Category: Business Law

  • The Corporate Transparency Act: What Small Businesses Need to Know

    Image from FinCen Facebook Page.

    If you have a business in the U.S. with less than 20 full-time employees, add the term “Corporate Transparency Act” (CTA) to your vocabulary. This new law requires small businesses in the U.S. to submit a report about the company and its Beneficial Owners (BO) to the Financial Crimes Enforcement Network (FinCEN). 

    This federal law was likely created to prevent people committing crimes through shell companies and identify those who are doing this.

    I’ve filed the Beneficial Ownership Information Report (BOIR) for my two companies and filed BOIRs for a few others. It’s not hard, but the penalties for not doing it or not keeping your BOIR up-to-date are steep.

    Which Companies Need to File a BOIR?

    If you had to file documents with your state in order to create your business entity, such as with the Secretary of State or the Corporation Commission, you need to file a BOIR with FinCEN.

    In Arizona, this means corporations, LLCs, LPs, PCs, PLLCs, and LLLPs. Sole proprietorships and general partnerships don’t need to file anything to be formed in Arizona, so they are not required to file a BOIR. However, running a business as a sole proprietorship or general partnership is a problem waiting to happen, so don’t do it.

    Aren’t Some Companies Exempt?

    Yes.

    Some industries are already regulated by the federal government, like banks and insurance companies, so they don’t have to file a BOIR. FinCEN provides a list of the types of companies that are exempt from filing a BOIR.

    The binary code spells “fincen.”

    What About 501(c)(3) Entities?

    You are exempt if the company has its approval letter from the IRS. If you’re waiting on IRS approval, you’ll need to file a BOIR if you don’t receive it by the end of the year. Once the company’s 501(c)(3) status is approved, you can re-submit the BOIR to FinCEN and indicate that the company is not exempt.

    Who Counts as a Full-Time Employee?

    A full-time employee is someone who works an average of 30 hours per week.

    That means a person might not be full-time according to your company’s policies, but they are for the purposes of the CTA.

    What Information Does FinCEN Need About the Company?

    The company needs to provide the following information on its BOIR:

    • Its legal name,
    • All d/b/as (doing business as),
    • Its employer identification number (EIN) or tax identification number (TIN),
    • The state where the company was initially formed, and
    • The primary address from which it operates in the U.S.

    The company’s primary address must be a street address, not a mailbox. So, if your company’s official address is a box at a UPS Store or at virtual office, but you actually work from your home office, the company’s primary address is your home address.

    If you’re the only owner of your company and you’re using your Social Security number (SSN) as the company’s EIN, use your SSN as the company’s EIN or TIN for its BOIR.

    Who Can Be a BO?

    Only humans can be BOs.

    A BO is someone who owns at least 25% of the company OR has substantial control over the company.

    A person who has substantial control over the company could include, but is not limited to, the company’s senior officers (e.g., anyone whose title starts with “Chief”), board of directors, and the company’s internal general counsel.

    Ooohhh … this just got a lot more complicated.

    If no one in the company owns at least 25% of the business, but there are company decisions that require unanimous approval by all the owners, then every owner is a BO.

    FInCEN has useful information that could help you determine who is a BO of your company and you can also consult your lawyer to assist you with determining who are the company’s BOs.

    There’s no penalty for claiming someone as a BO who turns out not to be one, but penalties can apply if you don’t include someone who is a BO on your BOIR. When in doubt, include the person on your BOIR.

    What If the Company’s Owners are Other Business Entities?

    Work backwards until you identify the humans who have at least 25% ownership interest in the business or who have substantial control over the company.

    What If the Company is Owned by a Trust?

    If the owner is a living revocable trust, list the trustees as the BOs in addition to the people who have substantial control over the business. If the owner is an irrevocable trust, you only need to list the people who have substantial control over the company as the BOs. 

    What If the Company has a Subsidiary Company?

    If both companies meet the requirements set in the CTA, then each entity needs to file a separate BOIR. A person can be a BO for multiple companies.

    (Image by Vantes duke, Creative Commons)

    What Information Does FinCEN Need About Each BO?

    Here’s what you need to provide for each BO:

    • Their legal name,
    • Date of birth,
    • Residential address, and
    • A copy of their unexpired driver’s license, passport, or state-issued ID.

    How is this not an invasion of privacy?

    Don’t worry, this is information the federal government already has about you. BOIR information is not kept on a publicly accessible database.

    Pro Tip: Check the expiration date on your license and passport and use the one that expires the latest.

    How Much Is the Filing Fee to Submit a BOIR?

    $0

    Do You Need a Lawyer to File a BOIR?

    No. You can absolutely file it yourself. Here’s the video I used when I filed the BOIR for my first company, to make sure I was doing everything correctly:

    Here’s the Video I USed to make sure I Filed my first BOIR correctly.

    If You Live in a Community Property State, Is Your Spouse also a BO?

