482B-2. This is the definition section under the Uniform Trade Secrets act and it states the following:

“Trade secret” means information, including a formula, pattern, compilation, program device, method, technique, or process that:

(1)  Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(2)  Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

So right off the bat, the definition indicates why a lot of business owners feel they have a trade secret.  Their information is precious (to them), they created a “new” “method” or “technique” (which was tried already and the market doesn’t think it is valuable), etc . . . . As you can tell by my commentary in the parentheses a trade secret has to be more.

Let’s use the famous example of a trade secret The Coca-Cola Company’s formula for coca-cola. First, it satisfies the first element. It’s a formula.

Second, the formula must have an independent economic value from not being known. In this case, it is clear that it does. No one has successfully replicated Coke’s formula AND it’s major rival Pepsico does not have the same formula.  Through its distribution deals and keeping the formula unattainable by normal means (such as experimenting) they have built a beverage empire.

Lastly, Coke has kept this secret for so many years, which supports the last element, which is the efforts to maintain secrecy.  At this point it may be beyond reasonable, but the efforts by Coke to maintain the correct amounts to the formula are legendary.  From bank vaults, to shopping around to different suppliers, etc . . . you name it, they have probably created an elaborate strategy to foil would be corporate spies.

What does this Mean for a Startup?

If you want to make a sound NDA, then you need to know what your company is all about.  Before, you think that is easy, remember you have gone around itching the idea to get investors, employees, etc . . . what have you told them?  Remember it’s a balancing act of trying to sell the idea without giving up the process, the secret has to be generally not know.

This brings me to another situation where people rely on public data, government information, etc . . . I will give them they have come up with a clever way to put disparate knowledge together, but if someone can readily replicate that “cleverness” on their own their really isn’t anything to protect.

Finally, the shotgun approach to NDA use should not be your method of maintaining secrecy.  Medium and large companies go overboard and have their janitors sign them when the have no intention of enforcing it against them and they aren’t privy to the company’s core secrets.  So for you, don’t make everyone you come in contact sign it, especially investors. They aren’t going to do it.

The rule of thumb is what your trying to protect your core strength and are you deriving that strength because no one else has figured it out.  This includes things like next year’s marketing plan, your competition not knowing how you will expand your product lines is a) valuable b) it is not known and c) if you are keeping it under lock and key, encrypted files, etc . . .  then you do have a trade secret. Obviously, it will no longer be a secret as to when you role out these new product lines, but before that time you need they are worth protecting. Then on the NDA side you only make people sign one if they can make use of your idea on their own (i.e. an engineer who knows the process to make a new material).

Anyway, the lucky winners from Startup Weekend Honolulu will get this information in a lecture and more regarding contracts, HR, Internet laws, and organizing their company as part of their winning package as provided by my firm.  So I urge you participate in Startup Weekend, as you may be the one asking, can I protect my business idea?

*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.  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.


Zoning

Hi everyone, on the last post I briefly touched upon using your home as the location of your business.  Today’s post will focus on zoning and all the complexities that brings to setting up your business.

Similar, to how neighborhood associations or condo groups want a certain look, so they enforce covenants against members the government also wants to shape and control how the land is used.  This is accomplished through zoning laws.

All land in Hawaii (except for federal land) is one of four categories: (1) conservation; (2) agricultural; (3) rural; and (4) urban).  The four designation were created by the State Land Use Commission.   The Zoning Code lists what are the permitted uses within each zone.  It also lists the required setbacks, height limits, parking areas for commercial developments, and other such types of requirements.

Every zone has a list of what is a “permitted” use without need of further approvals. It’s the reason you see gas stations and strip malls where you do, and away from your houses.

In general, when looking at a location you want to make sure your business will be able to meet the requirements.  If you are set-up shop in one area and violate the zoning requirements it could be very costly and be so severe as to drive you out of business.  In addition to the land use, construction of buildings need plan approvals from the Planning Department as well as the building itself needs a building permit, which ensures that the building is for the permitted use and has proper set backs.

In some occasions you can get a variance to allow for some type of use not allowed in the zone, such as the shape of the lot allows you a different setback.  It is also possible to get a Land Use Approval for others kinds of use.  However, in general to get a variance or Land Use Approval it can be a long process.

For more information on the matter (for Oahu) visit the City and County of Honolulu’s Department of Planning and Permitting page.  In addition, when dealing with zoning laws it is best to seek an attorney and other land use professionals to help best explain the complex system.

Licensing and Permitting

Before I end out this Draw the Law, I’d like to make brief mention with licensing and permitting, which dovetails nicely with zoning.  I already made mention of building permits above, but suppose you say you start your business and you have structures you want to alter or demolish.  You will need a building permit for such actions.  There is even a sign permit if you want to install, construct, alter or move any sign on the property!

Certain businesses also require a license to be operational for business.  The best example of this is the liquor license.  A bar cannot operate even though it meets all the other zoning requirement without a liquor license.  For example, let’s say it is the right-sized building for bar operation on a lot in Waikiki or Downtown that allows bars, but the owner fails to obtain the proper liquor license to sell drinks.  He would not be able to open his bar and sell drinks until he gets approval from the Liquor Commission via a license.

Therefore, the need of having all your ducks lined up when opening certain businesses is paramount.  It takes a lot of time, paperwork, review, and discussion with the government.

As always if you like this post or any of my other series please Subscribe to this blawg to receive updates to your e-mail.  In addition, follow me on Twitter @Rkhewesq and Like Me on Facebook under Ryan K. Hew.  If you need to contact me directly, please e-mail me at Ryankhew@hawaiiesquire.com.

