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DEPARTMENT OF LABOR ISSUES IMPORTANT GUIDANCE ON FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)

DEPARTMENT OF LABOR ISSUES IMPORTANT GUIDANCE ON FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)

With the effective date of the Families First Coronavirus Response Act (FFCRA) looming, the Department of Labor (DOL) on Saturday, March 28, 2020, issued critical new guidance for employers struggling with how to implement the new requirements.  The guidance, “Families First Coronavirus Response Act: Questions and Answers,” can be found here, and includes details on counting hours for part-time workers, how to account for overtime, rates of pay, and the interaction between sick leave and expanded family and medical leave for those caring for their child whose school or place of care is closed.

It is important to note that FAQs may be considered by courts as informal guidance that do not have the force of law or regulations, which have not yet been issued by the DOL.

A few highlights:

– The guidance clarifies that the FFCRA’s paid leave provisions are effective on April 1, 2020, and apply to leave taken between April 1, 2020, and December 31, 2020.

– If an employer furloughs an employee because it does not have enough work or business, the employee is not entitled to then take paid sick leave or expanded family and medical leave. (However, the employee may be eligible for unemployment insurance benefits. Employees should contact their state workforce agency or state unemployment insurance office for specific questions about eligibility.)

– If an employer closes after April 1, but is planning to reopen at some time in the future, employees cannot receive paid sick leave or expanded family medical leave while the worksite is closed, even if it is closed for only a short time.  Instead, employees may be eligible for unemployment insurance benefits during the time of closure.

– If an employer reduces an employee’s scheduled work hours because it does not have enough work, the employee cannot use paid sick leave or expanded family and medical leave for the hours they are no longer scheduled to work. This is because the employee is not prevented from working those hours due to a COVID-19 qualifying reason, even if the reduction in hours was somehow related to COVID-19.

– If an employer provides paid sick leave or expanded family and medical leave, an employee is not eligible for unemployment insurance for that time. (However, each State has its own unique set of rules; and DOL recently clarified additional flexibility to the States  to extend partial unemployment benefits to workers whose hours or pay have been reduced.)

– The guidance very broadly defines “health care providers,” who may be exempted from paid sick leave or expanded family and medical leave by their employer under the FFCRA.  A“health care provider” is anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution, employer, or entity. This includes any permanent or temporary institution, facility, location, or site where medical services are provided that are similar to such institutions.  This definition includes (1) any individual employed by an entity that contracts with any of the above institutions, employers, or entities institutions to provide services or to maintain the operation of the facility, (2) anyone employed by any entity that provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments, and (3) any individual that the highest official of a state or territory determines is a health care provider necessary for that state’s or territory’s response to COVID-19. (Importantly, to minimize the spread of the virus associated with COVID-19, employers are being encouraged to be judicious when using this definition to exempt health care providers from the provisions of the FFCRA.)

MAKING SENSE OF THE VARIOUS STATE AND FEDERAL COVID-19 RELIEF PROGRAMS AVAILABLE TO SMALL BUSINESSES

Both state and federal governments have taken swift action to enact quick and innovative programs to aid small businesses struggling with the fallout of the COVID-19 crisis.  Understanding the options now available to small businesses — as well as how the various new programs interact with one another and existing programs — can become a nearly full-time job for business owners strapped for time as they juggle a myriad of responsibilities.

EntrePartner has created a comprehensive summary of Minnesota and federal loan programs, which include provisions for loan forgiveness. This post offers general information only.  It is not intended to provide, and does not constitute, legal advice.

Minnesota Department of Employment and Economic Development (“DEED”) Emergency Loan Program

In conjunction with the executive orders Governor Walz issued shutting down bars, restaurants, gyms, spas, salons, theaters, and the like, he ordered DEED to create an emergency loan program to assist these businesses.  To be eligible for this program your business must fall into one of the categories that were shut down, full or partially, by an executive order.  In addition, you must show all of the following criteria:

– You were current on financial obligations as of March 1, 2020;

– You are an existing Minnesota-based small business (whatever the form of their organization);

– You have been operating in Minnesota long enough to demonstrate financial viability (you must have financial statements);

– You are willing to provide collateral or personal guarantee for at least 20% of loan; and

– You are unable to qualify for a standard loan through a bank, credit union, or nonprofit lending organization.

