Small Business Requirements for Obamacare on October 1, 2013

The health insurance marketplaces created by the Affordable Care Act (commonly known as Obamacare) will open on October 1, 2013.  Most small-business employers—those with 50 or fewer full-time employees—are not required to offer health insurance coverage under the Affordable Care Act.  Additionally, businesses with more than 50 full-time employees have gotten a reprieve from penalties if they don’t offer insurance for at least one-year. However, all companies, regardless of size, are required to notify their employees about the Obamacare health insurance marketplace.  The state and federal insurance exchanges are websites on which individuals and small businesses can shop for health plans.

Bottom line, at this time, as an employer, all you have to do is provide all of your employees with notice of the marketplace.  Although it’s not clear how the requirement will be enforced, as a recent Department of Labor notice suggests that employers will not be fined for not providing the notice (see a reference to the notice here).

The U.S. Department of Labor has posted information about the notification requirement on its website and has provided model notices that can be used both by employers who offer insurance (PDF) and by those who do not offer insurance (PDF).  Potentially, employers can draft a basic letter to employees and include the relevant notices provided by the Department of Labor.

The one- to three-page model notices can be downloaded, filled out, and printed, either for distribution in the office or for mailing to employees’ homes.  Employees who come on board after October 1, 2013, must get the notice within 14 days of their start date with the company. Although there is no requirement to prove that employees received notice, it may be a good idea to have the employees sign […]

Successor Liability Issues When Acquiring a New Business

An important due diligence practice point for individuals and companies purchasing businesses in Texas, including assets, goodwill, or actual interest in the company is successor liability for state sales taxes.  Almost all states have successor liability statutes that impose certain pre-closing state tax liabilities on the buyer of a business.  The Texas version of this concept is found in Section 111.020 of the Texas Tax Code and reads as follows:

(a) If a person who is liable for the payment of an amount under this title sells the business or the stock of goods of the business or quits the business, the successor to the seller or the seller’s assignee shall withhold an amount of the purchase price sufficient to pay the amount due until the seller provides a receipt from the comptroller showing that the amount has been paid or a certificate stating that no amount is due.

(b) The purchaser of a business or stock of goods who fails to withhold an amount of the purchase price as required by this section is liable for the amount required to be withheld to the extent of the value of the purchase price. . . .

The impact of Section 111.020 is that if a buyer acquires a “business” it can become liable to the State of Texas for up to the full amount it pays for the business (i.e., for a total outlay of double the purchase price, once to the seller and once to the State). The assumption of debt is counted in the total price paid as well as the fair market value of any assets paid in-kind.

The determination of what constitutes a “business” is very fact specific, but the Comptroller’s Rule 3.7 (d) […]

Overview of Enforceability of Non Compete Agreements in Texas

Businesses of all sizes are looking increasingly to non-competition agreements as a means to retaining key employees, protecting confidential information and preserving valuable customer accounts. The concept is simple:  an employee agrees that, for a specified period of time after leaving the employer, he or she will not compete with or work for a competitor of the employer.

A typical agreement might prohibit John Smith from competing directly or indirectly with his employer, ABC Corp., or working for a competitor of ABC Corp., within Texas, for a 24-month period following the termination of Mr. Smith’s employment with ABC Corp.

Why Have an Agreement?

At first glance, such agreements may seem to make a lot of sense. The sudden loss of a key salesperson, for example, often creates a triple whammy.  First, a seasoned member of the sales team is gone, along with her in-depth knowledge of your business, your products, your pricing practices and your customers.  Second, the good will and positive customer relationships that the employee has developed over time are now gone.  Third, if the salesperson has been recruited by a competitor, a significant risk exists that she will be converting your accounts to your competitor’s while you spend considerable time recruiting and breaking in a replacement.  Losing an experienced member of management or R&D to a competitor can be equally devastating.

The existence of a solid non-competition agreement can often serve to deter employees from seriously exploring a jump to a competitor. An employee who thinks that a court may keep him from successfully landing with a new employer, may not risk the leap.  After all, most employees will want to avoid costly litigation against their former employer.  At the same time, the presence of […]

General Discussion of Entity Formation Options

Limit Your Liability

Without a legal entity, you are operating as a proprietorship, the oldest form of business. A proprietorship can only have one owner, although husband and wife are considered one for this purpose.

If you upset someone, fail to allegedly pay a creditor or vendor, they can come after you personally—which is not a good thing. Although, there are circumstances where creditors can pierce the corporate veil, but this usually requires proof the entity is undercapitalized, underinsured, or otherwise not a commercially reasonable separate entity. With or without an entity, consider buying insurance, including general liability, products liability, employee fidelity, workers’ compensation, unemployment insurance, etc.—it’s all very, very difficult if not impossible.

In other words, to conduct business prudently and responsibly, you need a legal entity.

Partnership Formalities

A partnership can be formed with a handshake, but write it down, as oral agreements often foment serious disputes. With a general partnership each partner has personal liability. A limited partnership has one or more general partners, and one or more limited partners. Limited partners might lose their investment, but their other assets are not at risk. You can even get around the general partner’s unlimited liability by having a corporation (or another entity like an limited liability company) serve as the general partner. To get the benefits of limited partnership treatment, you must file a certificate and pay relevant state fees. Furthermore, if limited partners make day-to-day business decisions, they can wind up with general partner liability. So you may want to consider an a limited liability company (see more below for limited liability companies).

LLCs Are Very Flexible

By far, the most flexible business entity is a limited liability company, commonly referred to as an LLC. Adapted originally from […]