See you on the next Draw the Law!

*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.   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.

Last week’s Draw the Law post I discussed buying a business or into an established franchise, but let’s go back to the original proposition you started your own business now you are looking for a place to settle.
Where am I going to sell by service and/or products?  Do I need an office Downtown?  Or a retail space or warehouse in Kaka’ako?  That kind of determination will be largely based on what type of industry you are in.  Moreover, a business planner and market researcher can help you narrow down a location suitable for you needs.  Today is mainly about commercial leases and some of the terms and clauses you will see in such agreements.

Leasing: Know What you are Signing

For the vast majority of small businesses here you will probably get a commercial space of some sort. While, each location you look at for your office or retail space will have some different considerations there are some basic clauses that landlords like to throw at you to legally bind you into some one-sided arrangements.  Remember that whether the lease is a generic “one-size fits all” or a custom one, that an attorney probably helped the landlord create it.  You also have the option of having an attorney review the lease and go over it to help your negotiating position.  In addition, one only need join me on my running route through King St. to realize that there are a lot of open spaces right now (2011).  So some of the following terms and clauses that I will discuss are negotiable, as the landlord would rather have someone fill the space than leave it empty.

Clauses and Terms: Things to be Aware of in Your Lease

  • Base Rent – what does it cost you to use the property for your business?  It is calculated by taking the square footage of the space and multiplying it by a set dollar amount.  Remember that the usable amount of square footage will be less than the base square footage.
  • Additional Rent – wait, what is this “additional rent”?  This is a place for negotiating or determining if your landlord is trying nickel and dime you. It is usually a catchall term to include a lot of extra things that base rent does not capture.  Ask and have the landlord define this term and spell out what it includes.  Does it include taxes, insurance, and/or utilities or are those in the base rent?
  • Operating Expenses – this is another clause whether the landlord or property manager will try and past off the expenses to you.  Watch out for the phrase “without limitation” and if you are in a mall don’t let them try and pass on a higher common area maintenance (CAM) rate to you because they gave a lower rate to an “anchor” store.  As a small business you do not want to be paying the same or more to maintain the common areas that are more trafficked by the big box stores.

  • Parking – does parking come with the space?  Do you have to maintain it?  Do you get parking for the duration of the lease or can the landlord/property manager change at will?  Parking is a premium in this state and you need to know if you are going to have it for you, your employees, and customers or you will have to come up with other solutions.
  • Option to Expand – can you knock down a wall and add the space to yours?
  • Termination – do you have a way to extract yourself?  A landlord is reluctant to let you go if they have extracted a lot of assurances and money from you.  If you terminate early that usually messes up their projects and it takes time to find another tenant.  They may force you to accelerate payment if you terminate early.
  • Use – you will state how you will use the space, don’t be too specific and use general terms.  You don’t want to pigeonhole yourself.
  • ADA Compliance – is the building compliant with the American Disabilities Act (ADA) and if it isn’t is the landlord trying to pass on some of those costs to you?
  • Signage – what are the requirements and restrictions of the use of signs for your business?

There are still other terms and clauses to be on the watch out for, like tenant improvements, occupancy and commencement, relocation,, option to renew, and the security deposit.  Be mindful of state and city and county level requirements, such as zoning restrictions and requirements of spacing.  You may have a landlord try and lease you a space for a food business knowing full well you will not be able install a require grease trap or venting system, and then you would be stuck.

In general, if you do not understand something ask the landlord for an explanation of clarification. If they are not being helpful seek out expert advice.  This is your lease and your business will be tied to the location for a significant amount of time.  You do not want to be stuck in a position with unfavorable terms due to the lease and unable to move or do anything about it.   In addition, ask some of the current tenants what their feelings are dealing with the landlord or property manager.  Find out if you would be dealing with a landlord who does their job or is an absentee who just collects the rent.

Subleasing

If you are leasing from a tenant, then you are subleasing.  You would be the called sublessee.  Your agreement is with the tenant and does not put you into connection with the landlord.  This has certain ramifications.  The legal agreement is between the tenant and the landlord, therefore if the tenant fails to pay the landlord cannot come after you.

Even though, you are subleasing from the tenant you should still ask to see the main lease agreement.  Why?  Whatever, is affecting the tenant will then trickle down and affect you.  In addition, trying to sublease to you may be a violation of clause in the lease agreement or there may be stipulations on how to sublease.  By subleasing the space out the tenant acts like a competitor to the landlord.  Remember, you can always arrange for a sublease yourself and become a mini-landlord.  However, you would have to make sure that you are collecting payments for your sublessee and paying your landlord on time.  If not you would be the one in default and the landlord would come after you.

Last Word

In general, lease agreements will always be lengthy documents with a lot of clauses that will probably not work in your favor.  However, with so many rental spaces available right now (2011) you should try to negotiate to get the best deal as possible.  This requires a lot of reading, researching, and even talking.  Find out what is going on around the area and not just the building.  Also be aware that the broker may actually be representing the landlord, so make sure you get your own expert on your side.

Bottom line: be aware of what you are signing!

Next time I will discuss about owning a property for your business and using your home as your primary business location.  Don’t forget if you enjoy this series or any of the other series on my blawg feel free to subscribe in the right-hand corner of this page to receive e-mail updates on posts.  If you are on Facebook be sure to “Like” “Ryan K. Hew” to get updates there as well.

See you on the next draw!

*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.   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.