This program was designed to provide funds until funds from federal programs became available.  It requires that you pay the DEED loan in full with the proceeds for any subsequent financing.

The key terms are as follows:

– Loan amounts range from $2,500 to $35,000, and will be based on the business’s economic injury and financial need;

– Loan will be interest free;

– Loan will be paid back monthly over five (5) years and the first payment will be deferred six (6) months; and

– Loans may be eligible for partial forgiveness (but not yet defined).

To apply, you must complete DEED’s application and submit it to one of 19 certified non-profit lenders based on the county in which your business operates.

SBA Economic Impact Disaster Loan (EIDL)

With Governor Walz’s recent disaster declaration, Minnesota businesses became eligible for SBA EIDLs.  Subsequently, when the federal CARES Act was passed (described in more detail below), it deems all states and their subdivisions to qualify for assistance under this program.  These loans come directly from SBA, not a local bank, and applications are submitted online.  For anyone that has previously attempted to submit an application, you are aware of the difficulties that applicants were experiencing simply trying to enter required information.  SBA has changed its application process and you now download forms, complete the forms offline, and upload the completed application.

Small businesses that are eligible for an EIDL are broader than the DEED program.  The businesses eligible to apply for an EIDL Loan are:

– Businesses directly affected by the disaster;

– Businesses that offer services directly related to the businesses in the declaration; and

– Other businesses indirectly related to the industry that are likely to be harmed by losses in their community.  Example: Manufacturer of widgets may be eligible as well as the wholesaler and retailer of the product.

In addition, upon the adoption of the federal CARES Act, that legislation specifically modified certain terms of the SBA EIDL program with respect to loans made in response to the COVID-19 crisis.  For that reason, if you started an application for an EIDL prior to the adoption of this act, revised and more favorable terms may apply to you (highlighted below).

The key loan terms are as follows:

– Eligible entities may qualify for loans up to $2 million, but all EIDL over $25,000 require collateral.  There is no defined formula for determining the loan amount for a particular business, and in fact, a specific loan amount request cannot be submitted with the application. The total loan amount will be determined during the underwriting and approval process based on monthly business expenses, a review of the applicant’s balance sheet and liquidity position, and the guarantor’s personal credit history. The total loan amount may be modified after approval if it is determined that the business requires additional funds.

– Applicants must demonstrate creditworthiness, which the SBA determines on a case-by-case basis, and the applicant must show an ability to repay the EIDL.  The CARES Act specifically allows the SBA to approve applicants based solely on credit scores, with no tax returns required.

– SBA will look to take any available collateral, but an EIDL will be denied for lack of capital.

– Applicant owners must generally execute a personal guarantee, however, the CARES Act waives rules related to personal guarantees on advances and loans of $200,000 or less given in response to the COVID-19 Crisis.

– Applicant must generally show inability to get credit elsewhere, however, the CARES Act waives this requirement.

– The interest rates for this disaster are 3.75 percent for small businesses with terms up of either 15 or 30 years, to be determined by the SBA based on repayment ability.  There is no pre-payment penalty.

– Eligibility is based on the size of the business (must be a small business),type of business, and its financial resources.

– Loan proceeds may be used for fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred.  It does not replace lost profits and cannot be used for business expansion.

– Loan proceeds used for payroll can include payroll for the owner.  Owner salary should be included in the list of expenses, and the SBA will allow owner salary to continue at a level consistent to that prior to the disaster, as long as it is not determined to be “excessive.”

– The EIDL program does not generally provide loan forgiveness, but exceptions may apply.

– When applying, ensure that all names on the application exactly match those in your corporate documents, including individual names (e.g., Matthew vs. Matt).

– After approval, the first $25,000 disbursement will be made available right away. Additional funds would become available once all required collateral has been pledged.

