Thank you Federal Trade Commission.
The Red Flags Rule, the subject of my last post, was to become effect tomorrow. My law firm has been busy putting compliance programs into place for private businesses that realized belatedly they were impacted by the Rule’s broad reach.
Well, the FTC finally caught on that many businesses are still unaware of the Rule, so the effective date has been postponed to November 1, 2009 to allow the FTC staff to “redouble” their education efforts.
Human-owned businesses have much on their minds of late—like keeping the doors open. Identity theft is a concern, to be sure, but in business triage it has not been at top of many minds or budgets.
Now you have a little more breathing room to meet with your business lawyer to see if your company is covered and then to put your own program in place and avoid risking both a fine and, if the Rule works as planned, being defrauded.
Friday, July 31, 2009
Monday, July 27, 2009
Red Flag for Business: A New Rule with an August 1 Deadline
Many human-owned businesses (mine and very possibly yours) are required by the Fair and Accurate Credit Transactions Act of 2003 (FACT) to have a written policy and procedures to avoid identity theft in place by August 1, 2009.
The fact that this “Red Flags Rule” comes under FACT may lead some to assume the rule applies only to banks and credit card issuers. Wrong. This rule applies to the many of us in business who extend credit to our customers.
My law partner Barb Wells (get to know her better from my post Cuba Invades) tells me that rule applies to most any business that provides goods or services and bills for them later if there is a “foreseeable risk of identity theft,” such as in small business accounts, or where the credit granted is for mostly personal, family or household purpose. Merely accepting credit card payments does not bring you under the rule, but if you, like me, send a bill after giving value (time or things) to your customer, read on.
The Red Flags rule is intended to help both business and consumers avoid harm from identify theft. For example, the business that regularly bills for goods or services after the customer receives them can be harmed if the customer account was opened by an identity thief and the person whose identity was stolen can also be harmed. When the account can be accessed by the internet or telephone, the possible identity theft issues are greater than when the customer actually comes to the office and is known to you.
If the rule applies, your business must have a written policy and procedures to identify the red flags the business believes will indicate possible identity theft, a process to follow to be alert to those red flags, and a procedure to follow when a possible issue is detected. Once in place, company employees must be properly trained in the program and the company’s program must be reviewed at least annually. Lastly, the Red Flags Rule requires that your service providers with access to customer or vendor accounts (such as a computer servicing company), also have their own policy and procedures in place. The FTC’s How To guide on the red flags rule can be found here.
Many human-owned businesses that extend credit probably have implemented something along these lines—after all fraud prevention is good business—but now you need to make sure what you do meets the government mandate. And, by the way, the FTC has authority to fine you for your failure to comply. Many investigations of non-compliance will come only after an identity theft loss has occurred; don’t risk adding insult to injury, see your business lawyer and get your compliance program in place as soon as possible.
The fact that this “Red Flags Rule” comes under FACT may lead some to assume the rule applies only to banks and credit card issuers. Wrong. This rule applies to the many of us in business who extend credit to our customers.
My law partner Barb Wells (get to know her better from my post Cuba Invades) tells me that rule applies to most any business that provides goods or services and bills for them later if there is a “foreseeable risk of identity theft,” such as in small business accounts, or where the credit granted is for mostly personal, family or household purpose. Merely accepting credit card payments does not bring you under the rule, but if you, like me, send a bill after giving value (time or things) to your customer, read on.
The Red Flags rule is intended to help both business and consumers avoid harm from identify theft. For example, the business that regularly bills for goods or services after the customer receives them can be harmed if the customer account was opened by an identity thief and the person whose identity was stolen can also be harmed. When the account can be accessed by the internet or telephone, the possible identity theft issues are greater than when the customer actually comes to the office and is known to you.
If the rule applies, your business must have a written policy and procedures to identify the red flags the business believes will indicate possible identity theft, a process to follow to be alert to those red flags, and a procedure to follow when a possible issue is detected. Once in place, company employees must be properly trained in the program and the company’s program must be reviewed at least annually. Lastly, the Red Flags Rule requires that your service providers with access to customer or vendor accounts (such as a computer servicing company), also have their own policy and procedures in place. The FTC’s How To guide on the red flags rule can be found here.
Many human-owned businesses that extend credit probably have implemented something along these lines—after all fraud prevention is good business—but now you need to make sure what you do meets the government mandate. And, by the way, the FTC has authority to fine you for your failure to comply. Many investigations of non-compliance will come only after an identity theft loss has occurred; don’t risk adding insult to injury, see your business lawyer and get your compliance program in place as soon as possible.
Wednesday, July 22, 2009
A (Hairy) Hand for My Editor
Just 15 months ago a letter appeared on my desk applying for the position of legal assistant. The applicant claimed to have a sense of humor, but confessed to only average kazoo-playing abilities and a singing voice that was “significantly worse than bad.”
