Business Law

Published on: December 18, 2012

The Best Business Structure for Your New Jersey Business

Business owners must choose a structure for their organization when starting a business in New Jersey. Choosing the right structure is the first of many decisions towards running a successful business.

Business owners have the option to form a sole proprietorship, a partnership, limited liability company (“LLC”), or a corporation. Each business structure offers different types of liabilities, expenses, and tax treatment. Choosing the right business structure generally depends on the type of business, how it will be run, and the number of owners.

Owner/Business Liability
Generally, the more risky the business activity, the better it is to operate the business through a corporation or an LLC. Corporations and LLCs provide New Jersey business owners with limited liability. This means that anyone seeking compensations for anything related to the business will have a hard time placing personal liability on the business owner.

On the other hand, owners of sole proprietorship and partnerships can normally be held personally liable for business debts. Owners of sole proprietorship will always be responsible for claims against the business. Similarly, in a partnership, every partner can be held personally liable for claims against the business. This means that if someone won money in a law suit against the partnership, that person could collect from any one of the partners. Therefore, if one of the partners filed for bankruptcy or simply did not have any money to pay, the remaining partners would be responsible to make payment.

Expenses

Sole proprietorships and partnerships are the easiest to form and maintain with minimum expense. There is little special paperwork that needs to be filled out to establish these business structures, and there are rarely any fees associated to maintain them.

Conversely, corporations and LLCs are more difficult to form and can be expensive to establish and maintain. Businesses that establish a corporation are required to file “articles of incorporation” with the secretary of state and pay fees associated with the incorporation. Similarly, LLCs must register with the secretary of state, designate an agent for service of process, and pay associated fees for registration. Businesses that operate as corporations and LLCs must also have separate business bank accounts and keep detailed records of all business finances.
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Published on: November 26, 2012

Post Sandy: FEMA Extended To All Residents of New Jersey

by Boris Peyner

Recently New Jersey was impacted by a storm the likes of which has never been seen before in this area. In fact, the storm was so powerful and damaging that it was nicknamed Frankenstorm. Hurricane Sandy’s destruction was unimaginable, causing many of its victims to lose power for days and many others to lose everything. Hurricane Sandy’s victims will now have to start the recovery process. This will require rebuilding, for which they will need dedication, resilience, and financial assistance.

Many will seek financial assistance from their insurance companies. Filing insurance claims will therefore be the first step for most people who were affected. Sadly, many will find themselves uninsured or underinsured. Many other will be denied coverage because of policy exclusions. Another problem that will plague many New Jersey residents is that their damages were caused by a flood in areas that were never prone to flooding. These homeowners therefore did not carry flood insurance. All hope, however, is not lost.

New Jersey residents who do not have sufficient insurance coverage or were denied coverage should seek assistance from the Federal Emergency Management Agency (“FEMA”), assistance was recently extended to all twenty-one New Jersey counties. FEMA will cover losses which include damage to homes, personal property, and vehicles.

FEMA, however, will provide coverage to people who do now have insurance coverage or have insufficient insurance coverage to provide safe, sanitary, and functional housing. Additionally, FEMA will not provide financial assistance for homeowners who are making claims for secondary homes.
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Published on: November 13, 2012

New Jersey’s New LLC Law

by Pauline M.K. Young

Since the entity known as a Limited Liability Company, or “LLC” came along in New Jersey in 1993, it has quickly become one of the most common business forms. LLCs are popular largely because of their flexibility, limited liability, and tax advantages.

For example, as long as they meet the requisite qualifications, an LLC may elect to be taxed as a sole proprietor, partnership, C corporation, or S corporation, which means it may avoid the double taxation of a C corp wherein both the owners and the company are taxed. Also, although an LLC is not incorporated, in many instances, LLC owners – called “members” – are protected from personal liability for the company’s debts the way a corporation is.

New Jersey’s Limited Liability Company Act was enacted in 1993, and while it has been revised in 1996 and 2006, revisions have been minor until recently. On September 21, 2012, Governor Christie signed the Revised Uniform Limited Liability Company Act which is scheduled to go into effect for new LLCs on March 20, 2013. (For existing LLC’s it will become effective in March of 2014.)

The new law will include several revisions and additions, including the following:

Duration: Under the prior law, an LLC has a default duration period of thirty years unless the members designate otherwise on the certificate of formation. Under the new law, an LLC will have an unlimited or perpetual duration period unless otherwise indicated on the certificate, which is more like a corporation which is also considered to have perpetual existence.

Not-for-Profit: The new law allows LLCs to be formed for any lawful purpose regardless of whether they are for profit or not-for-profit or formed to own non-income-producing property.