In addition, the CARES Act includes an emergency provision that allows disbursement of up to $10,000 to small businesses that are applying for an EIDL, within 3 days after the SBA receives an application.  The funding is made based on a self-certification of the applicant, and the funds may only be used for providing paid sick leave, maintaining payroll, meeting the increased costs of goods, making rent or mortgage payments, and repaying obligations that cannot be made due to revenue loss.  The $10,000 does not have to be paid back, even if the loan application is later denied.

Federal “CARES Act”

As most of you are likely aware, on Friday, March 27, 2020, President Trump signed into law the much-discussed coronavirus stimulus package officially known as the CARES Act.  While the CARES Act is now law, it will likely be a week before applications are available and the Treasury issues guidance to the banks on how to process the applications.  What we know is that this program will help you avoid the online problems associated with the SBA disaster relief loans.  The program is generally limited to small businesses, those with 500 or fewer employees (or, if higher, the standard number employees established by the SBA for certain industries), as well as sole proprietors and eligible self-employed individuals.

The key aspect of the CARES Act for most small businesses is the “Paycheck Protection Program.”  The program’s key terms are:

– The program uses a simple formula to determine the maximum amount of the loan:  the lesser of $10 million or 2.5 times the average total monthly payroll costs incurred during the 1-year before the loan date; provided that each employee’s annualized salary is capped at $100,000.

Note: Payroll costs include employee compensation, paid leave, severance payments, payment for group health benefits, including insurance premiums, retirement benefits, state and local payroll taxes, and compensation to sole proprietors or independent contractors, subject to the $100,000 per year cap.

Note: Payroll costs exclude certain federal taxes, compensation to employees whose principal place of residence is outside of the US, and sick and family leave wages for which a federal tax credit is allowed under the recently enacted Families First Act.

– In addition to the above formula, businesses may include the amount of a SBA disaster relief loan made between January 31, 2020 and the date on which that loan may be refinanced as part of this program.

– Loan proceeds can be used for: 1) payroll, 2) mortgage interest (no principal reduction) or rent, 3) utilities, and 4) interest on other business debt that was incurred before February 15, 2020.

– No personal guaranty or collateral will be required, but owners will need to guaranty loan funds will only be used for the proceeding four categories.

– All SBA fees are waived and the typical SBA requirement that you cannot obtain the credit elsewhere does not apply.

– All loan payments will be deferred at least 6 months and no more than 12 months.

– The loan is forgivable to the extent the loan proceeds are used to pay the four categories identified above during the 8-week period following the date of the loan.  The amount eligible to be forgiven is reduced if there is a reduction in the number of employees or employee wages over a threshold.  There are also certain exceptions for rehired employees.  You will be required to submit documentation to have any amount of the loan forgiven.

– Forgiveness amounts will be reduced for any employee cuts or reductions in wages, pursuant to a formula.

Note: For employee cuts, generally, this formula equals the product of (i) the total maximum forgiveness amount; and (ii) the average number of full-time equivalent employees (FTEEs) per month from February 15, 2020 to June 30, 2020, divided by either (x) the average number of FTEEs per month employed during the same period in 2019, or (y) the average number of FTEEs per month employed from January 1, 2020 until February 25, 2020.

Note: For wage reductions, the forgiveness reduction is a pro rata deduction for any deductions in total salary or wages of any employee from February 15, 2020 to June 30, 2020 in excess of 25% of the employee’s salary or wages in the most recent full quarter of employment before this period.

Note: In both cases, there are exceptions and nuances to these formulas.  There are also mechanisms for relief from a forgiveness reduction for employers who rehire employees or make up for wage reductions by June 30, 2020.

– The portion of the loan, if any, not forgiven is payable over 10 years at an interest rate not in excess of 4%.

– A loan made under the SBA’s Disaster Loan Program on or after January 31, 2020, may be refinanced as part of a covered loan under this program.

– Forgiveness amounts that would otherwise be includible in gross income are excluded for federal tax purposes.

You apply for the loan from a bank that is in the SBA lender network.  The program eliminates much of the standard SBA paperwork and provides incentives for banks to close the loans quickly.  It does not need to be your current lender.  Essentially, you will need to provide your banker with proof of payroll to determine the maximum loan amount and make certifications including a certification that you have not already received funds from another source for the same purpose (you can refinance if you previously received SBA disaster relief funds).  From there, the loan should close in a matter of days, although nothing guaranteed.