    This is a good question to take to your lawyer. If the company’s primary address is in one of the 9 community property states (including Arizona), if you are a BO because you own at least 25% of the company, and you’re legally married, you should name your spouse as a BO as well.

    This assumes you don’t have a prenup or post-nup that excludes your ownership interest in the company from the marital estate.

    Geez, this is starting to sound like a question on a bar exam.

    What’s the Deadline for Filing Your Company’s BOIR?

    If your company was created before January 1, 2024, you have to file it by January 1, 2025. If your company was created in 2024, you have 90 days after the date your articles were approved to file your BOIR.

    At a recent training about CTA, the instructor reported that only 3 million of the expected 33 million companies that need to comply with CTA had filed their BOIR. She expects the FinCEN website will crash during the week between Christmas and New Year’s when everyone who waited until the last minute it trying to submit their BOIRs.

    Unless there’s a BO in your company whose information will change before the end of the year, it’s better to file your BOIR sooner than later.

    What Are the Penalties If You Don’t Comply with CTA?

    The civil penalty is $591/day, and there’s no upper limit for this fine.

    The criminal penalty is a fine of up to $10,000 and up to 2 years in prison.

    These penalties will apply to the BOs personally, not to the company.  

    Oooohhh … that could be bad.

    When Do You Need to File an Updated BOIR?

    Once you’ve filed your BOIR, if the company’s or a BO’s information changes, you have to file an updated BOIR within 30 days. This means if the company moves, gets a new BO or a BO leaves, a BO moves to a new residence, or the driver’s license or passport a BO used for the BOI is expired or renewed, you have 30 days to update FinCEN.

    Oh sh*t!

    And that’s 30 calendar days, not business days. If your due date falls on a weekend or holiday, that’s the latest your can file the updated BOIR without risk of penalty.

    Pro Tip: Amend your company’s operating agreement and/or bylaws to include that all BOs must update the company when their residence changes and provide a copy of their driver’s license or passport when it’s renewed. Ditto for the employment contracts for anyone whose role gives them substantial control over the company.

    Does the Company Need to Update the Information that Changed or File a New BOIR?

    You have to submit a new BOIR with all the pertinent information about the company and all its BOs. The only difference is you’ll be checking a box indicating that it’s an updated report instead of the initial filing.

    Unsolicited Advice: Figure out a system for checking in with your BOs on a monthly basis to see if any information has changed, so you can file the updated BOIR with FinCEN in a timely manner if needed.

    For my clients for whom I’ve submitted their BOIR, I created a spreadsheet with the company’s and each BOs information. When I reported to the client that the BOIR was filed, I informed them of which BO’s ID was going to expire first and provided the corresponding month and year. 

    Who is the Company Applicant?

    The company applicant is the person who files the BOIR for the company, meaning the human being who put fingers to keyboard to submit the report.

    image created by dall-e

    What If You Have a Company That’s No Longer in Business?

    If you have an established business entity, but the company’s gone out of business, the best thing you can do, from a CTA perspective, is to shut the entity down. File the appropriate articles of dissolution or termination with the Secretary of State or Corporation Commission that oversees such things in the state where the entity exists.

    FinCEN amended its rules and added that “inactive” entities are exempt from filing a BOIR, but your company has to meet all 6 of the following requirements:

    1. The entity must have existed prior to January 1, 2022.
    2. The entity is not currently engaged in business.
    3. The entity has no foreign owners.
    4. The entity has had no change in ownership in the last 12 months.
    5. The entity has not received funds in excess of $1,000 in the last 12 months.
    6. The entity does not hold any assets. (I suspect this includes intellectual property.)

    I’m telling all my clients if they have any entities that they’re not using anymore, they should shut them down. An entity that does not exist anymore does not need to file a BOIR.

    What If the Company’s Information Doesn’t Match What’s Filed with the State?

    The company information you file with FinCEN should match what’s on file with your state’s Secretary of State’s Office or Corporation Commission, wherever businesses are filed.

    In Arizona, LLCs are somewhat set-it-and-forget-it entities. Unlike corporations, LLCs don’t have to file an annual report, so it’s not uncommon for LLCs to have outdated information on file with the Arizona Corporation Commission (ACC).

    Before you file your company’s BOIR, check the information in your state’s records. If  anything isn’t accurate, file an Articles of Amendment (or its equivalent) so the information on file with your state and FinCEN will match.

    There is one exception to this recommendation: If your state allows it, it’s ok to use a box at the UPS Store or a virtual office as the company’s address and the owners’ addresses for your state-level filing. You only need to report the address from which the company conducts its business and the BOs residential addresses on your BOIR.

    In Arizona, company filings with the ACC are public. This is why many companies use a mailbox or virtual office for the address for the company and its owners, officers, and directors. Conversely, BOIR information is not public.

    Final Thoughts

    Complying with the Corporate Transparency Act is not hard to do, but it’s part of having a small business in the U.S. The main challenge I’ve run into so far is getting copies of all the BOs’ driver’s licenses or passports. Given that many people take off the last week of the year, this is another reason to file your company’s BOIR sooner than later.

