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Happy Veterans Day: Resources for Veterans Owning a Small Business in Hawaii

Thank you to all our veterans! Happy Veterans Day!

Support for Veterans Through Business Ownership

Happy Veterans Day and thank you to all the people who have enlisted to serve our country. I thank all veterans, but this post is mainly for highlighting those resources available to vets for small business ownership. As it is a topic that I care about and my personal sentiment is if you as a vet have taken the sacrifice in defending our country, then we can sacrifice some time to educate and help the transition to successful civilian life.

One path can be owning your own business.  I find that here in Hawaii, so many military personnel consider settling down in the islands after they are done with their military service. Then the question turns into opening a business due to the opportunities of being a contractor.  However, unfortunately business law tends to be abstract and also given the way the islands tends to do business and regulation that adds to their complexity. So hopefully if you, as a vet (or their spouse) are reading this, you find it helpful as a start.

Getting ready to become a business owner as a Veteran means educating yourself on aspects of small business ownership life. Fortunately, there are a lot of resources.

What a Vet Should Learn Prior to Starting a Business

In the past have had the fortune of conducting one of my favorite seminars as a part of the Boots 2 Business (B2B) program. More on that down below. Specifically, entity formation, but as an attorney I would stress understanding more than just choosing between LLC or corporation. If opening a business as a vet consider the following:

  1. forming a business entity;
  2. differences between LLCs and corporations;
  3. structuring and governing the entity you choose;
  4. tax and accounting issues;
  5. basics of contract law;
  6. understand local and state regulations;
  7. applying to be a government contractor;
  8. if you have a service-related disability, then understanding the program requirements for the Service-Disabled Veteran-Owned Small Business Program;
  9. moving your business and/or operating in multiple states; and
  10. if you are going to have a partner, then really understanding what a business partnership entails.

This is not an exhaustive list, but what I’ve come across in terms of frequently asked questions or issues. There are many other aspects such, as operational, marketing, human resource, and financial concerns for business ownership. In terms of where to get that education the B2B program is an educational and training program offered by the U.S. Small Business Administration (SBA). It is put out under the Department of Defense’s (DOD) Transition Assistance Program (TAP) and basically gives a survey course of business ownership. Note that it is open not only to Veterans, but also Active Duty Service members, and their spouses. Definitely worth a check out if you are considering opening a business an eligible.

Other Resources

In addition to the US SBA’s main website, if you are in Hawaii, then consider the following:

  • The SBA local office
  • The Veteran’s Business Outreach Center of the Pacific (VBOC)– The VBOC is a program of the University of Hawaiʻi at Hilo and funded partly by the SBA. It is committed to assisting veteran entrepreneurs by providing access to advisers on business and strategic planning, marketing, financial decisions, and starting, running, and exiting a small business.
  • Hawai’i Small Business Development Center (SBDC)– The SBDC is also funded in part through the SBA, but also by the State of Hawaii. The SBDC provides advice, research, and training for business owners.
  • SCORE Hawaii– is an organization dedicated to helping small businesses via education and mentorship. So they offer a varieties of educational activities, such as low-cost workshops or access to *mentoring.

*Note: whenever counseling with a new potential business owner client, I always tell them the biggest thing you can do for yourself is finding a good mentor.

Final Words

Sometimes closing down isn’t permanent. Sometimes you need a change of plan to reopen. The main goal is having a plan to execute.

Usually, military people transitioning to civilian life or vets have saved enough come to me when starting a new business. I would say that energy and enthusiasm is always enjoyable to work with, but as any small business owner can tell you there are other stresses. The stress of making it work. Stress of work-life balance. The stress of moving out of state. Sadness of closing down.

Just remember that there are all these resources not only to help start the business, but helping you move through your life of owning a business. For an attorney’s part, we do help with the formation, but also advising strategic decisions, which may or may not be tied to the business. One particular situation I see is military families starting a business here and then moving back to their home state. The question is what to do with the Hawaii-based business. This one-sheet should answer some preliminary questions, but as always you probably want to speak directly to an attorney for planning. Why? There is no one size fits all plan for every type of business owner. However, gaining key advice helps with strategic planning and I feel that veterans know the value of having a plan.

Finally, I would like to extend a big mahalo to all of the veterans (and to the family members that support them) for your dedication and service to your country. Thank you.

– RKH

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.

