Legal Basics for Small Business

349 Pages·2013·2.39 MB·English

by  Debby Cooper

Legal Basics for Small Business
2013 Edition

Prepared as a public service of the lawyers of Ohio
by the Ohio State Bar Association
Funded by the Ohio State Bar Foundation

Edited by:

Deborah K. Cooper
Public Information Manager
Ohio State Bar Association
(Legal Basics project manager/editor)

Kenneth A. Brown, Esq.
Director of Public and Media Relations
Ohio State Bar Association

Corinne Gleckler
Student Intern, Ohio State Bar Association
The Ohio State University

Liz Atkinson
Marketing Consultant, Columbus, Ohio

Brian Tonti
Proofreader, Columbus, Ohio

Andrea Davidson
Graphic Designer - Cover
Ohio State Bar Association

The Ohio State Bar Association (OSBA) is pleased to offer Legal Basics for Small Business,
designed especially for small business owners in Ohio who are looking for basic legal
information. Presented in an easy-to-read question-answer format, this handbook is a compilation
of individual articles written and edited by more than 140 Ohio lawyers who volunteered their
time and effort.

While this text does not pretend to be comprehensive, and in no way replaces the texts provided
by the Ohio Chamber of Commerce or the advice of an attorney, Legal Basics for Small Business
provides an overview of some of the major issues you can expect to confront each day as you
launch and seek to maintain your business. Remember, however, that the law is constantly
changing, and some of the legal interpretations in this text may be misleading or erroneous.
Before applying any of this information, readers are urged to seek advice from an attorney.

The OSBA invites your comments and suggestions to improve future editions of this publication.
Please send your comments to: OSBA Public Relations, P.O. Box 16562, Columbus, OH 43216-
6562.

Copyright ©2013 Ohio State Bar Association and Ohio State Bar Foundation.
i
ii
TABLE OF CONTENTS

1. BUSINESS START-UP _____________________________________________ 1
A. How To Begin: Checklist for Forming an Ohio Corporation – Jason C. Blackford,
Jack Kurant, Michele R. Yeh _____________________________________________ 2
B. Know the Advantages and Disadvantages of C-Corporations, S-Corporations and
Limited Liability Companies – Jack Kurant, Michele R. Yeh ___________________ 6
C. C-Corporations, S-Corporations and Limited Liability Companies Are Taxed
Differently – Jack Kurant, Michele R. Yeh __________________________________ 9
D. The LLC: A Useful Business Entity – Michael J. Stegman _____________________ 11
E. Essential Elements for Operating Agreements of Limited Liability
Companies – D. David Carroll, Adam J. Biehl _______________________________ 12
F. Letters of Intent: To Do or Not To Do – Charles R. Schaefer ___________________ 14
G. Internal Governance – Codes of Regulations and Bylaws – D. David Carroll,
Jameel S. Turner, Todd J. Samples, Adam Biehl ______________________________ 15

H. Franchise Laws Protect Investors – G. Jack Donson Jr., Margaret A. Lawson ______ 17
I. Buyer Beware: The Steps to Purchasing a Business – Michael A. Ellis ___________ 19
J. Buying a Small Business? Do Your Homework – Patrick Hughes _______________ 21
K. The Business Acquisition Checklist – Bruce D. Bernard _______________________ 22
L. Marriage Plans Affect Business – Laura S. Zeldin, Pamela J. MacAdams __________ 23
M. Divorce Affects Business – Laura S. Zeldin, Pamela J. MacAdams _______________ 25
N. Incorporation Limits Liability – Jack L. Neuenschwander, Christopher R. Petit _____ 27
O. Shareholders Can Be Personally Liable for Corporate Obligations – Jason C.
Blackford, Jack Kurant, Michele R. Yeh ____________________________________ 29
P. Understanding Personal Liability for Corporate Obligations – D. David Carroll,
Hollie K. Foust, Jameel S. Turner, Adam Biehl ______________________________ 31
Q. Investments in India: A Structural Strategy – Vinita Bahri-Mehra ________________ 33