    If you need help determining who are the BOs for your company or if you want to outsource your BOIR filing, please contact a lawyer who is knowledgeable about this subject to assist you. (Many lawyers do not know about this new law or are not doing these filings for clients.)

  • New Process to Move a California Corporation to Arizona

    Thanks to an update in California law, the process to move a corporation from California to Arizona is finally straightforward.

    Photo by Erik Wilde (Creative Commons)

    The Old Way to Move a Corporation from CA to AZ

    The old way to move a corporation from California to Arizona was a bureaucratic nightmare:

    1. File the Articles of Incorporation to form an Arizona corporation.
    2. File the Statement of Merger in Arizona.
    3. Send away for a certified copy of the approved Statement of Merger.
    4. Send the certified copy of the Statement of Merger to California with a letter that complies with California state law requirements, including a second page that merely stated the California corporation’s entity number. Even if you included the entity number in the letter, you still had to have it on a second page.

    This entire process took months, especially since most of it had to be done over snail mail! And if you made one minor mistake, the government would send it back and make you do it again.

    Photo by Rennett Stowe (Creative Commons)

    The New Way to Move a Corporation from CA to AZ

    The newly approved way to move a corporation out of California now mirrors the way every other state I’ve worked with lets you do it – with a conversion. Here’s how the new process works:

    1. File the Statement of Domestication in Arizona along with the Articles of Incorporation.
    2. File the Statement of Conversion in California.

    This is also the process for moving an limited liability company (LLC) from California to Arizona. You can also change your California corporation into an LLC while you’re moving it to Arizona.

    I think California realized that companies are going to move regardless of the process and putting red tape in the way is only going to waste government resources. There were times I called the California Secretary of State’s Office with a question, and hear that there were 46 callers ahead of me!

    Photo by Phil Whitehouse (Creative Commons)

    Is the New Process Cheaper?

    Yes.

    The total filing fees for the old process and the new one are about the same about $380 to convert a California corporation to an Arizona corporation with expedited processing.

    Where people are going to save money is on the attorneys’ time. Two steps is faster than four, and requiring the same process for all moves means there will be fewer mistakes (or alleged mistakes), and fewer re-dos.

    Can You File a Conversion by Yourself?

    Yes. You don’t need a lawyer to do it. The forms are available online, and you can do your California filings online.

    Currently, the Arizona Corporation Commission does not have the option to submit a Statement of Domestication online, and it has to be submitted with the Articles of Incorporation, so you have to do that one via snail mail or by going down to their location.

    The process to allow your lawyer to file documents on your company’s behalf through the California Secretary of State’s Office is asinine, so it’s faster for me to send it in via snail mail. You, however, can easily file documents for your company through their website.

    Photo by Alan Levine (Creative Commons)

    What If You Have an S-Corp?

    Let me pre-emptively address this issue because there’s a lot of confusion about it.

    An S-corp has do with how your company is taxed at the federal level. (The IRS really should have picked a designation that didn’t include the term “corp.”) It has no impact on whether your company is formed as a corporation or an LLC through your state.

    I tell all my clients to talk with their accountant about what type of entity they should form at the state level. Creating a corporation or an LLC in Arizona is easy; it’s just paperwork and money.

    Unlike California, it can be easier and more cost-effective to have an LLC in Arizona. If you have an Arizona corporation at the state level, you’re required to submit an annual report an pay an annual fee. It’s much less than the $700/year California charges, but it’s still a fee. And if you forget to submit your annual report, the AZ Corporation Commission can administratively dissolve the company.

    Conversely, Arizona LLCs don’t have any annual fees or reporting requirements. You only need to file an Articles of Amendment if there’s a change in the company’s ownership, name, location, or statutory agent. If you want a business entity that is more set-it-and-forget-it, and LLC may be the better choice for you.

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  • You Don’t Want A One-Page Operating Agreement

    At Content Marketing World last year, a fellow speaker asked, “Can you help me set up a new LLC?”

    “Sure. That’s easy.”

    “And can you write me a one-page partnership agreement?”

    <record scratch>

    (Speechless)

    Image created using dall-e

    Why a One-Page Operating Agreement is a Bad Idea

    If a client sent me a one-page contract to review, that would set off massive red flags. My first thought wouldn’t be “Let’s see what it says,” but rather, “Let’s see how many gaps are in it.”

    Because here’s the thing, unless your contract is written in tiny font that requires a magnifying glass to read a la Willy Wonka and the Chocolate Factory, the chances that your contract covering the scope of your needs is slim and none.

    “Good Day Sir!”

    Is that contract even valid since it was signed by an 11 year-old?

    Probably not, but that’s a different issue.

    Your operating agreement is the master document for your business. Its job is to put everyone one the same page about how you’re going to run the business, each owner’s rights and responsibilities, and how you’re going to resolve problems when they occur.

    And don’t forget the standard legal boilerplate verbiage that goes in almost every contract.