Draw the Law – (Lack of) Payment Issues, Part V: Fair Debt Collection Practices Act

Ahh, it’s the Friday before Christmas and I am sure you all are shopping rather than thinking about legal issues OR if you are a small business owner, you are manning your shop to get those extra sales in.
Well, if you have time, this is still an interesting topic for you all. When the dust settles and the after Christmas sales settle, a month or two for now when payments are due for your new tv or that enthusiastic customer is trying to ask for more time try to remember this post!

Who are You Gonna Call? DEBT COLLECTING AGENCY!

Today is all about when you extend credit and that person kind of disappears. How do you get your money? Generally, for most businesses they have a debt collection agency handle this type of situation. Here are some signs to look for when you think it might be time to contact a collection agency:

  • No response from the customer via e-mail/phone;
  • Debtor did not meet payment terms and has made no excuse or reason;
  • Debtor is making unfound complaints to avoid payment or is in denial;
  • Debtor keeps changing their information (workplace/home address) and is consistently late with payment;
  • And similar to the prior one, debtor disappears, but does not notify you.

Fair Debt Collection Practices Act

Now, those are situations for you to call a third-party collection agency, but say you want to handle your own debt collection? Well, you have to watch out for the Fair Debt Collection Practices Act (FDCPA), and any other relevant state laws that regulate debt collection practices. Now, FDCPA is meant for collection agencies; the majority of rules and regulations apply to them. However, there are several rules as a small business owner-creditor that you need to be aware of if you are going to collect on your customer’s debt:

  • Contact: mail, in-person, or telephone AND unless in writing you may not contact them at inconvenient places or times (i.e. after midnight);
  • Workplace: if employer forbids employees from being collected, you don’t contact them there, a debtor can specify what times/places are inconvenient;
  • Representation: if the debtor has a lawyer for this matter, you speak only to the lawyer;
  • Leave Me Alone: if the debtor writes to the collector that they wish to be left alone, the collector can confirm they will no longer contact them and that some legal action may or will be taken;
  • Leave Me Alone pt. 2: if debtor states within 30 days they are disputing the debt they must leave them alone, unless collector provides proof;
  • Who/What/When/Where/How: must send written notice within 5 days of first contact – stating the following: (1) name of creditor; (2) what is owed; (3) debtor has 30 days to challenge if the debt is genuine; (4) how the debtor must proceed to clear the debt if they do not believe they owe it; and (5) the name and address of the original creditor if the creditor has changed;
  • Locating: a debt collector may contact ANYONE to locate the debtor BUT cannot speak to the more than once, nor mention the debt;
  • Mean-Spirited: No, harassing, oppressing, or abusing anyone OR specifically, no doing or mentioning violence, defamatory or profane language use, no irritating or annoying behavior, no making them pay for contacting them, no lying or cheating. Basically, don’t be an a**.

As you can see a long laundry list of things that you cannot do in pursuit of money owed to you, which is generally why most businesses prefer to use collection agencies.  Despite the headaches associated with granting credit, remember that most people will pay and that you have expanded your customer base. The goal is to manage acceptable levels of loss versus that of growth of sales.

Anyway, I hope you have a Happy Holidays and see you in the New Year for Draw the Law. Draw the Law will be going under some changes next year, and actually I will be accepting questions for Draw the Law from you startup and small business owners that have questions. So start thinking (after the presents are open) and consider giving me the gift of your questions!

If you enjoyed this post or any of my others please “Subscribe” to this blawg!

*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.

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New in the Brief – Act 196, Members, Partners, and Sole Proprietors are Not Employees for Workers’ Comp

Hey Everyone,
just a reminder to come join me at the Box Jelly tomorrow night 10/18 for a talk on “Protecting Your Brand.” The subject will be a discussion of various intellectual property laws that a small business owner should understand as they grow their business. Here is the link for more info.

Today’s law in the brief shows exactly why definitions play a role in the application of the law. If you attended my talk on Business Entity Formation you would know that when you choose to operate a business there are many forms you can choose from. Each has its pro and con.

Many times the pros and cons come with dealing with things like taxation and the way benefits are handled by the entity. Act 196 tries to specifically clarify one of these areas. Namely, that LLC members, partners in partnerships, and sole proprietors are NOT defined as “employers” for the purposes workers’ compensation.