In addition, the CARES Act includes provisions that provide that the SBA will pay the principal, interest, and associated fees on certain pre-existing SBA loans for a period of six (6) months.

WHAT DOES THE CARES ACT MEAN FOR YOUR SMALL BUSINESS?

As entrepreneurs ourselves, we understand the critical value of your time right now and that you want to understand the sections of the “CARES Act” you care about most. For most of you that section is the “Paycheck Protection Program.” *  The program is generally limited to small businesses, those with 500 or fewer employees (or, if higher, the standard number employees established by the SBA for certain industries) as well as sole proprietors and eligible self-employed individuals.

It creates a very simple formula to determine the maximum amount of the loan:  the lesser of $10 million  or 2.5 times the average total monthly payroll costs incurred during the 1-year before the loan date provided that each employee’s annualized salary is capped at $100,000.   The loan proceeds are intended for more than just payroll and can be used for 1) payroll, 2) mortgage interest (no principal reduction) or rent, 3) utilities, and 4) interest on other business debt that was incurred before February 15, 2020.  No personal guaranty or collateral will be required, but owners will need to guarantee loan funds will only be used for the proceeding four categories.

You apply for the loan from a bank that is in the SBA lender network.  The program eliminates much of the standard SBA paperwork and provides incentives for banks to close the loans quickly.  It does not need to be your current lender.  Essentially, you will need to provide your banker with proof of payroll to determine the maximum loan amount and make certifications including a certification that you have not already received the funding from another source for the same purpose (you can refinance if you previously received SBA disaster relief funds).  From there, the loan should close in a matter of days, although nothing is guaranteed.   All SBA fees are waived and the typical SBA requirement that you cannot obtain the credit elsewhere does not apply.  All loan payments for this loan are deferred at least 6 months and no more than 12 months.

The loan is forgivable to the extent the loan proceeds are used to pay the 4 categories identified above during the 8-week period following the date of the loan.  The amount eligible to be forgiven is reduced if there is a reduction in the number of employees or employee wages over a threshold.  There are also certain exceptions for rehired employees.  You will be required to submit documentation to have any amount of the loan forgiven. The portion of the loan not forgiven is payable over 10 years at an interest rate not in excess of 4%.

In addition to the Paycheck Protection Program, the CARES Act includes an Emergency EIDL Grant that allows disbursement of up to $10,000 to certain small businesses within 3 days after the SBA receives an application.  The funding is made based on a self-certification of the applicant and the funds may only be used for providing paid sick leave, maintaining payroll, meeting the increased costs of goods, making rent or mortgage payments, and repaying obligations that cannot be made due to revenue loss.

There are many other terms and programs.  But we believe these programs are critical for small businesses.  Please feel free to contact us if you wish to learn more or want assistance in steering your business through these difficult times.

* While the terms discussed in the summary will apply in most conditions, there are numerous exceptions and carve outs.  How this program applies to your particular business may be different based on your particular circumstances, and this summary should not be construed as legal advice.

ENTREPARTNER OFFERS EMPLOYERS FLAT-FEE PACKAGE TO ADDRESS FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)

The Families First Coronavirus Response Act (FFCRA) becomes effective on April 2, 2020 and ends December 31, 2020. The FFCRA has modified federal employment laws requiring businesses with fewer than 500 employees to provide emergency paid family and sick leave.

Continuing our efforts to support our employer clients, EntrePartner Law Firm is offering an employment policies flat-fee package that includes practical, example-based FAQs, two phone consultations, and recommendations specific to your situation. Additionally, in light of the challenges currently faced by so many employers, we are offering discounted fees for any additional work that is requested beyond the scope of this flat-fee package.

For more information, or to schedule a consultation, please contact John Cantril at (612) 314-8005 or john@entrepartnerlaw.com.

SUMMARY OF FAMILIES FIRST CORONAVIRUS RESPONSE ACT (FFCRA)

Continuing our efforts to support our entrepreneurial clients, EntrePartner Law Firm is providing a resource for those who have questions about how to handle payroll and employee leave and how new legislation, the Families First Coronavirus Response Act, will affect their business.