    When a client engages me to write their operating agreement, I start by sending them 31 questions that I recommend their operating agreement answer.

    What It Really Means When You Ask for a One-Page Agreement

    When a prospective client says they need a one-page agreement, I assume they want something that’s simple and cost-effective. They might be looking for whatever is one step above searching the internet for a free template. They don’t need something that’s complicated or expensive.

    Keeping this in mind, my brain grappled with the possibility to creating a one-page operating agreement:

    What if we kept it bare bones super simple?

    I could write a simple operating agreement that requires a unanimous vote for all decisions, but no one runs a business that way. Plus, there should be a mechanism to “vote someone off the island” if they’re not doing their job, or worse, hurting the business. That wouldn’t be possible if a unanimous vote was required.

    Could we make it a one-page agreement?

    Without committing malpractice? I doubt it.

    What if we made it almost like a template, where we provide the framework, but then they’d fill in the blanks? It might be more than one page, but it would be more cost-effective.

    Maybe to create, but we’d be doing them a disservice in the long run. What if they didn’t understand what information was needed to write an effective contract? You’ve seen the number of people who ask for help or suggestions when answering the usual 31 questions. If there ever was a dispute, they could end up spending more money on legal fees fixing a problem that we could have helped the avoid if we’d written them an effective operating agreement in the first place.

    What’s the minimum that an operating agreement needs to cover?

    Who are the owners of the LLC, the purpose of the business, each owner’s responsibilities, what decisions requires a unanimous vs majority vote, how deadlocked votes will be resolved, what happens if someone wants to leave the company or dies, what happens if the other owner(s) want to kick someone out of the company, how contract disputes will be resolved, plus the standard boilerplate terms that go into every contract.

    We can’t fit all that on one page.

    No, we can’t.

    If we can’t create a one-page operating agreement, what’s the most cost-effective way to write an operating agreement?

    Hmm…it might be to have them tell us everything they’ve already agreed on about how they want to run their business, and then draft the operating agreement, addressing the issues they haven’t mentioned based on what we think is in the company’s best interests, and let them suggest edits from there.

    Photo by tom hilton (creative commons)

    Your Operating Agreement is an Investment

    Your operating agreement is the master document for how you and your co-owner(s) are going to run your business. Too many people are so excited to start the business that they jump into running the business before they have their foundational pieces in place, and it bites them in the butt when things go sideways.

    Taking the time to create an effective operating agreement can be a litmus test to see how you are your co-owners handle difficult conversations. If you can’t come to a consensus on how to run your business, you shouldn’t be in business together.

    The best time to create your operating agreement is at the beginning of the business relationship, when everyone is optimistic and thinking about what’s best for the business. If you wait until there’s a problem to draft this, you and your co-owner(s) may be more interested in protecting your selfish interests or let your anger influence the agreement’s terms.

    Even though I make more money fixing problems, I prefer to help my clients prevent problems, or at least make them easier to navigate. A business divorce can be as stressful and expensive as a romantic divorce.

    This is not how you write an effective contract. Image courtesy of The Daily English Show.

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  • Cost to Move a Business from California to Arizona

    Arizona Welcomes You” by AlmightyWorm, public domain

    Frequently, I receive emails from people who need help moving their business from California to Arizona. They typically find me after reading my post about how challenging it is to move a company from California to Arizona, particularly a corporation. One of the most common questions they have is, “What will this cost?”

    Cost to Move a Corporation from CA to AZ

    Moving a corporation from California to Arizona is complicated because it requires forming a new business entity in Arizona and then merging with the California entity where the Arizona entity is the surviving business. This requires extra steps and extra fees. Here is the process if the surviving entity is an Arizona corporation, with all filing expedited.

    • File the Articles of Incorporation with the Arizona Corporation Commission (ACC): $95
    • File the ACC Statement of Merger: $135
    • Once the Statement of Merger is approved, request and obtain a certified copy of Statement of Merger: $42
    • Send the notice of the merger to the California Secretary of State: $100

    Total filing fees: $372

    In addition to these filing fees, you are required to publish notice of your Articles of Incorporation and Statement of Merger in a local newspaper if your Arizona business is located outside of Maricopa or Pima County: Each approved newspaper sets its own prices, which I’ve seen range from less than $40 to over $400. In my experience, the fewer approved newspapers in the county, the higher the publication fee.

    All of this does not include attorneys’ fees. I tell my prospective clients to expect this total process to take 3-4 hours of my time. (My current rate is $275/hour, so up to $1,100.)

    UPDATE (1/10/2023): The process to move a corporation from CA to AZ recently changed! It’s now easier, faster, and more cost-effective.

    Cost to Move an LLC from CA to AZ

    Moving a limited liability company from California to Arizona is much less complicated than moving a corporation. Thankfully, this does not require a merger.

