Though you may have heard the phrase “net neutrality” tossed about throughout the past few years or while browsing the Internet, last week’s FCC approval of its network neutrality plan has brought this phrase back to the realm of practical relevance for all Americans.  Net neutrality is the concept that Internet Service Providers (ISPs) should enable access to all content regardless of the source and without favoring or blocking particular products or websites. The first thought that may come to mind as a small business owner is, why should I care about a small drop in the sea of regulatory rules created by a federal agency?  What quickly follows is the realization - I use the Internet and my business relies on it. The question then becomes, how does the FCC’s network neutrality plan affect me and my business?
 
What Net Neutrality Does
As a way of reassurance, individual consumers and small business owners will not likely notice a change from their current Internet service. The idea behind the FCC’s network neutrality plan was more to prevent what could have been, rather than to change the existing Internet framework. Currently, just about every person receives the same access to all lawful content on the open Internet through various ISPs. Almost always, providers stuck to this framework. In some cases, however,providers have prioritized their bandwidth to large companies such as YouTube, Netflix, or Hulu. This meant slower internet speeds for consumers browsing other content and for smaller businesses that did not pay the ISPs to prioritize their data.
 
The network neutrality plan implemented by the FCC prohibits this practice and purports to regulate the Internet as a public utility. This means that consumers have a public right to Internet access once they purchase it, and, much like with electricity and other public utilities, have the ability to complain to the FCC if they suspect abuse by their ISP.
 
What this Means for Small Businesses
In short, net neutrality means that large companies will not be able to prioritize access to their data over that of smaller businesses or other lawful web users who have not paid off ISPs for priority. By way of example, this ensures that your business’ website will be no less accessible than Wal-Mart’s or Microsoft’s and that all lawful content on the Internet receives equal bandwidth from ISPs. In addition, given the Internet’s status as a public utility, the plan also gives the FCC the regulatory power to punish ISPs who are “not acting in the public interest” such as price gouging for services or arbitrarily discriminating in providing their service to customers.
 
This plan is not without opposition, however, and the FCC is likely to be challenged on net neutrality by companies such as Verizon in the not so distant future. By no means is the continued “openness” of the Internet as an inherently equal public space a certainty, however, the FCC’s net neutrality plan is a step in the direction of assuring it stays that way.

Whether the purpose of an agreement is to retain work done by an employee, to protect confidential company information, or to preserve the business of customers, non-compete agreements are an important tool used by many businesses to protect themselves from the actions of a former employee or independent contractor. There is no doubt that a non-compete agreement can be a practical way to protect the interests of your business; however, the protection a non-compete can provide loses its benefit and can potentially harm the company if it is deemed unenforceable. Under Michigan law, a non-compete agreement must:
 
  1. Protect a reasonable competitive business interest;
  2. Be reasonable in duration, geographical area, and type of employment or line of business;
  3. Not be specifically injurious to the public; and
  4. If it contains a liquidated damages clause, that it be reasonable.
 
What Constitutes a Reasonable Competitive Business Interest?
The first objective of a valid non-compete agreement is to identify the business interest that needs to be protected. This means that “cookie cutter” non-competes will rarely work. Instead, the agreement should be narrowly tailored to protect the specific business interest, whether this be a trade secret, customer relationships, or something else specific to the business. Drafting specific non-competes that are tailored to specific circumstances will ensure that the non-compete is not overbroad, which would render it unenforceable.
 
Duration, Distance, and Scope of the Agreement
The duration, geographical area, and type of employment restricted under the non-compete must also be narrowly tailored to protect the business interest mentioned above. Reasonableness depends entirely upon the industry and the nature of the interest. Generally speaking, reasonable duration is somewhere between six months to years; however, if the business interest that is being protected warrants additional duration, it can extend to several years. Similarly, distance and scope are dependent on the industry and the interest seeking protection. For instance, it would be reasonable to restrict a doctor from practicing in pediatric care within Livingston County, but it will almost definitely be unreasonable to restrict a doctor from practicing at all within the state of Michigan. Again, reasonableness dictates an assessment on a case-by-case basis.
 
Non-Competes and Public Injury
Non-competes can be considered unenforceable even if they are reasonable as to the interest to be protected and as to the duration, area, and scope. This occurs when a non-compete, if enforced, would cause detriment to the public. For example, a non-compete that prohibits an oncologist from practicing in Livingston County for six months may be unenforceable for reason of public injury. It may be impractical or impossible for patients needing a very specific type of medical care to see another doctor in the area or to switch doctors in the middle of treatment. This is not true for most agreements; however, it is another pitfall to be aware of when drafting a non-compete.
 