The Families First Coronavirus Response Act (FFCRA) becomes effective on April 2, 2020 and ends December 31, 2020. The FFCRA has modified federal employment laws requiring businesses with fewer than 500 employees to provide emergency paid family and sick leave.

Quick Summary of Employer’s Obligations

Until April 2, employers will pay hourly employees for hours worked (if any) and salaried employees’ full weekly salary if employee worked ANY hours. Employees should take any accrued paid leave before April 2nd if they did not work and want to be paid.

After April 2, full-time employees that are infected, experiencing symptoms, caring for someone with COVID-19, or caring for a child that has had school or childcare closed due to concerns surrounding COVID-19 will receive 80 hours paid leave. Employees experiencing symptoms of COVID-19 will receive full wages unless wages exceed daily and total emergency leave wages maximums. Employees caring for a person infected with COVID-19 or caring for a child that has had school or childcare closed due to concerns surrounding COVID-19 will receive 2/3 of regular wages unless wages exceed daily and total emergency leave wage maximums.

After April 2, employees will receive 12 weeks leave with limited job protection for a public health emergency. The first 10 days of the 12 weeks leave will be unpaid leave. After 10 days, employees will receive 2/3 of regular wages unless wages exceed daily and total emergency leave wage maximums.

Employers will be reimbursed for the paid emergency leave through tax credits applied against employer’s Social Security tax obligation.

FOR A COMPLETE SUMMARY, PLEASE CLICK HERE

This alert is provided as a service to our clients and firm associates. While the information provided in this publication is believed to be accurate as of March 20, 2020, it is general in nature, subject to change, and should not be construed as legal advice.

A MESSAGE TO OUR CLIENTS

To Our EntrePartner Community:

There is no easy way to start this post, and no easy way to address the current state of affairs and the effects it is having on you, your families and your businesses.  We have been inundated with questions from our clients on resources and questions that apply to their businesses, and we will be working to provide real-time updates to our clients over the coming weeks via our email and social media channels.  If you are not already subscribed and wish to follow along, you can visit our LinkedIn, Facebook, and Twitter pages.

Our thoughts and hearts are with our clients right now as we navigate this unprecedented time.  We ourselves, like many of our clients, are business owners and know first-hand the anxiety, fear, and heartbreak that many of you are feeling right now.  Know that we are here to support you in any way possible, and please reach out if there is anything we can do to support you in the short-term.

Additionally, a foundational tenet of our firm is that we develop long-term strategic alliances with our clients, and we share in their successes and challenges.  We encourage any of our clients that need to make arrangements for legal fees and services to contact us to create a plan to help you navigate this difficult time.

Guidance for Businesses and Employers

To start, please make sure you bookmark the SBA Coronavirus (COVID-19) Small Business Guidance & Loan Resources page for general guidance. As the news develops, business owners should keep an eye on the ongoing government guidance and recommended strategies.

Most importantly, recommendations include each business creating an immediate plan to address:

– Access to capital (see below on interim loan programs being developed);

– Workforce capacity (ensure you have the ability to maintain critical business operations);

– Inventory and supply chain shortfalls (obtain adequate supplies of inventory and potentially diversify supply chain sources);

– Facility remediation and clean-up (most businesses have developed escalated cleaning and disinfectant procedures to the extent they remain open for business);

– Insurance coverage (we recommend you immediately contact your insurance provider regarding business interruption and other insurance options);

– Changing market demand (this is somewhat self-explanatory, but businesses are working to get creative to address the new needs of their customers in the near future);

– Marketing (ensuring communication with your customers as to your status of operation, what you are doing to address the issue, and potentially adopting specialized promotions or unique purchasing options);

– Planning for the future (the SBA offers exercises to simulate potential scenarios should the situation worsen or improve).