Published on: November 9, 2012

Hurricane Sandy Insurance Claims

by Maurice W. McLaughlin

Hurricane Sandy has inflicted unprecedented damage on New Jersey. Homes have been destroyed. Businesses, homes and schools have lost power. Tens of thousands of people in New Jersey are homeless. Homes and buildings were destroyed by fire, trees, waves and other casualties. Many homes, especially in the evacuated Shore communities, have been looted. Losses in the Tri-State area expected to exceed fifty billion dollars.

That, of course is the big picture. On the ground, however, the storm had a devastating impact on individual homeowners, renters, and small businesses. The first thing each of these homeowners, renters and small businesses should do is make a claim with their insurance companies.

This first question is, will there be coverage? This depends on two things: First, the type of insurance policies you have and, second, the type of damages you incurred. For instance, many homeowners and business policies exclude coverage for damage caused by flooding. However, flood insurance should obviously cover this.

Therefore, you should get a copy of your insurance policy, including the declaration page. The declaration page is a one or two page summary of the types of coverage you have, the amounts of coverage, and the amounts paid for each type of coverage. The policy itself, to which the declaration page is usually attached, is much larger, often twenty pages or more. If you do not have a copy of your policy, or if your policy was destroyed in the storm, you should contact your insurance agent or broker, or the company with whom you have the insurance.
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Published on: November 5, 2012

New Jersey’s Teacher Effectiveness and Accountability for the Children of New Jersey (TEACHNJ) Act Adopts New Procedures for Fighting New Jersey Tenure Charges

by Maurice W. McLaughlin

The Teacher Effectiveness and Accountability for the Children of New Jersey (TEACNJ) Act was recently enacted by the New Jersey Legislature and signed by New Jersey Governor Chris Christie. The TEACHNJ Act creates drastic changes to the process for fighting tenure charges by New Jersey teachers and other public school “teaching staff members.” In short, the TEACHNJ Act eliminates the hearing process before the Commissioner of Education and places the decision in the hands of an arbitrator.

When a New Jersey “teaching staff member” achieves tenure, she receives protections that most other New Jersey employees do not. Tenured teaching staff members can be dismissed or reduced in compensation “during good behavior” only for “incapacity,” “inefficiency,” or “conduct unbecoming” a teaching staff member, or some other “just cause.” However, they can be laid off for budget reasons or enrollment losses at any time as long as their seniority is honored.

For the purposes of tenure, “teaching staff members” includes a wide range of employees, including: Assistant superintendents, teachers, principals (but not administrative principals), vice-principals, assistant principals, school nurses, athletic trainers, business administrators shared by more than one school district, and other employees requiring appropriate certificates.

Left unchanged are the initial procedures. Tenure charges are instituted by the local board of education. They are filed in writing with the board’s secretary together with a sworn statement of evidence. The employee is promptly given a copy and the opportunity to submit a written statement in response. The board will then consider the charges in closed session and decide by majority vote if the evidence supports probable cause for the charges, and whether the charges are sufficient to warrant dismissal or reduction in salary. If so, it then forwards the charges to the Commissioner of Education. If the board does not make a determination within 45 days, the charges are dismissed.
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Published on: October 5, 2012

Transfer of a New Jersey Lottery License

by Jennifer C. Meusel

There are steps which must be followed in a timely manner to obtain a New Jersey Lottery License and have a smooth transition during the purchase of a business.

At least 45 days before closing, the seller of the New Jersey business must send a letter to the New Jersey Lottery district office. The addresses of the district offices can be found here. The letter must include information regarding the pending sale including the seller’s name, address, home phone number, cell phone number, and work phone number, as well as the buyer’s name, address, home phone number, work phones and cell phone number, and the anticipated closing date.

Upon receipt of that letter, a New Jersey lottery agent will contact the buyer and the seller, and they will be required to meet with the lottery representative . The buyer must bring the following to this meeting:

The Lottery Division will conduct a background check on all people listed on the application.
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Published on: September 17, 2012

New Jersey Division of Taxation Bulk Sales Requirements

by Jennifer C. Meusel

New Jersey’s bulk sale law was enacted by the New Jersey legislature in 1995 to protect purchasers of business assets. The purchaser of business assets is required to notify the New Jersey Division of Taxation of the transaction at least ten days before the sale by completing and filing a form C-9600 along with a copy of the contract for sale. The form C-9600 must be sent by certified mail to the State of New Jersey, Division of Taxation, Attention: Bulk Sales Section, P.O. Box 245, Trenton, NJ 08695-0245, or it can be sent by overnight mail to the State of New Jersey, Division of Taxation, 50 Barrack St, Trenton, NJ 08695, Attn: Bulk Sale Section. There is no fee for filing the form.