    • File the Statement of Conversion with the ACC: $85
    • Along with the Statement of Conversion, file the Articles of Organization: $85
    • Once these filings are approved, file a Statement of Conversion with the California Secretary of State: $30

    Total filing fees: $200

    The form for each Statement of Conversion is provided by their respective states. Like a corporation, if your Arizona LLC is not located in Maricopa or Pima County, you must publish a notice of your Arizona LLC in an approved newspaper. As stated above, each publication sets its own prices and they can vary greatly, so it’s often worthwhile to call all the approved newspapers in your county, unless you have your heart set on publishing in a particular one.

    Of course, there is also the fee for your attorney’s time. I tell my prospective clients to expect this process to take 2-3 hours of my time (so at my current rate is $275/hour, it would be up to $825.)

    Moving an Entity from California to Arizona Without an Attorney

    You are not required to use an attorney to move your business entity from California to Arizona. You can submit these filings yourself. However, I strongly recommend that you consult with an attorney along the way. I’m working with a client right now who is doing their own merger. Each step of the way, he checks in with me via email, and I helped him write the notice of the merger to the California Secretary of State.

    I have another client who came to me after trying to move their entity themselves and it backfired. He tried to move his California corporation to Arizona using a Statement of Conversion. The ACC approved it, but the California Secretary of State won’t accept a Statement of Conversion as a way to move the entity out of the state. He essentially wasted his money and time filing the Statement of Conversion in Arizona, because I still have to file the Statement of Merger and the subsequent notice to California to achieve his goal of moving the entity out California. It probably cost him more trying to do it himself, because I also called the Secretary of State’s Office to see if I could untangle this mess and merely send a notice of the conversion – which they said is not permitted.

    I frequently say it’s easier and cheaper to avoid problems than to fix them. If you’re preparing to move your business to Arizona, please contact me if you need help – whether you want me to do everything for you or be available to help you do it yourself.

    If you want to regularly receive information about how you can run your business more effectively and keep up to date on other legal issues related to business, intellectual property, and internet law, please add yourself to my email list.

  • Funny but Binding Contract Terms for Late Payments

    Pizza” by stu_spivack (Creative Commons License)

    One of the biggest challenges facing small businesses seems to be getting clients to pay their bills. Dealing with non-paying clients or delinquent clients is one the most common complaints I hear about from other entrepreneurs. Your first line of defense against these people is in your contract.

    Create an Upside When Clients Don’t Pay – in Your Contract

    You can put anything you want in a contract, as long as it’s legal. (This is why you can’t have a legally binding contract to buy/sell heroin or a human kidney.) Most contracts include a provision about a late fee, so if your client is late in paying you, you can make them pay more, up to the maximum interest rate allowed by law.

    If you are a professional creative, such as a website developer, graphic designer, or photographer, you can put in your contract that you won’t give the client the final deliverables until they’ve paid the balance on their account. This is an effective way to hold your clients’ financial feet to the fire.  

    Don’t Publicly Shame Your Clients

    No matter what you put in your contracts, don’t shame your clients for being late in paying their bill. Don’t put in a provision that says if they’re late, you can put up a sign or billboard, or hire a skywriter to tell the world that the client didn’t pay their bill. That doesn’t help anything. That could easily backfire because it makes you look like a jerk.

    I had some ideas that aren’t publicly shaming, but still could make you look worse than your non-paying client if it became public information, like including a provision that says, if you’re more than 90 days late, every time we send you a reminder, the subject line will be, “Hey Asshole! Pay your bill!” As validating as that might be in the moment, it probably wouldn’t be an effective strategy for getting referrals, or even getting them to pay.

    Free Ideas for Revising Your Contracts

    Recently, I wondered what else a company could put in their contract that would encourage clients to pay their bill and have an upside for the company. For the purpose of these suggestions, “you” and “your” refer to the client and “we,” “us,” and “our” refer to the company.

    • If you’re more than 30 days late paying your invoice, you agree that you will pay for an office pizza party for us every Friday, and we will add the amount to your unpaid invoice as well as send you a photo of us eating pizza.
    • If you’re more than 6 months late paying your bill, we will send a hug-a-gram to your office reminding you to pay us. (It’s like a singing telegram, but instead of singing, they hug you.) We will add the amount of their fee to your unpaid invoice along with a substantial tip.
    • For a web designer: If you are 30 days late paying your final invoice, not only will we not launch your new website, you consent that we can commandeer your current site to promote the charity of our choice.

    Final Thoughts

    Having non-traditional contract terms is not a new idea. Lots of people have had seemingly crazy provisions in their contracts. I want to do more blog posts this year with sample verbiage for contracts that I would love to write, that would be legally binding, and not your traditional legalese.  

    I want to humanize contracts. I love writing contracts in everyday language. Your contract should be written in a way that you and your clients can easily understand it. If you want to hear more about what I’m doing in my business and practical legal tips to run yours more effective, please add yourself newsletter.

  • Force Majeure is a Contract Must-Have

    “Disaster” by jiwasz from Flickr (Creative Commons License)

    Recently, a member of one of the mastermind groups I’m in asked if he should modify the force majeure provision of this contract template in case he encountered a situation where he was unable to perform as promised due to restrictions related to COVID-19. 