Financial Assistance

COVID-19 Disaster Loans 

One important development to note – the SBA is working with state governors to offer COVID-19 disaster loans to small businesses and non-profits.  States will need to make a declaration of disaster, and in that case, the SBA will offer loans directly to eligible businesses.
Loans up to $2 million will be offered, and may be used to pay fixed debts, payroll, accounts payable or other bills that can’t be paid due to the disaster’s impact.  Interest rates for the loans are 3.75% without credit available elsewhere, and 2.75% for nonprofits.  Terms are on a case-by-case basis, but a repayment plan can be up to 30 years.  For more information on the loan program, call 1-800-659-2955 or email the SBA at disastercustomerservice@sba.gov.  There is also a 3 step online application process here.

Small Business Interruption Loans

The federal government is working to adopt a Small Business Interruption Loan program, to provide for continuity of employment through business interruptions.  As part of this program, the U.S. government would provide a 100% guarantee on any qualifying small business interruption loan.

Qualifying loan terms:

– Eligible borrowers: Employers with 500 employees or less (phased out)

– Loan amounts: 100% of 6 weeks of payroll, capped at $1,540 per week per employee (approx. $80,000 annualized)

– Borrower requirement: Employee compensation must be sustained for all employees for 8 weeks from the date the loan is disbursed

– Lender: U.S. Financial Institutions

– Streamlined underwriting process: Lender verifies the previous 6-week payroll amount and later verifies that the borrower has paid 8 weeks of payroll from the date of disbursement.

The Treasury Department is working on issuing regulations establishing appropriate interest rate, loan maturity, and other relevant terms and conditions.

Employer Guidance

Unfortunately, and devastatingly, many businesses are and will need to reduce their workforce during government mandated shut-downs or other business interruption, and others are in a position where their employees cannot work or perform services due to temporary closure or inability of such positions to work from home.  With respect to the latter, all employers should first review their paid time off policies to govern their general approach to navigating paid or unpaid time off. Absent specific agreement or policy otherwise, there is no legal requirement that an employer provide paid time off to employees who must remain at home, or who cannot work remotely, and non-exempt employees do not have to be paid for hours worked. Employers should be careful with exempt employees in navigating salary reductions and/or work from home policies, as exempt employees are generally entitled to their salary in weeks in which they perform any work.
For more information, the DOL has issued Guidance on Preparing Workplaces for COVID-19, and you may also contact us for guidance as to any particular circumstances.

Landlord and Lender Relief

Many of our clients have begun requesting rent relief from their landlords due to their inability to operate, as well as contacting their lenders regarding upcoming payments. This is an issue that will play out in the coming weeks, as landlords and lenders are forced to respond to ongoing developments.  In the immediate short-term, we recommend that business owners be in communication with their landlords regarding the closure of their business, and notify landlords if they are unable to make April payments. EntrePartner attorneys have boutique experience in negotiating lease reductions and loan forbearance, and we will be providing more information on specific packages for assistance in the coming days and weeks.

FRANCHISE REGISTRATION RENEWAL SEASON IS HERE!

While many people are hunkering down for the winter or gearing up to go on spring break, at EntrePartner we are gearing up for one thing:  Franchise registration renewal season!  Most franchisors are required to update their Franchise Disclosure Documents (FDD) and complete renewal registrations in specific states in March/April of each year (with exact dates depending on specific circumstances as outlined below). This article is designed to provide you the tools to help you make the most of renewal season.

1.   Contact your Auditor ASAP

The renewal process requires that the franchisor entity’s updated audited financial statements be included in the renewal FDD, along with an auditor’s consent to use the financial statements in the document.  The audit can often be the most time-consuming process for franchisors. Due to new guidance released by the Financial Accounting Standards Board (FASB), franchisors may have significant changes to account for in their audits this year, making this process even more time consuming.  To make this a bit less painful, we recommend the following:

– Create a timeline with your auditor team, working backwards from the targeted issuance date of the renewal FDD. Include key dates for information gathering and on-site auditing activities if needed.

– Discuss affiliate entities up-front with your auditors to determine applicability of the rules to any other entities, corporate stores or other activities you may have. This will help avoid unexpected surprises.

– Request that auditors provide you with a list of documents and information that will be needed in the audit from the onset. This will allow your legal and financial teams to start gathering information ASAP.