The New Jersey Division of Taxation then has ten business days to research and determine what amount of money must be held in escrow by the purchaser’s attorney at the closing. The state tax liabilities of the seller are then paid from the escrow. A purchaser, by complying with the Bulk Sale Law, ensures that they will not become responsible for the seller’s New Jersey tax liability. After the tax payments requested by the state are paid, the Division of Taxation will issue a tax clearance letter which authorizes the release of any monies remaining in escrow. Upon receipt of the tax clearance letter, the balance of the monies held in escrow can be released to the seller. If the Division fails to respond to the C-9600 within ten business days of receipt of same, the purchaser will not be held responsible for the seller’s state tax liabilities.

If the purchaser fails to notify the New Jersey Division of Taxation of a sale which is subject to the bulk sales notification requirements, then the purchaser becomes liable for the New Jersey State tax liabilities of the seller if the seller does not pay. If the purchaser fails to notify the state, the Division of Taxation can file judgment, levy and seize the purchaser’s assets. However, if the seller refuses to cooperate with the Division of Taxation, the Division will not penalize the purchaser for the seller’s refusal. While complying with this law is an added step in the purchase of a business, it is an excellent mechanism for protecting the purchaser. Purchasers of business assets should insist on compliance with the terms of the New Jersey Bulk Sales Law. It is an essential term of any contract for sale of business assets.
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Published on: July 2, 2012

New Jersey Law That Protects Creditors’ Rights

by Boris Peyner

Creditors in New Jersey should not be dissuaded from trying to collect what is owed to them because debtors transfer their assets. New Jersey law protects creditors’ rights by imposing penalties for debtors who transfer assets to prevent collection of a valid debt.

The Fraudulent Conveyance Act of 1919 has protected creditors’ rights in New Jersey for nearly a century. However, in 1988 the New Jersey Legislature updated New Jersey’s fraudulent transfer laws by passing the Uniform Fraudulent Transfer Act (“UFTA”), which replaced the former Fraudulent Conveyance Act.

The purpose of UFTA is to protect creditors from debtors who hide assets. Debtors are therefore prohibited from transferring assets to avoid paying debts, once creditors have a “right to payment.”

Under New Jersey’s UFTA, there are two ways creditors can establish that a fraudulent transaction has occurred. Creditors can prove that a transaction was done with actual intent to defraud the creditor. However, the burden of proof is on the creditor and it is often very difficult to meet. Therefore, the UFTA also allows creditors to prove “constructive fraud.” To prove this, creditors must show that a transfer was made without exchange of reasonably equivalent value, rendering a debtor insolvent.
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Published on: March 4, 2012

Trade Secrets in the Realm of Commercial and Employee-Employer Disputes

by Pauline M.K. Young

Trying to determine what is and what is not a trade secret is often a complicated venture. A clear example, and one of the most heavily guarded of trade secrets, is the recipe for Coca Cola. However, the definition of trade secret can be interpreted as an all-encompassing category with little clarification as to what specific information is protected.

The New Jersey Trade Secrets Act, recently passed into law in January of 2012, defines trade secrets as:

Information, held by one or more people, without regard to form, including a formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process, that: (1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The Act codified accepted case law. Indeed, trade secrets have long been defined to include the any portion of technical information, designs, processes, procedures, and improvements which are secret and of value to the business holding them.
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Published on: March 1, 2012

New Jersey’s Different Treatment of Employee Arbitration Agreements and Insurance Policies is Difficult to Reconcile

by Maurice W. McLaughlin

New Jersey and Federal law have established a strong legal policy in favor of arbitration. New Jersey’s courts, like the federal courts, regularly uphold arbitration agreements in employment contracts. They have repeatedly enforced these agreements and do not consider them “contracts of adhesion.” This is starkly different than how New Jersey’s courts treat insurance policies, and ignores the long-established legal principles upon which its analysis of insurance policies rests.

Contracts of adhesion are agreements where the two parties have unequal bargaining power, and the party with the greater leverage forces “oppressive or unconscionable” terms on the other. They are often presented on a “take it or leave it” basis. When a New Jersey court finds a contract of adhesion, it will strain to protect the weaker party, whether by construing the agreement against the stronger party, eliminating unfair or oppressive terms, or voiding it in its entirety.

In Martindale v. Sandvik New Jersey’s Supreme Court ruled that despite forcing an employee at the company’s Fair Lawn plant to give up her constitutionally protected right to a trial by a jury of her peers, the agreement was not “oppressive or unconscionable.”

An employee and employer, especially a large, multi-national corporation such as Sandvik, simply do not have equal bargaining power. There is a large labor pool for employers to choose from, especially in these troubled times. This gives the employer the upper hand. Employers can – and do – tell employees to agree to arbitration or go look for work elsewhere; this is no choice at all for most employees. Indeed, this is all the more true when an arbitration requirement is adopted as a policy after an employee has already started work and is given the choice of either agreeing to arbitration or being out of a job, despite the years, and often decades, invested by the employee.
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