    Force Majeure = Worst-Case Scenario Clause

    Force majeure comes from Latin meaning “superior force” and applies to unforeseeable circumstances that prevent someone from fulfilling a contract. A force majeure provision will state that One or both sides of a contract are not liable if they’re unable to perform their obligations due to circumstances that are outside of their control.

    A force majeure clause might say something like:

    Consultant shall not be liable for failure or delay in performance of Services if such failure or delay is a result of causes and/or circumstances beyond the Consultant’s reasonable control and without its fault or negligence.

    Including, But Not Limited To . . .

    Many times, this provision includes a list of things that qualify as force majeure situations. This list may include, but is not limited to:

    • Accident
    • Illness
    • Riot
    • Strike
    • Natural disasters
    • Terrorist attacks
    • Failure in transportation
    • Acts by deities (I prefer this over “Acts of God” because it’s more inclusive)
    • Fire
    • Flood
    • War
    • Zombie apocalypse

    Remember: You can put in anything you want in a contract as long as it’s legal.

    It’s important to include the phrase like, “Including, but not limited to,” so you don’t inadvertently limit want counts as a situation when the force majeure clause would apply.

    Written Broadly on Purpose

    This provision is purposely written broadly to cover any situation outside the person’s control that would impact their ability to perform their obligations under the contract. Going back to the question from my mastermind group, he’s a professional speaker and his provision had the “including, but not limited to” list that included “illness” and he asked the group if he should also include “public health emergencies.”

    The word “illness” is broad. It could apply to situations where:

    • You get sick.
    • A family member gets sick.
    • There’s an epidemic in the country where you’re supposed to be going, and officials have closed the border.
    • There’s an epidemic and even though you can get to the location, if you do, you’ll be forced into a quarantine for 14 days afterwards, which will force you to miss your next speaking engagement or otherwise take care of your family.

    Mitigate Damage

    When a person is required to rely on the force majeure provision of their contract because they were unable to deliver as promised, both sides are required to mitigate their damages. For example, a photographer might have to cancel an outdoor photo shoot due to rain. The way to mitigate that damage is to reschedule for another day.

    I’ve seen a professional speaker get into a situation where something interfered with his ability to travel to an event. The speaker and the event mitigated their problem by having him present remotely instead.

    Always Have a Lawyer Create Your Contracts

    Most, if not all, of the contract templates I create for people to use in their business includes a force majeure provision.

    To date, I have never seen a contract template that was downloaded from the internet that was good to use as written. When it comes to the contract templates that impact your life and/or livelihood, it is worth the investment to hire a lawyer to draft or at least review the contract before you use it with a client. You don’t want to find out the hard way that there are gaps in its terms.

  • How to Use the Attorney General to Go After Bad Clients

    “Stairs to Subway” by Giuseppe Milo from Flickr (Creative Commons License)

    One of the frustrations I hear about from entrepreneurs is getting stiffed – either they paid a company to do a job and they didn’t perform, or they did a project or task for a client and they didn’t pay. In many of these situations, the amount in question is low enough that it’s not worth it to hire a lawyer or even put in the time and effort to take the other side to small claims court.

    Even if a client hires us to send a demand letter, there’s always the risk that the other side won’t comply, and then they’ll be in the same position as before, but now they have our bill to pay too.

    If the client in question is a business, there may be options to go after them through the government at no cost to you.

    Attorney General Consumer Complaints

    Check the Attorney General’s (AG’s) Office website for the state where your non-performing client lives (not where you live if you live in a different state). For every state that I’ve checked for a client to date, the AG’s Office has had a division or at least a page on their website for consumer complaints. Typically, it’s a form where you provide your contact information, a summary of the situation, and the remedy you want.

    If the AG’s Office thinks your complaint has merit, they’ll investigate the situation, including them sending a copy of your complaint to the company and with a firm deadline for providing a response. Even if your client didn’t respond to a demand letter from you or your lawyer, they will likely be more inclined to respond to the AG’s Office.

    In my experience, companies are motivated to resolve these matters quickly and avoid the risk of having fraud charges filed against them. This may result in the client paying you, performing as they were supposed to, or giving you your money back.

    Pros and Cons of Going Through the AG’s Office

    Pro: It’s free to file a complaint. You don’t need a lawyer to do it; however, it may be prudent to have a lawyer help you fill out the form to make sure you’re presenting the most compelling argument in light of the applicable laws. Your lawyer may know the key phrases to use to convince the AG’s Office to take your complaint more seriously than if you’d written it by yourself.

    Con: You have less control over the situation. If the AG’s Office pursues the matter and files a complaint in court against your client, you will not be the plaintiff. The state will be the plaintiff. You will be less involved in the negotiations and settlement (assuming there is one).