2. MONEY MATTERS________________________________________________ 35
A. Financing Your Business – Thomas C. Washbush ____________________________ 36
B. Preparation Can Improve Bank Loan Experience for Business Borrowers –
Paul E. Peltier, Timothy M. Oyster, Jeffrey S. Rosenstiel _______________________ 38
C. Should You Buy or Lease Your Business Assets? – Bruce D. Bernard ____________ 40
D. Retirement Plan Option for Small Employers May Make 401(k) Plan
Affordable – Richard A. Naegele, William P. Prescott _________________________ 41
E. Is A Safe Harbor 401(k) Right for Your Small Business? – Kelly A.
VanDenHaute _________________________________________________________ 43
F. Key Considerations When Adding Private Equity to Your Portfolio –
Joseph K. Juster _______________________________________________________ 44
G. Bill Collection: How To Get the Money You’re Owed – Christopher Ernst,
Daniel Gerken ________________________________________________________ 45
H. A State Tax Time Bomb – David L. Chilcoat, Justin L. Knappick ________________ 46

I. Business Taxes: Part of the Expense of Making Money – Scott F. Sturges ______ 48
J. Tax Planning for Mature Companies – Bruce D. Bernard _______________________ 51
K. Dealing with Your Bank When Your Company Is Underperforming –
Thomas C. Washbush __________________________________________________ 53
L. Knowing about Foreclosure Can Help You Avoid It – Alan J. Ullman,
John R. Cummins ____________________________________________________ _ 55
iii
M. My Customer Has Filed for Bankruptcy – Now What? – Julie E. Rabin ___________ 60
N. Tax Abatements Exempt Real Estate Taxes for Improvement Projects –
Kira S. Kittoe-Krivosh __________________________________________________ 61

3. UTILITIES _______________________________________________________ 62
A. Public Utility Rates: Who’s in Charge? – Stephen M. Howard __________________ 63
B. PUCO and Public Utility Rates: How Are They Set? – Stephen M. Howard ________ 65
C. Know about “Customer Choice” Programs When Selecting Your Gas
Company – Mary W. Christensen, Public Utilities Commission of Ohio ___________ 67
D. Choosing a Local Telephone Company – Mary W. Christensen,
Public Utilities Commission of Ohio _______________________________________ 70
E. Understanding a Local Telephone Bill – Public Utilities Commission of Ohio ______ 72
F. Understanding Telephone Scams: Slamming and Cramming – Public Utilities
Commission of Ohio ___________________________________________________ 74
G. What To Know about Aggregation – Public Utilities Commission of Ohio _________ 76
H. Choosing an Electric Supplier – Public Utilities Commission of Ohio _____________ 78

4. INTELLECTUAL PROPERTY_______________________________________ 80
A. Copyright Basics – Patricia A. Walker _____________________________________ 81
B. “Fair Use” Doctrine Permits Limited Copying of Copyrighted Material –
Patricia A. Walker _____________________________________________________ 83
C. Frequently Asked Questions about Copyrights – Susan D. Rector ________________ 85
D. Copyright Notice and Registration Benefits Copyright Owner – Alan S. Wernick ____ 87
E. Spreadsheets and Intellectual Property – Steven A. Hill ________________________ 89
F. What You Don’t Know about Patents Could Hurt Your Business –
Ralph E. Jocke ________________________________________________________ 90
G. What You Don’t Know about Trademarks Could Hurt Your Business –
Ralph E. Jocke ________________________________________________________ 91
H. Frequently Asked Questions about Trademarks – Susan D. Rector _______________ 93
I. Use Your Trademarks Wisely and They’ll Serve You Well – Alan J. Hartman _____ 94
J. What You Don’t Know about Trade Secrets Could Hurt Your Business –
Ralph E. Jocke ________________________________________________________ 96

5. INSURANCE AND RISK MANAGEMENT____________________________ 97
A. Planning and Managing Your Insurance Coverage – W. Kelly Lundrigan__________ 98
B. Know about Taxes When Using Business Life Insurance – Paul S. Klug ___________100
C. Business Insurance Protects Property and Covers Liability – Jack L.
Neuenschwander, Monica L. Waller_______________________________________ 102
D. Protecting Income with Disability Insurance – Alan Berliner____________________ 104
E. Long-Term Care Insurance: Overlooked Healthcare and Tax Planning –
Brandon A. Borgmann _________________________________________________ 107
F. Shoplifting and Loss-Prevention Programs – Hon. Richard M. Wallar ____________ 109
G. Is Your Business at Risk for a Professional Negligence Claim? – Doug Holthus ____ 111
H. Insurance for Cyber Risks – Alan Berliner __________________________________ 113
iv
I. Ohio Provides Continuing “Mini-COBRA” Coverage for Former Small
Business Employees – Jason Rothman ____________________________________ 115
J. Employer-Shared Responsibility Provisions of the Affordable Care Act –
Jason A. Rothman _____________________________________________________ 117