The Mechanics of it All

Act 196 amended HRS Section 386-1, which is the definition of employment AND lists what is excluded from that definition. Thus by adding the following lines to the exclusion section:

(10)Service performed by a member of a limited liability company if the member is an individual and has a distributional interest, as defined in section 428-101, of not less than fifty per cent in the company; provided that no employer shall require an employee to form a limited liability company as a condition of employment;

(11)Service performed by a partner of a partnership, as defined in section 425-101, if the partner is an individual; provided that no employer shall require an employee to become a partner or form a partnership as a condition of employment;

(12)Service performed by a partner of a limited liability partnership if the partner is an individual and has a transferable interest as described in section 425-127 in the partnership of not less than fifty per cent; provided that no employer shall require an employee to form a limited liability partnership as a condition of employment; and

(13)Service performed by a sole proprietor.

people in those situations would not be treated as an “employer” for workers’ compensation law.

What does this Mean?

To put it succinctly, The Retail Merchants of Hawaii stated it in their testimony regarding the Act when it was a measure in the Legislature:

A business owner who is not actively involved in the day-to-day activities of the business most likely would not suffer a work-related injury and therefore would not benefit from workers’ compensation insurance. Even if the owner does work at the business, there would be little or no gain to file a worker’s compensation claim, which would result in increased premium costs borne by the business. In the case of a sole proprietorship, an injury would likely result in the termination of the business operations.

Admittedly, worker’s compensation insurance imposes additional costs on the business. This exclusion would provide additional and much needed financial resources to the small business person.

Taken from Testimony before the WAM Committee on HB518 HD1 SD1, 04-01-11.

Therefore, a change in definition saves businesses from having to purchase workers’ compensation insurance. After next week’s Law in the Brief, I will be talking about definitions in agreements in my new series “Boilerplate Blurbs.” This will be all about those sentences you see in agreements. This will culminate into a seminar entitled “What’s in an Agreement? A Primer on Contract Law.”

As always, don’t forget to “Subscribe” to this blawg do so by clicking the little orange button up in the right-hand corner of the page.

*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.

Draw the Law: Location Issues Part II, Buying the Land or Building

In the last post I talked about leasing and subleasing the location of your business, continuing in the vein of location I will briefly discuss buying a location and or using your home.

Buying the land and/or building for the Business

Considerations – space is very valuable in Hawaii and if you are fortunate enough to have the capital to purchase and own the land or building in which your business will sit that removes a lot of concerns with paying rent or dealing with an uncooperative landlord or property manager.   However, you will also then be responsible for a lot of those things that they had to handle, such as property taxes, utilities arrangements, construction and maintenance fees, and basically, you would be adding a land and property management to your property costs.  Lastly, from the legal perspective Hawaii is unique as it has two state land-recording systems.  Therefore, you will want expert help in drafting and executing any land conveyance documents and make sure they are filing in the correct system.

Right of First Refusal – one option that might be good for you starting out is start out with a lease arrangement, but have a “right of first refusal” clause or option attached to have the owner ask you if you would like to buy the property should they consider selling.  Therefore, you get to see if you like the space, can work with it, and ultimately if the landlord leaves you get asked to become the new owner before they approach new buyers.

Using your Home as a Business

This is everyone’s dream, right?  Work at home?  I’ll be honest I do it too when I am drafting lengthy agreement for clients.  It’s comfortable and does not require a 45-minute drive from the suburbs to Downtown Honolulu and allows you to focus without distraction.  It is sometimes very suitable for your business, especially if it is consulting, internet sales, marketing, or the like to have a home business.  Here are some things to think about:

  • Taxes– so long as we do not get drastic changes to the IRS code, there may be ways for you to deduct some of the expenses you incur in setting up your home office.  The biggest problem is satisfying the IRS that you are not some fly by night or hobby business. Some of the tests are complicated and specific.  Therefore, seek some professional advice on how best to approach.

  • Insurance – your homeowner’s or renter’s insurance may not cover owning and operating a business; that kind of insurance protects you from loss if there is a fire, but more importantly protect you if you are sued for negligently causing harm to a person on your property.  If it does not protect those situations, your guests or clients, may sue you and you will have to defend yourself.  First of all read your policy and then if it does not extend to a home-business situation contact your insurer and see if you can get an extension or a policy to cover.
  • Private Regulations – condo associations are governed by binding documents that affect what you can and cannot do in your building, such as starting and operating a business.  The same goes for many of those neighborhood associations or communities.  They have a restrictive covenant in place and it is all designed to keep the building or neighborhood a quiet peaceful place.  You will want to read the document and see if there are such covenants, and if there are it still may be possible to negotiate an exemption or change in the document to allow you to operate.