– Ask your auditors if they will provide a discount for early completion. Many auditors are swamped during March and April, and will thus provide discounts to clients that complete their information early.

2.  Hold an Internal Strategy Meeting

Although FDD renewals can be a difficult and distracting process, franchisors can use the update as an opportunity to hold corresponding strategy meetings with their executive or management teams.  Big picture decisions will need to be incorporated into the FDD, so many franchisors like to use the first two months of the year to align on strategy for the coming year to avoid future FDD amendments.  Items for consideration include:

– Will the franchisor incorporate any fee increases in initial franchise fees, ongoing royalty payments, or ad fund contributions?

– Are there any new fees or costs that the franchisor should consider – such as incorporating specific software or technology fees to cover the franchisors costs in adding new systems?

– Do the costs outlined in Item 7 accurately reflect current start-up investments, and are they competitive with costs outlined by competitors or other franchise systems? Are there areas where costs can be reduced?

– Are there any new major taglines or slogans that trademark protection should be applied for and incorporated into the FDD?

– Does the franchisor need to make a change in the manner in which it assigns territories or develops certain markets, like including area development agreements or limiting population size of designated territories?

– Where does the franchisor plan to sell franchises next year, and how many units does it plan to sell?

– Are there any new loan programs or financing options that the franchisor has identified?

3.  Create an Internal Meeting Cadence and Assign Responsibilities

The decisions and process outlined above, and leading to an FDD renewal, are quite detailed and time-consuming.  This workload is piled on top of the normal day-to-day operations of the franchisor and its staff – and thus can easily get put off until a later date.  We recommend establishing a regular meeting cadence with key decision makers throughout the months of January through March to ensure that timelines kept on track.  Here is a suggested process:

– Early January – Kick-off meeting with individuals responsible for legal (including outside counsel), operations, finance, marketing, sales and development and executive/management team. At this meeting, high-level issues and necessary decisions are identified and tasks are assigned.

– Bi-weekly – Legal and finance meet to review and complete Item 19, audit activities, budgeting and corresponding fee changes, financing options, and other material items.Sales/development to join when needed.

– Every 3 weeks – Executive team/management meets with legal to review key decisions needed and incorporate into FDD.

4.  Prepare for Item 19

Statistics show that most franchisors include some type of Item 19 financial performance representation (FPR) in their FDD.  This often involves gathering detailed data regarding both corporate-store performance, as well as franchised location performance.  It is important that this information is accurate, complete, and comprehensive, so that the franchisor can safely rely on it to create its FPR.  We suggest that franchisors begin collecting applicable revenue and expense information as early as possible, so that it can review its options for Item 19 and ensure that it isn’t rushing to obtain data later in the year that may skew its presentation.

Starting now and staying on top of key tasks and decisions will help to make the process go smoothly.  It also helps all parties to minimize last minute fire drills, which can lead to mistakes and miscommunication among key parties.  EntrePartner is offering discounted rates to clients that schedule their kick-off meeting in January – contact us to learn more!

FRIENDLY YEAR-END REMINDER

At EntrePartner, we’re busy helping our clients prepare for year-end and set themselves up for a successful 2020!  This serves as a friendly reminder with respect to one easy part of this process.  All Minnesota entities must file an annual renewal once every calendar year with the Minnesota Secretary of State, beginning in the calendar year following the initial filing.  If you do not submit the annual report, your entity will be “statutorily dissolved” (no longer recognized as existing in Minnesota), and you’ll need to pay a fee to get it reinstated.  Filing the annual report is easy (less than 10 minutes) and free as long as you file on time.

If you own an LLC, corporation or other legal entity in Minnesota, make sure to go to the Secretary of State’s website and follow the instructions here: https://www.sos.state.mn.us/business-liens/start-a-business/how-to-renew-or-amend-your-business-filing/

If we don’t get a chance to tell you, please have a wonderful holiday season.  We look forward to helping you achieve your goals in 2020!