    Pro: It’s less work for you. If you were pursuing this matter directly against your client, such as filing a lawsuit, there could be meetings and calls with you lawyers, documents to review, and other work where you would need to be involved. Or if you were doing it on your own and going to small claims court, you would still have to prepare your Complaint (lawsuit), file it, get the other person served, and show up for your court date.

    The AG’s Consumer Complaint is the Hidden Alternative

    Most people I’ve spoken with about these types of business challenges, don’t know about Consumer Complaints. I’ve suggested it at least three times in the last two weeks to friends and clients alike. I can’t say this option is available in every state, but it’s worth investigating if you have a non-performing client that’s a business.

    Thanks for reading this post. If you liked this post and want to know more about my work, please subscribe to the Carter Law Firm newsletter where I share behind-the-scenes information, and you get exclusive access to me.

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  • New Photographers: Signed Contracts Needed at the Start of Every Project

    “He Walks Dogs” by Damian Gadal from Flickr (Creative Commons License)

    I recently heard a question from a new photographer. They are new to the business and focused on building their brand and rapport with potential clients. Their question was, “Should I have a contract on hand at the beginning stages of my business?”

    My response was an emphatic: “Yes!”

    Photography Contracts: Every Job, Every Time

    A contract is a relationship management document. It puts everyone on the same page about what each side is giving and getting and sets the expectations about how each side should behave.

    I tell my photographer clients to never accept a job without a signed contract, this applies even to TFP shoots (trade for photos). Your contract should outline what the client is hiring you to do, how/when you’ll be compensated, how the client can use the images, and who owns the copyright. It should also have terms that address how problems will be resolved.

    If the Prospect Balks at a Contract

    If you have a prospective client who says they “don’t think a contract is necessary,” turn and run. This raises to red flags for me: either they don’t understand how the business works, or they have devious reasons for not wanting a contract that could bite you in the butt in the future.

    One of the best pieces of advice I got early in my career was, “You never regret the client you didn’t take.” I have had no regrets about declining a representation when a client balks at how I do business. Every time I decline one of these clients, I feel like I’ve dodged a bullet.

    Don’t Worry that Requiring a Contract will Push Clients Away

    Don’t worry about being perceived as “pushy” my holding firm that a contract is required. You can be polite and respectful while say, “This is how I do business. If you don’t want to sign a contract, that’s fine, but you won’t be working with me.”

    You set the rules for how you work with clients. If they balk at your contract (assuming it’s reasonable), they shouldn’t be your client. A reasonable client would expect you to require a contract. A person with any business acumen won’t want to work with you without one.

    Let the prospects who don’t want contracts to self-select out. If you have problems with a client at the beginning of the relationship, it’s an indicator that they will be problematic throughout the project.

    If the prospect asks for a referral to another photographer, I recommend saying, “All the reputable photographers I know won’t take on a client without a signed contract.”

    It’s Cheaper and Easier to Prevent Legal Problems than to Fix Them

    This has been proven time and time again in my legal career. When a client comes to me with a business dispute, one of my first questions is, “What does your contract say?” When my client doesn’t have a contract, I have to piece together the terms of their agreement from emails, text messages, and the parties’ actions. Often my client spends more just having me piece these things together than what it would have cost them to have a custom contract template made.

    Additionally, in a dispute, it’s much easier to create a demand letter than references the terms the other side agreed to and back them into a corner where they have to try to defend the indefensible rather than assert what the terms of the agreement are from the assembly of bits and pieces of communications and actions that the other side can more easily debate.

    Lights Camera LawsuitTM

    There’s always a need for quality legal information for photographers. That’s why I created an online course called Lights Camera Lawsuit: The Legal Side of Professional Photography to address photographers’ most important questions. I want you to feel secure in your business, confident in the way you operate day-to-day, knowing that you’ve set yourself up to get paid what your worth without incident.

    At $497, the course contains nearly six hours of legal information you can immediately apply to your business. That’s less than what I charge for two hours of legal work for clients!  

    Please subscribe for more information and to make sure you don’t miss out on any special offers or discounts.

  • Photographer Disputes: What Happens If You Don’t Deliver

    https://www.flickr.com/photos/76377775@N05/8560939745
    Las Fallas Valencia Spain Angry Woman” by Keith Ellwood from Flickr (Creative Commons License)

    As I was researching photographers’ legal questions, I stumbled onto a question posted by an upset client: “The photographer hasn’t given me my photos. It’s been six months. What can I do about that?”

    Whoa! That sounds exceptionally bad. I’m curious how complex this project was and when the photographer said they’d deliver images to the client.

    I don’t know the circumstances regarding this person’s situation, but here’s what could happen if a client is unsatisfied with your work, or worse, you fail to deliver as promised.

    Check the Contract’s Dispute Resolution Provision

    Whenever anyone comes to me with a business dispute, like “They didn’t pay me,” or “I didn’t get what I paid for,” the first question I ask is:

    What does your contract say?

    Your photography contract should have a dispute resolution provision that states how disputes are going to be resolved, where it’s going to be resolved, and which state law governs the agreement.