Once again, this is not an exhaustive list of factors you will need to consider for a home business, but a starting point to get you thinking.  As always if things seem overwhelming seek help from the experts to help mitigate unforeseen problems and bring up creative solutions. Next time I will be discussing zoning matters and how they can determine where you setup your business.

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!

*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.

Draw the Law: Capital for Your Start-Up, Part I

Draw the Law” is a weekly short post where I try to visualize a legal concept.  It is designed to be helpful to small business owners and give them a quick overview of various aspects of the law that affect them.  For the next couple of posts I will detail how to finance a start-up.
In the prior post of this series we finished up with the variety of entity organizations, namely, sole proprietorship and partnership.

Now, that we have a business drawn up and have its “skeleton” outlined we will talk about the “blood” of the business or the financing of it.  What we need now is money!

Sources of Capital

There are a variety of methods of funding your business.  I like to divvy up those sources of money into three distinct categories.  They are as follows:

  1. Personal – what can you leverage on your own to raise money?
  2. Private – lenders and investors
  3. Government

Today, I will solely focus on personal methods of securing capital and then in Part II, I will discuss Private and Governmental sources.

Personal Sources

Let me list the personal methods first and I will turn to each one and briefly discuss them.  They are as follows:

  • savings
  • life insurance
  • retirement plans
  • home equity
  • stocks and bonds
  • credit card debt
  • loans from family friends

All of these represent the variety of personal sources that you could go to for money needed for starting your business.  I will now handle each one.

Savings

Savings is one of the easiest methods.  You just take what you have and spend it on the business.  All your cash in the bank use it on purchasing equipment, supplies, etc . . .  and it is as simple as that.  However, the reality is unless you are starting a business that has very little capital needs you are going to need to turn to other sources that draining your checking and savings accounts.

Borrowing Against Various Assets

In the case of life insurance, certain types of retirement plans, home equity, and stocks and bonds many people end up borrowing against these assets to raise the cash they need.  While, it is true you could cancel your life insurance policy, sell your home or condo, or sell your stocks and bonds most people would like to keep these assets for the long-term.  Instead they opt to borrow against the value of the item.  Typically, the loan that you are get will not be the full value of the item being borrow against, but some percent.

For the life insurance loan you would need to contact your insurance company.  For a home equity loan the bank that you owe your first mortgage on would be the first to turn to.  To use any stocks or bonds you own as collateral contact your broker.

Credit Cards

This method is as close to using your own savings to generate the buying power you need for equipment and the like for your business.  However, everything that goes on credit generally faces high interest rates if you cannot pay the balance of immediately.  In general, a credit card for the business is a good thing to purchase office equipment, make quick small payments, and emergency purchases, but should not be the primary method of financing the business as the interest rates will drain you over the long run.

Family and Friends

Here in Hawaii, we generally have a good family system where mom and dad, aunts and uncles, grandparents, and even calabash cousins will loan us some money to help our dreams come true.  While we like to trust in our family and friends, and hope for the best, it is also smart to just put the terms down in writing.  It should not be taken as an insult, but help avoid the creation of two different stories and future conflict should the business be unable to pay back the loan.  In addition, by having a promissory note, your relative or friend is in a better position to tell tax authorities that the money given to you was really a loan and not a gift, which have differing tax consequences.

Promissory Notes

These  are simple legally binding documents.  All they need to do is outline the terms of the loan, which includes the following parts:

  • identifies the parties;
  • how much money will be received;
  • what the interest rate is;
  • the amount of time you have to repay;
  • and the rate at which you will repay.

You can draft a promissory note yourself, so long as it has all the above components.  Just be sure to sign it, make a copy (to remind yourself of the repayment), and have the appropriate family member or friend hold onto the note.

If you are either party, the business owner or the family member or friend, and really concerned about such a loan you can always speak to attorney to make sure everything is in order. In addition to seeing a lawyer, for any method of financing you will probably want to meet with a financial adviser and accountant to make sure you have a firm grasp of how you will raise the money, expend it, and any debt obligations attached to it, as you get your business off the ground.

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.