ENTREPARTNER STREAMLINES BUSINESS FORMATIONS WITH ITS NEW ENTRE2GO SERVICE

Starting a business can be overwhelming. It requires you to wear many hats all at the same time and juggle responsibilities that in a larger established company would be delegated to a dozen department heads.  Sometimes lost in the shuffle are the key legal decisions that come with starting a business. These decisions can be confusing, but they ultimately can be some of the most important decisions you will make.

To help bridge that gap, EntrePartner has launched its Entre2Go website. Entre2Go’s focus is helping entrepreneurs and business owners easily navigate the process of starting a Minnesota limited liability company or corporation. Using a proprietary formulated process, our attorneys help business owners make key decisions about the management, operation and owners’ rights in the entity.  The service is especially useful for business ventures with multiple owners who want to protect themselves legally and establish a solid foundation for ownership and operation of the business going forward.

To keep the business formation process simple and predictable, through our Formation Package we offer these services on a flat-fee basis.   When you are Ready To Go with your new business venture, our business lawyers will form and structure your limited liability company or corporation in 3 easy steps.

HOW DO I FORM A PROFESSIONAL ENTITY IN MINNESOTA?

One of the primary motivators for operating a business through a separate entity is to insulate the owners of the entity from the liabilities of the business. Typically, a corporation shareholder (or a member of a limited liability or a partner of a limited liability partnership) is not personally liable for the debts of the business. In most instances, the most that a shareholder (or LLC member or LLP partner) will lose in an unsuccessful business venture is their initial capital contribution and time.

Practitioners of some professions, however, are prohibited by the ethics rules of their respective licensing boards from organizing their businesses in such a way to limit their professional liability towards clients.  A dentist, for example, cannot simply organize his or her practice as a limited liability company as a means of preventing patients from recovering damages for malpractice claims.

Are practitioners able to organize their practices in such a way, however, to limit liability for otherpotential claims against their business unrelated to the actual providing of services to clients?  Fortunately for practitioners in Minnesota, the answer to this question is yes. Under the Minnesota Professional Firms Act, Minnesota Statutes, Chapter 319B, practitioners of certain licensed professions may elect to be professional firms under any one of three different forms of organization: corporations, limited liability companies, and limited liability partnerships. Organizing an entity under the Professional Firms Act does not affect a practitioner’s liability for her or his own malpractice or other wrongful conduct directly arising from the provision of professional services, but it does permit the professional to limit their liability for other debts or obligations of the business itself to the extent permitted by the law governing the chosen form of organization.

The Professional Firms Act provides that members of the following professions may elect to be professional firms: medicine and surgery, physician assistant, chiropractic, registered nursing, optometry, psychology, social work, marriage and family therapy, professional counseling, dentistry and dental hygiene, pharmacy, podiatric medicine, veterinary medicine, architecture, engineering, surveying, landscape architecture, geoscience, certified interior design, accountancy, and law

To operate as a professional firm, a Minnesota entity must be formed under the chosen statute: the Minnesota Business Corporation Act (Minnesota Statutes Chapter 302A), the Minnesota Nonprofit Corporation Act (Minnesota Statutes Chapter 317A), the Minnesota Revised Uniform Limited Liability Company Act (Minnesota Statutes Chapter 322C), or the Minnesota Limited Liability Partnership Act (Minnesota Statutes Chapter 323A). Then, either as part of the original formation documents or as an amendment to those documents, the firm must include language stating that it (1) elects  to be covered by the Minnesota Professional Firms Act, and (2) acknowledges that it is subject to the provisions of the Act.  The documentation must also specify the profession(s) to be practiced by the firm.

Finally, the Professional Firms Act requires that the professional firm’s name reflect the nature of its limited liability structure. If it is a corporation, the firm’s name must include one of the following designations or abbreviations: Professional Corporation, Professional Service Corporation, Service Corporation, Professional Association, Chartered, Limited, P.C., P.S.C., S.C., P.A., or Ltd.  If the firm is a limited liability company, the name must include one of the following: Professional Limited Liability Company, Limited Liability Company, P.L.L.C., P.L.C., or L.L.C. If it is a limited liability partnership, the name must include one of the following: Professional Limited Liability Partnership, Limited Liability Partnership, P.L.L.P., or L.L.P.