Should I use a Liquidated Damages Clause?
Liquidated damages are an amount the parties designate during the formation of a contract if one of the parties breaches the contract.  A liquidated damages clause, while not a necessary component of a valid non-compete, is a completely valid option if used properly. Liquidated damages clauses are often misused and are thus struck from the non-compete. First, a liquidated damages clause must be a reasonable assessment and not excessive given the injury suffered. Another way to put this is the purpose of the liquidated damages clause must not be to act as a penalty, but rather to be a reasonable assessment of damages to the business in the event of a breach. Additionally, these clauses have been enforced by Michigan courts only if damages are uncertain, difficult to ascertain, or purely speculative in nature. These provisions are most likely valid in employment situations, where the damage of an employee violating the non-compete is almost impossible to quantify.
 
The proper use of a non-compete agreement still remains an effective tool that a savvy business owner has at his or her disposal to protect the interest of their business. It is of great importance, however, to ensure that the document is prepared by a competent attorney. A non-compete is useless if it is unenforceable.

One of the most interesting and amusing cases on the docket for the U.S. Supreme Court this coming term has some fishy implications. In Yates v. United States, the Supreme Court will contemplate the application of 18 U.S.C. § 1519, a provision of the Sarbanes-Oxley Act, to the alleged destruction of evidence in violation of this provision by a commercial fisherman.
 
What is the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act or “SOX” was enacted in late 2002 in the wake of several large-scale accounting fraud scandals in the early 2000s, which involved high profile corporations such as Enron, Tyco, and WorldCom and the Arthur Andersen Accounting Firm. SOX was enacted with the broad purpose of protecting investors from the fraudulent acts of accounting firms and businesses. The act requires these companies and firms to adhere to stricter standards regarding their financial information and documents. One of the many ways this goal is achieved is the broad prohibition against the knowing destruction of any tangible objects with the intent to impede an investigation under §1519 of SOX.
 
Why does SOX matter?
While largely in place to regulate public companies, SOX has several provisions that apply to private companies as well. Section 1519 of the Act, regarding liability for the destruction of records, documents, or tangible objects is one of these provisions. Thus, §1519 is applicable to every company, whether public or private, large or small.
 
How does SOX apply to Yates?
Yates, a commercial fisherman and boat captain was issued a citation by a Florida wildlife deputy for catching fish that were smaller than legal size. Upon receiving a citation for the undersized fish and being directed to return to shore, Yates ordered his crew to throw the fish overboard in an attempt to thwart the investigation into the violation, and for all practical purposes, to destroy the evidence. At trial, Yates was found guilty under §1519 of SOX for destroying or concealing a “tangible object with intent to impede, obstruct, or influence” the government’s investigation into his catching of undersized fish. On appeal, the 11th Circuit affirmed this conviction, stating that a fish is, in fact, a “tangible object” under the plain meaning of §1519. Thus, the ultimate question for the Supreme Court is whether, under the plain meaning of §1519, a fish is a “tangible object”, or if §1519 simply applies to tangible objects relating to recordkeeping materials, such as computers or storage drives.
 
What are the Implications of Yates?
Due to the importance of SOX from a regulatory standpoint, the outcome of Yateshas implications for businesses of all types and sizes, not just those who happen to be commercial fishermen. If the Supreme Court affirms the ruling of the 11th Circuit, it would strengthen the overall power of SOX and, in turn, increase its regulatory power over public and private businesses. More narrowly, if throwing away fish is deemed equivalent to shredding a document, businesses will need to be much more careful with what they throw away.

Frequently we have clients in our office who have recently (or not so recently) lost a loved one – a spouse or a parent, in particular.  Often, the first thing out of the client’s mouth is, “I thought she had everything taken care of, but I guess not.”  As if the loss of their loved one isn’t enough for clients them to deal with, they are now left to sort out the decedent’s affairs. This process can have major implications and is often very overwhelming.

The following are some examples of messes that people leave behind for their loved ones to clean up after they die:

MORTGAGE/TITLE TO HOUSE
This is a very common problem that we assist clients with following the death of a loved one.  There is a variety of complications when it comes to real estate.

Spouse (or adult child) is on deed, but not on mortgage and/or note
This is the issue that we see most often when dealing with a decedent’s estate.  Often, due to creditworthiness or other family issues, one spouse will obtain a mortgage for the marital home, but both spouses will be on the deed.  For simplicity’s sake, let us assume the husband is on the mortgage.  The husband believes that if he predeceases his wife, she will be able to stay in the house because she is on the deed.  This is incorrect.  What will happen to the mortgage?  If the wife is able to make the mortgage payments, she will have to go through a very long, drawn out process to assume the mortgage.   If the wife is unable to make the payments, she will most likely lose her house.  If she is cognizant, timely, and works with an attorney, she may be able to enter into a deed in lieu of foreclosure, so the debt will be addressed.  Sometimes, she may even be able to get some money from the mortgage company in exchange for the house.  If the wife does not act in time or in the proper manner, she will lose the house and may have the mortgage company pursuing her husband’s trust and estate in court for the balance of the mortgage.