6. EMPLOYEE HIRING/FIRING______________________________________ 120
A. Don’t Take Potential Employees at Face Value – Joseph B. Swartz ______________ 121
B. Managing the Hiring Process – Marc A. Fishel ______________________________ 122
C. Know the Law When Using an Outside Agency To Do Background or Credit
Checks – Neil E. Klingshirn, Maribeth Deavers______________________________ 124
D. Reference-Checking Law Benefits Employers – Donald R. Keller,
Timothy J. Owens _____________________________________________________ 126
E. Employers Have “Qualified Privilege” When Conveying Information about
Employees – Frederick M. Gittes _________________________________________ 128
F. Employee or Independent Contractor? Know the Difference – Gary M. Harden ____ 129
G. Employment-at-Will Doctrine Has Limitations – Neil E. Klingshirn,
Gregory A. Gordillo ___________________________________________________ 132
H. Know the Law before Hiring or Relocating Employees for Work in Ontario,
Canada – Cindy-Ann L. Thomas, Jeffrey S. Moeller __________________________ 135
I. Employers Must Take Steps To Avoid Hiring Illegal Aliens –
Barton A. Bixenstine __________________________________________________ 137
J. U.S. Immigration Laws Allow Treaty Trader Visas – Jeffrey S. Moeller __________ 141
K. Protect Your Interests with Non-Competition Agreements; Do Non-Compete
Agreements Transfer? – Neil E. Klingshirn, L. Michael Bly ____________________ 143
L. Employers Can Prevent Doomsday Scenario with Restrictive Covenants –
Nicholas Birkenhauer __________________________________________________ 145
M. EEOC and Civil Rights Commission Address Workplace Discrimination –
Neil E. Klingshirn, Gregory A. Gordillo ___________________________________ 147
N. Employers Must Comply with the Americans with Disabilities Act (ADA) –
Disability Rights Ohio, William Puckett, Kevin Truitt_________________________ 149
O. Employer Guide to the Amended Americans with Disabilities Act –
Christine T. Cossler____________________________________________________ 154
P. Law Bans Employers from Using Genetic Information To Make Employment
Decisions – Patricia F. Weisberg _________________________________________ 157
Q. Know How To Handle Retaliation and Whistle-Blowing – Neil E. Klingshirn,
Gregory A. Gordillo ___________________________________________________ 159
R. The Need for Layoffs: Legal and Practical Considerations – Stacy V. Pollock _____ 161
S. How You Conduct a RIF Can Reduce Your Risk of Being Sued – Nick
Birkenhauer _________________________________________________________ 163
T. Consider Risks, Rewards of Employee Furloughs – Justin D. Flamm ____________ 164
U. It’s Just Not Working Out: How to Terminate that Problem Employee –
Stacy V. Pollock ______________________________________________________ 165
V. What You Should Know about Severance Payments – Neil E. Klingshirn,
Gregory A. Gordillo ___________________________________________________ 167

v
7. EMPLOYER RESPONSIBILITY____________________________________ 169
A. Business Owners Shoulder Responsibility for Employed Drivers – Lynn A.
Lazzaro _____________________________________________________________ 170
B. Know the Extent of Your Responsibility for Employees’ Injuries – Jack L.
Neuenschwander, Douglas J. Schockman __________________________________ 172
C. Spousal and Child Support Issues Affect Business Owners – Laura S. Zeldin,
Pamela J. MacAdams __________________________________________________ 174
D. Who Has Responsibility for Ice and Snow Injuries? – Lynn A. Lazzaro ___________ 176
E. Individual Supervisors May Be Liable for Violation of Discrimination Laws –
Linda C. Ashar _______________________________________________________ 178
F. Conflict of Interest Policies Are Crucial for Non-Profits – Jeffrey J. Fanger _______ 180
G. Understand Implications of Ohio’s CDL Disqualification Law – Jon J. Saia _______ 181
H. Anti-Harassment Policies Key To Limiting Employer Liability – Bradd N.
Siegel, Sara H. Jodka __________________________________________________ 182
I. Keep Your Employees—and Your Business—Healthy – Patricia F. Weisberg _____ 184
J. Helpful Hints for Office Holiday Parties – James B. Yates, Sarah E. Pawlicki ______ 186
K. Can I Say That? Legal Basics Every Advertiser Should Know – Jill P. Meyer _____ 188
L. Is Your Business Prepared to Handle a Data Security Breach? – Jane Hils Shea ____ 189
M. Protecting the Manufacturer: Limiting Obligations through Indemnity
Agreements – Jordan C. Butler ___________________________________________ 191

