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WHAT DOES THE CARES ACT MEAN FOR YOUR SMALL BUSINESS?

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.

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.

CAN I APPLY FOR A FEDERAL TRADEMARK REGISTRATION BEFORE I’M USING THE MARK?

When we are preparing a federal trademark application, one of the most important things we need to know is whether you are – at the time of the application – actively using the trademark in the marketplace.  If you are, we will file a use-based trademark application, also known as a section 1(a) application (corresponding to the section of the law that authorizes this type of application).  But in many cases, an entrepreneur wishes to register a mark before he or she has introduced the product or service that the mark represents. As explained below, it is possible to apply to register a mark that is not yet being used.  This type of application is known as an intent-to-use (“ITU”) application or a section 1(b) application.

Use-Based (Section 1(a))

We file a use-based application when you are already using the trademark “in commerce.”  Using a mark “in commerce” means a bona fide use of the mark in the ordinary course of trade. If the mark is used with goods, it will be deemed to be used in commerce when, for example, it is placed on the goods, on the containers of the goods, displays associated with the goods, or on the tags or labels. Use in commerce also requires that the goods be sold or transported in commerce of a type that can be regulated by Congress, which generally means in interstate commerce or affecting interstate commerce. (Strictly intrastate commerce will not provide a basis for federal registration.) For a mark associated with services, rather than goods, the mark must be used in connection with the sale or advertising of the services and the services must be rendered in commerce.  Determining whether a mark has been used in commerce can sometimes be a complicated analysis, we can help you sort it out.

Intent-to-Use-Based (Section 1(b))

If, on the other hand, you have sincere plans to use the mark in commerce but are not yet doing so, an ITU application essentially permits you to reserve the trademark for your exclusive use in your field.  You must actually use the mark in commerce, however, before a registration ultimately will be issued.  Reserving a mark with an ITU application can be a good option since developing an brand can take time. If you are creating a brand from scratch, you may need time to design logos and packaging, order raw goods and supplies, produce the product to be sold, create a website and the like.  An ITU application provides the comfort that some other party will not be granted the rights to your mark while you are hard at work launching your business.

With an ITU application, once the trademark office “allows” your mark, we will have six months to file a Statement of Use, which is a declaration by a trademark applicant that the mark is currently being used in commerce. A governmental filing fee will also be required.  Should your mark not be used in commerce by the due date to file a Statement of Use, we can file various requests for six-month extensions of time to file the Statement of Use; a request for a six-month extension can be filed every six months, for up to three years.

For more information about trademark registration, visit our EntreTrademark site.

DO I NEED AN ATTORNEY TO FORM A COMPANY IN MINNESOTA?

One of the most common questions that we get from our clients, contacts, family, and friends, is whether they should engage an attorney to help them start their company. There are some firms that tell their clients, no matter what, that they should engage an attorney to form their limited liability company or their corporation, and often at a high price.

At EntrePartner, we always strive to help our clients find ways to save on legal fees when the situation warrants it and the risk is low.  So, here’s the honest answer we would tell our dearest relative to steer them in the right direction.

If you are a solo entrepreneur, starting an entity primarily for local operation (within the State of Minnesota, for example), and don’t plan to conduct any external fundraising, you can file an application for your entity yourself through an online process.  The Minnesota Secretary of State provides a relatively simple to use online process that will guide you through the process.  To do so, you will need to determine whether to form a limited liability company (LLC) or a corporation (or s-corp). In this scenario, 90% of our clients form an LLC, but this can be quickly confirmed through a quick call to your accountant.  You will also need a business address within the State of Minnesota to receive notices and where third parties may serve you with documents, if the need arises.

If you go this route, you will need to visit the Minnesota Secretary of State’s website and do a quick search with the intended name of your entity, to make sure there isn’t anything confusingly similar that exists already.  It is a good idea to search different variations of your proposed entity name, including specifically searching each word that is part of it, and variations on spelling, to make sure that you find all existing options.  Once you come up with the appropriate name, you can answer the online questions and pay the initial entity filing fee right on the website.

All of that said, if your entity has more than one owner, we do recommend that you utilize the services of an attorney.  You will want to ensure that ownership is properly issued to each party, and that an operating agreement is put into place that outlines the rights and responsibilities of each owner as to one another and to the company.  For example, many typical scenarios involve a financial partner and a sweat equity partner – and the organizational documents of the entity should outline the rights and responsibilities of each role to ensure that the company has the proper capital promised and that the sweat equity partner delivers on their obligations in exchange for ownership.  We have helped many clients who did not have a proper agreement in place with their partner from the start, and who later found that there were significant miscommunications or lack of follow-through on the obligations of each partner causing significant stress to the company and to the partnership.

In addition to the above, an operating agreement covers the following:

– How will decisions for the entity be made?

– How are majority, or minority, owners protected?

– How are monetary and capital requirements of the company handled?

– How will distributions be made?

– How and when can an owner transfer their interest to a third party?

– What happens if an owner dies or becomes disabled?

– Is insurance appropriate for future business planning?

– Should owners be subject to a non-compete?

None of the answers to these questions are standard for all parties, and as such, an attorney should help you ensure your particular needs are considered and addressed.  EntrePartner offers a complete formation package for entrepreneurs who need help with setting up their entity properly, and you can learn more about that package here. We’d love to hear from you!

IS A FEDERALLY REGISTERED TRADEMARK WORTH IT?

Starting a new business can seem like an overwhelming and never-ending series of decisions and expenditures.  So any savvy business owner will, of course, look to prioritize the “needs” from the “wants.”  One of the most common questions we hear from clients – especially those at the start-up stage – is whether federal trademark registration is worth pursuing.

New business owners often spend a great deal of time finding the perfect name for their business, not to mention making a monetary investment in a good design for their brand.  Entrepreneurs often have a vague sense that a registered trademark can be important, but are not always familiar with the underlying reasons.

It is worth noting that certain trademark rights arise just from using a trademark “in commerce” – which essentially means you are legitimately doing business under your name and logo. These automatic rights are known as common law trademark rights, and they result from your use of a name and not from any statute, rule, or registration. Common law trademark rights have been developed under the judicial system (rather than by a legislative body) and are governed by state law.  The great thing about common law rights is that they are automatic and you gain them simply from using your mark in commerce. The drawback is that common law rights are limited to the market where you actually do business. So, someone in another state could use your business name and you may have no recourse.  This can get to be sticky when you are marketing your goods or services through the Internet.  To claim rights in a certain location, you may need to prove actual ongoing sales to customers in that area or otherwise show penetration of that market.

Because of this limitation of common law trademark rights, we often recommend that our clients federally register their trademarks.  One of the most important advantages to a federally registered mark is that it gives the owner an exclusive nationwide right to use that mark.  Other advantages of owning a federal trademark registration are:

– the right to use the federal registration symbol ®

– public notice of your claim of ownership of the mark, so others can learn about your rights before they use your name in a way that would violate your rights

– the ability to bring an action concerning the mark in federal court, and the ability to recover damages, lost profits, attorney fees and costs that result from the trademark infringement

– the use of the U.S. registration as a basis to obtain registration in foreign countries

– the ability to record the U.S. registration with the U.S. Customs and Border Protection (CBP) Service to prevent importation of infringing foreign goods

The bottom line is that trademark registration is an investment.  The initial cost (and hassle) is relatively minor, but the protections that come with registration can be invaluable down the road as your brand accumulates goodwill.  If you are an entrepreneur considering registering a trademark and you have questions or want further information, we’d love to hear from you. You can contact us here or tell us more about your mark through our EntreTrademark service.