House is not addressed within proper estate planning documents
If a person passes away and has not properly planned for what will happen with their house, issues will arise.  For this example, let’s assume the decedent is a widowed mother with one adult son.  If there is a mortgage on the house, the son (unless someone else is designated in the mother’s estate planning documents) will be left to deal with the mortgage company similar to the example above.  Regardless of whether there is a mortgage on the property, the son will have to open a probate estate in order to have the court decide what should happen to the house (and any other probate assets).  People tend to assume that if they only have one child, everything will just go to that child.  While that is most likely correct, it isn’t automatic.  The surviving child will have to go through the long, expensive, painful process of probate court.

BANK, RETIREMENT, AND INVESTMENT ACCOUNTS AND LIFE INSURANCE
Lost/forgotten assets
We often have clients in our office with boxes upon boxes of their deceased parent or spouse’s old financial statements, tax returns, etc.  If they are unable to find all of the decedent's financial records, they might  be unable to trace all of his or her assets.  If assets cannot be located, heirs might not get everything they're entitled to, and the unclaimed assets will eventually revert to the State.  It is best to make sure there is a least one person who has a list of all assets, accounts, and policies, including financial institution or insurance company, account or policy numbers, and beneficiary information.

Failure to name beneficiary
If a person dies and leaves assets behind that do not have a co-owner or beneficiary, the asset will have to be probated.  The probate process is very slow and can be expensive.  It is also usually quite taxing on the person or persons involved in the process.  Additionally, the court will decide which heirs will get what.  Oftentimes, the distribution does not match the wishes or the intention of the decedent.  By the time the heirs are finished with probate, there might be very little of the asset left after expenses.  We recommend to clients that they review the beneficiary designations on all of their accounts and policies.

Debts
A growing number of people leave estates with insufficient assets to pay off debts.  If that happens, the person in charge (usually the personal representative or executor) can attempt to negotiate lower amounts with creditors.  If they can't agree, the personal representative can ask a court to declare the estate insolvent.  Certain types of creditors will have priority over whatever is in the estate.  For example, state laws may require a secured debt, such as a mortgage, to be paid in full, ahead of a credit card.

In an ideal situation, the personal representative will be aware of all of the decedent’s debts and pay them out of the estate. If a debt, such as a tax bill, appears after the estate is settled and heirs have already received their money, it might be impractical to try to recoup monies from the beneficiaries to satisfy the liability What if the heirs have already spent the money? Their liability is generally limited up to the amount they inherited.  It is wise for the personal representative to hold back money out of an estate for at least a year to address such occurrences.  Otherwise, creditors could pursue the estate -- as well as the personal representative and the beneficiaries.
MISSING, INCOMPLETE, OUT-OF-DATE ESTATE PLANNING DOCUMENTS

Missing/lost estate planning documents
We always encourage our clients to let their loved ones know they have used an attorney to place their affairs in order.  If no one is aware, the loved ones are left to search for any such documents.  They may check the decedent’s house, safety deposit box, or have to try to track down the decedent’s past advisors.  If a will and other estate planning documents cannot be located, it will be up to the heirs to open probate and have the court decide what should happen to the decedent’s assets, in accordance with Michigan’s intestacy statutes.

Incomplete or out-of-date estate planning documents
We get many clients in our office who have had a change in circumstances and wish to update their estate planning documents.  Such situations include a divorce, death, birth of a child or grandchild, a change in wishes, or a change in family circumstances.  They wish to update their named fiduciaries or update who in the family gets what.  This can often be done by simply amending older documents.  It becomes a problem if one of these changes occurs and documents are not updated.  If changed wishes are not put down in writing in a properly executed document, these changed wishes will (may) not be followed.  All that the heirs will have to go on are the out-of-date documents, which no longer reflect the wishes of the decedent.  Unfortunately, the documents are legally binding and must be adhered to.  This is how an ex-daughter-in-law ends up owning a part of your family cottage.  If there is a change in circumstances, it is always best to discuss with your attorney whether or not formal changes need to be made.