8. EMPLOYEE MANAGEMENT: RIGHTS AND BENEFITS _____________ 193
A. The New FMLA Rules: Employer Opportunities and Obligations –
Gary S. Batke, Margaret J. Lockhart ______________________________________ 194
B. Asserting Employers’ Right To Manage Employee Leave – D. Lewis Clark Jr,
Meghan E. Hill _______________________________________________________ 197
C. Privacy in the Workplace: Laws Govern E-Mail, Locker Searches,
Drug Testing, Etc. – Gregory A. Gordillo, Maribeth Deavers ___________________ 199
D. Laws Govern Surreptitious Telephone and Video Tape Recording –
Kenneth A. Zirm, John C. Greiner, Amanda Penick __________________________ 202
E. Protecting Against Sexual Harassment Lawsuits – Thomas H. Barnard ___________ 204
F. The “Seven Habits” of Harassment-Free Companies – Thomas H. Barnard ________ 206
G. Plan for Potential Strike When Negotiating in Collective Bargaining –
Marc A. Fishel _______________________________________________________ 207
H. Members of the Military Have Civilian Job Protections – Justin D. Flamm ________ 208
I. Accommodating Religion in the Workplace – Justin D. Flamm ________________ 209
J. Accountable Business Expense Reimbursement Plans – Jason A. Rothman _______ 210
K. Auditing Your Employee Benefits – Jack F. Fuchs ___________________________ 211

9. WORKERS’ COMPENSATION _____________________________________ 213
A. Workers’ Compensation: Basics of Coverage – Brian P. Perry _________________ 214
B. Workers’ Compensation: Basics of Litigation and Benefits – Brian P. Perry _______ 216
C. Workers’ Compensation: When Is an Injury or Disease is Compensable? –
Brian P. Perry ________________________________________________________ 218
D. Workers’ Compensation: Related Issues – Brian P. Perry _____________________ 220
E. Ohio Workers’ Compensation System Addresses Needs of Injured
Employees – Robert A. Minor ___________________________________________ 222
vi
F. Employers Should Understand Limits on the Use of Non-Lawyers in Workers’
Compensation Claims and Other Areas of Law – Cathryn R. Ensign _____________ 224
G. Workers’ Compensation Drug and Alcohol Testing Law – James D. Viets,
James M. Vonau ______________________________________________________ 226
H. Protecting the Business When an Employee Is Injured on the Job –
Stacy V. Pollock ______________________________________________________ 227
I. Can Wellness Programs Help Limit Workers’ Compensation Costs? –
Patricia F. Weisberg ___________________________________________________ 229

10. COMPLYING WITH STATE AND FEDERAL LAWS __________________ 231
A. United States Department of Labor and State of Ohio Resources ________________ 232
B. What You Should Know about Securities Laws – Gary M. Harden_______________ 234
C. Federal Trade Commission (FTC) Enforces “Consumer Protection” Laws –
Mark L. Silbersack, Tammy L. Imhoff _____________________________________ 237
D. Ohio Law Mandates “Fairness” in Construction Contracting – William F. Kolis Jr.__ 239
E What Employers Should Know about Ohio’s Minimum Wage –
Neil E. Klingshirn, Gregory A. Gordillo____________________________________ 241
F. Wage-and-Hour Update: When Must an Employee Be Paid for Travel Time? –
Gregory T. Lodge _____________________________________________________ 243
G. Businesses Should Use Caution When Using Unpaid Interns – Scott Lawson ______ 244
H. Avoiding Antitrust Problems; Price-Fixing Case Study – John J. Eklund,
Maura L. Hughes _____________________________________________________ 245
I. Taxpayers Can Choose Method for Estimating Commercial Activity Tax
Payments – Mark A. Engel _____________________________________________ 247
J. Complying with Ohio’s Smoking Ban – Justin D. Flamm _____________________ 248