    One of the most common dispute resolution clauses I put in photography contracts says if there’s a dispute, the parties will try, in good faith, to resolve the matter within 30 days. If that doesn’t resolve the matter, then the parties agree to resolve the matter is a court located in Maricopa County, Arizona, and the agreement is governed by Arizona law. (I recommend Maricopa County and Arizona law because that’s where I’m located. You don’t want to pay for your lawyer’s travel expenses if you don’t have to.) I usually include a clause that says the losing party must pay the prevailing party’s attorneys’ fees and costs.

    Regardless of what the contract states about resolving disputes, my first step in most disputes is sending a demand letter that puts the other side on notice that further legal recourse will be sought. This letter lets the other side know that the offended party is serious and willing to fight, and it gives them a chance to resolve the matter before it will be taken to the next level.

    Report to the Attorney General’s Office for Consumer Fraud

    You may not know this, but your state’s Attorney General’s Office may have a forum to submit a consumer complaint and report suspected fraud. Arizona has this, and it’s not a fun process to go through the subsequent investigation, which could include being subpoenaed for a deposition under oath and/or having a claim for fraud filed against you. If a court found that you committed fraud, it could have devasting consequences for your business, including your ability to be a professional photographer. Taking a client’s money and failing to provide the images could easily be an act of fraud.

    If a client wanted to pursue this option, they don’t need a lawyer to file a consumer complaint. They can go online and get the form themselves. The Attorney General’s Office would foot the bill for the investigation, and likely expect to be reimbursed by you if you lose or come to a settlement. Conversely, if a consumer complaint is filed against you, you should hire a lawyer to represent you.

    Bad Review

    The least problematic a dissatisfied client could do is leave you a negative review on Google, Yelp, or Facebook, or they could post about you online on their social media accounts or their website. As long as everything they post about you is true or their opinion, it’s perfectly legal.

    Hopefully, you never find yourself in this type of situation, but if it happens, please don’t ghost your client. Keep the lines of communication open as you work towards a resolution. One of the most common complaints I hear from customers is that the person they hired stopped responding to emails, calls, or texts, and so they felt like they had no choice but to ask a lawyer or the state for help.

    Lights Camera LawsuitTM

    There’s always a need for quality legal information for photographers. That’s why I created an online course called Lights Camera Lawsuit: The Legal Side of Professional Photography to address photographers’ most important questions. I want you to feel secure in your business, confident in the way you operate day-to-day, knowing that you’ve set yourself up to get paid what your worth without incident.

    At $497, the course contains nearly six hours of legal information you can immediately apply to your business. That’s less than what I charge for two hours of legal work for clients!  

    Please subscribe for more information and to make sure you don’t miss out on any special offers or discounts.

  • Why Contracts Have So Many Definitions

    https://www.flickr.com/photos/eleaf/2561831883

    Iron Horse Bicycle Race Durango Women 10″ by Eleaf from Flickr (Creative Commons License)

    This week, I had a chat with someone who was concerned about the media release provision in a contract to be in a cycling race. It said by signing up for the race, you give the organizers permission to use any video or images of you, your likeness, you name, and your biographic information for any purpose without need any additional information from you. He was worried that the race organizers could sell his life story without his permission.

    I’ve seen this provision on every race contract I’ve signed – and it wasn’t one of the ones I altered. This type of provision is on lots of contracts, event tickets, even on A-frame signs around the state fair. Organizers want to use the photos from their event to promote the organization and its activities. They want to be able to make you their poster child if they snap an amazing photo of you. They want to be able to caption a race photo with “Chris Jones, 37, of Truth or Consequences, New Mexico . . .”

    These organizers don’t want to sell your story to make the next Lifetime Movie. I know this because (1) they don’t know your life story and (2) they’re not in the business of sell stories for the next movie of the week.

    This conversation reminded me of why contracts have so many definitions. Sometimes they start with pages of definitions. They help eliminate confusion and avoid disputes when questions arise down the line.

    If there is a dispute about the meaning of a word in a contract, and both sides have a reasonable interpretation of it, the court will side with the person who didn’t draft the contract, unless the contract states otherwise. (Check your jurisdiction’s rules to see if the same rule exists where you live.)

    Going back to the would-be racer, I told them if they had concerns about what a term in the agreement meant, they should email the organizers for clarification. (Never be afraid to ask questions about a contract before signing it.) If there’s a dispute later surrounding the meaning of the provision, they would be able to use the email response as the basis for their reasonable belief as to what it meant and to counter any contradictory statement by the other side.

    If you’re in a situation where you need to create, draft, or negotiate a contract, please call a contract lawyer for help. (This week, my editor sent me an FYI email about a company in Columbia that is selling a “Pack Of Professionally Drafted Legal Contracts” for $24. I responded with “Let me know how that $24 contract holds up when challenged in court.”)

    Thanks for reading this post. If you liked this post and want to know more about my work, please subscribe to the Carter Law Firm newsletter where I share behind-the-scenes information and readers get exclusive access to me.