LEAVING ASSETS TO CHILDREN UNEQUALLY
Surprisingly, people often do not realize the battle they have initiated by leaving assets to children unequally.  Clearly, there are reasons that clients choose to do this, and we do not judge them for this, but we do remind them that it could cause problems in the family following their passing.  In most cases their decision will not be anything new for the family.  But sometimes, it is a shock to the decedent’s children.  This often causes animosity to the point of taking legal action, whether or not it is warranted or has a legal basis.  Even if assets are left to children unequally, with the proper estate planning documents in the proper manner, it will not prevent the child who feels jilted from filing a lawsuit.  Their siblings will have to pay attorney fees and costs to fight this frivolous lawsuit.  Usually, the damage done cannot be overcome?  If that is a risk the client is willing to take, it can be done, as long as it is a known and understood risk.


ACTION STEP
The loss of a loved one is difficult enough on its own.  It is even more painful when it is coupled with a legal mess that needs to be resolved.  These are only a handful of the multitude of messes that people can leave behind.  It is best to have these issues addressed during life, so that loved ones are left to grieve in peace without bill collectors breathing down their neck or an impending lawsuit.

We often hear that business owners have a variety of reasons for believing their business does not need to operate as a valid business entity.  Unfortunately, these reasons typically turn out to be misconceptions.

When incorporation is done properly and thoroughly, it provides the governing documents that the corporation will use to conduct its business.  There are several advantages to incorporating a business, including protection from personal liability and favorable tax treatment.  If an individual is conducting business as a sole proprietor or if multiple business owners are acting as a partnership, Michigan law does not provide the business owners protection from legal liability.  

It is important to understand that if a business entity is not established properly, legally, or formally in Michigan, the business owner or owners are automatically assumed to be acting as a sole proprietor or a partnership.  This article discusses three misconceptions that we frequently hear about incorporation and will explain the risks involved with acting as a sole proprietor or partnership.

Misconception 1 – The business does not make enough money to incorporate.
We often hear from budding entrepreneurs that they do not want to invest the time and effort into incorporating because they do not know if their business will be successful and they do not yet have a high level of profit.  This is one of the most dangerous misconceptions for business owners because the level of risk associated with conducting business is in no way related to the amount of money a business makes.  If a business owner conducts business without a proper entity and a judgment is obtained against the business for an accident or other matter, the business owner’s personal assets will be used to satisfy the judgment.

Establishing a valid corporation and maintaining the entity protects business owners from personal liability for the actions and occurrences in the business.  Creating a separate business identity through incorporation is one of the key factors a judge will use to determine if the business owner will be personally liable for the actions of the business.  In addition, obtaining S Corporation status has favorable tax implications for the business owner.  It is untrue that maintaining the corporation is difficult or expensive.  The yearly requirements to maintain the C corporation are minimal and we educate business owners on the steps necessary to maintain their business entity from year to year.

Misconception 2 – The business does not need to be incorporated because I have insurance.

Insurance policies help protect businesses and business owners by providing coverage for the risks of conducting business.   Insurance coverage’s, however, almost always come with coverage limits.  If the amount of a judgment exceeds the amount of insurance coverage, the business owner will be liable for the deficiency.  Additionally, depending on the type of insurance coverage, some types of claims may not be covered at all by the business owner’s policy.  In this case, the business and the business owner would be liable for 100% of a potential judgment.

Misconception 3 – I am protected because I filed a DBA with the county.

Filing your business name as a DBA or “Doing Business As” with the county where your business is located does nothing to protect the business or you from liability.  The only thing a DBA protects is the business name in that county.  A DBA is not a legal entity and only provides that another business will not be able to conduct business under that business name in the county.  If a business operating as a DBA is sued and a judgment is obtained, the business owner will most likely be held personally liable for the amount of the judgment.  This means that the person or entity that obtained the judgment can take personal assets and income, such as the business owner’s home and financial accounts, to satisfy the amount of the judgment.

ACTION STEP

Business owners should have their business entity reviewed to determine if it is the most effective way to do business, and they are legally protected. 

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About Us

The Firm, deeply rooted in Livingston County, has its origins in 1994 when it was founded by Tim Williams.  After having practiced predominantly in tax law for many years with larger firms, Tim decided to start a new firm that centered around working with people rather than with only highly complex tax issues. The Firm is centered in working with entrepreneurs and individuals with a personal touch.  The goal of the Firm has always been to create a relationship-driven rapport with its clients to establish long-lasting, personal relationships.  From the time it was founded, the Firm has specialized in business law and estate planning and probate practice.  Many of the Firm’s clients rely upon its attorneys for business guidance as well as legal counselling. The Firm has always made it a priority to devote time to giving back to the Livingston County community and its residents by working with and giving to charitable and service organizations.  The firm plans to continue to grow its client base in Livingston County and the surrounding areas.

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