11. ENVIRONMENTAL ISSUES _______________________________________ 249
A. Environmental Issues Affect Small Business and Real Estate Acquisitions –
Brian M. Babb, Douglas G. Haynam, Dale T. Vitale __________________________ 250
B. Learn about Two Important Acts for Environmental Issues – Thomas M. Skove,
Božana Lazić Lundberg_________________________________________________ 253
C. You May Need an Environmental Permit for Your Business – Brian M. Babb,
Douglas Haynam, Dale T. Vitale _________________________________________ 255
D. How To Manage Chemical or Petroleum Spills or Releases – Brian M. Babb,
Douglas G. Haynam, Dale T. Vitale _______________________________________ 257
E. Ohio Businesses Can Appeal Ohio EPA Decisions – Charles R. Dyas Jr.__________ 259
F. Mold: A Small Business Concern – Ronald B. Lee, Ryan P. Kennedy ___________ 260
G. Know Ohio’s Open Burning Regulations – Leah Curtis, Ohio Farm Bureau _______ 262
H. What Business Owners Should Know about Mold and Indoor Air Quality Issues –
Brent C. Taggart ______________________________________________________ 266
I. How Are Environmental Liabilities Handled by the Bankruptcy Code? –
David G. Cox ________________________________________________________ 267
J. EPA’s Lead Renovation, Repair and Painting Rules Impact Home Repairs –
Joseph Reidy _ _______________________________________________________ 269
K. Ohio’s Regulation of Demolition or Renovation of Buildings Containing Asbestos –
Joseph Reidy, Nicole Woods ____________________________________________ 270

vii
12. ONLINE LAW ____________________________________________________ 271
A. The Rules of Doing Business Online – Robert L. Ellis ________________________ 272
B. Be Careful When Using Internet Services – Jeffrey J. Fanger ___________________ 274
C. Electronic Signatures: Can Your Computer Sign a Contract without Your
Knowledge? – Robert L. Ellis ___________________________________________ 276
D. The Federal CAN-SPAM Act and the TCPA: Rules for Marketing by Email and
Text Messaging – A. Brian Dengler _______________________________________ 278

E. An FTC Violation in One Hundred Forty Characters (or Less) – Alan J. Hartman __ 280
F. Screening Job Applicants’ Social Media Sites? Be Aware of Pitfalls –
John W. McKenzie ____________________________________________________ 282
G. National Labor Relations Board Addresses Employee Social Media Activity –
Kelly Schoening, Katie Cassidy __________________________________________ 283
H. As Mobile Apps Grow, So Do Potential Problems – Alan S. Wernick ____________ 285
I. Death and the Digital Age – Alan S. Wernick _______________________________ 287

13. HANDLING LEGAL MATTERS ____________________________________ 289
A. When a Handshake Isn’t Enough – Neil W. Gurney __________________________ 290
B. When the Emperor Has No Clothes – Beatrice E. Wolper ______________________ 291
C. Mediation Can Resolve Business Disputes – Harold D. Paddock,
Marcie Patzak-Vendetti ________________________________________________ 292
D. Uniform Mediation Act Affects Business Dispute Resolution – Harold D. Paddock,
Marcie Patzak-Vendetti ________________________________________________ 294
E. Can Foreclosure Mediation Help Me? – Harold D. Paddock,
Marcie Patzak-Vendetti ________________________________________________ 296
F. Three Keys to Dealing with Litigation – Jeffrey J. Fanger _____________________ 299
G. Divorce Victim: Family Business? – Charles R. Schaefer _____________________ 301
H. Attorney Fees: What You Should Know – Ohio State Bar Association ___________ 302
I. How To Get the Most from an Attorney-Client Relationship –

Janet L. Green Marbley_________________________________________________ 304
J. Payback Time: Supreme Court of Ohio Agency Reimburses Clients of
Dishonest Lawyers – Janet L. Green Marbley ______________________________ 306
K. Lawyers Keep Clients’ Confidences – Lance Tibbles _________________________ 307
L. Paralegals Aid Attorneys and Clients – Laura C. Barnard ______________________ 311
M. Top Five Legal Mistakes Small Businesses Make – Alan J. Hartman ____________ 313

14. EXIT STRATEGIES _______________________________________________ 314
A. Exit Strategies for Small Business Owners – D. David Carroll, Harlan S. Louis,
Adam J. Biehl _______________________________________________________ 315
B. Planning To Sell Your Business? – Thomas C. Washbush _____________________ 317
C. Life Insurance Figures in Business Succession Planning – Paul S. Klug __________ 318
D. Make Your Succession Plan a Plan To Succeed – Paul S. Klug _________________ 320
E. Business Succession: The No-Tax Solution – Timothy C. Jochim, Peter E. Jones __ 321
F. Business Bankruptcy: What, When and How – Anthony J. DeGirolamo __________ 323

INDEX _____________________________________________________________ 326

viii