Carolyn Black also possesses a BA with Distinction from the University of Virginia, red hair, and a quiet and kind disposition (so much for red-headed stereotypes). We hired her despite my prediction that she wouldn’t last long, that she would quit to go to law school.
Friday is Carolyn’s last day. Next month she will be a first year law student at the University of Colorado at Boulder Law School. I couldn’t be happier.
Carolyn has been an excellent legal assistant, and when I started this blog a few months ago she proved to be a terrific editor, too. But she will be a better lawyer.
My first day of law school (well before I learned there are no funny lawyers) featured massive anxiety and a Hairy Hand. The Hairy Hand was my first case in Contracts class. Today I make my living writing and negotiating contracts, but my introduction to my future life came in the form of a skin graft gone wrong. I would not see an actual contract, let alone have the opportunity to draft one, in Contracts class or in any other class in law school.
Carolyn is starting her career as an attorney at a time when not only the profession, but the legal education system as well, are under increasing pressure and criticism. See Are Law Schools Relevant to the Future of Law and Welcome to the Future: Law School
Carolyn would like to practice business law and, unlike me, she enters school with a good idea of what business lawyers do. I am curious to hear about her law school experiences and how they correlate to the job she knows she will do after graduation, so I have invited her to become the first guest contributor to No Funny Lawyers. If the goal is to build better lawyers for better business, we need to start at the beginning. The occasional post from “Red” will tell us how we are doing.
Thank you, Carolyn, for being a teammate and a friend. Best of luck to you.
Carolyn Black also possesses a BA with Distinction from the University of Virginia, red hair, and a quiet and kind disposition (so much for red-headed stereotypes). We hired her despite my prediction that she wouldn’t last long, that she would quit to go to law school.
Friday is Carolyn’s last day. Next month she will be a first year law student at the University of Colorado at Boulder Law School. I couldn’t be happier.
Carolyn has been an excellent legal assistant, and when I started this blog a few months ago she proved to be a terrific editor, too. But she will be a better lawyer.
My first day of law school (well before I learned there are no funny lawyers) featured massive anxiety and a Hairy Hand. The Hairy Hand was my first case in Contracts class. Today I make my living writing and negotiating contracts, but my introduction to my future life came in the form of a skin graft gone wrong. I would not see an actual contract, let alone have the opportunity to draft one, in Contracts class or in any other class in law school.
Carolyn is starting her career as an attorney at a time when not only the profession, but the legal education system as well, are under increasing pressure and criticism. See Are Law Schools Relevant to the Future of Law and Welcome to the Future: Law School
Carolyn would like to practice business law and, unlike me, she enters school with a good idea of what business lawyers do. I am curious to hear about her law school experiences and how they correlate to the job she knows she will do after graduation, so I have invited her to become the first guest contributor to No Funny Lawyers. If the goal is to build better lawyers for better business, we need to start at the beginning. The occasional post from “Red” will tell us how we are doing.
Thank you, Carolyn, for being a teammate and a friend. Best of luck to you.
Tuesday, July 14, 2009
Why You Should Do Business on a Handshake
Business owners who are surprised that contracts are not self-enforcing surprise me. Why else are there so many litigators? The sad truth about contracts, a truth lawyers don’t usually say out loud, is that a contract only makes it easier to sue someone; a contract does not help you avoid litigation. To avoid litigation (and I guess 99.49% of business owners want to), do business on a handshake.
A let’s-do-business handshake acknowledges two things: (A) you believe the other person to be trustworthy and (B) you and that person have reached an understanding about whatever it is you want to do. So before you sign a contract, be sure you can shake on it.
Trustworthy. It’s no accident that “A Scout is trustworthy” is how the Boy Scout Law begins. Any relationship worth having should begin with trust, so before beginning, check out your prospective business partner. Sure, “trustworthy” is hard to boil-down to a checkbox on a due diligence list, but asking the right questions can sure go a long way.
Recently I had the pleasure of attending a presentation by Frank Abagnale, Jr. Mr. Abagnale’s story is portrayed in the film Catch Me If You Can. Formerly infamous as a young imposter and forger, Mr. Abagnale is now famous for his work investigating and, most importantly, preventing fraud. Mr. Abagnale explained that when a fraud encounters someone who asks too many questions, the fraud most likely moves on to an easier target. So while you might not be able to be absolutely sure of “trustworthy,” you might prevent being taken advantage of by being careful and thoughtful about your business partners before signing the contract.
Understanding. Having a contract is not nearly as important as negotiating a contract. The value of a contract done right is that it forces the parties to communicate their expectations of a relationship. Those communications should be facilitated by the lawyers drafting the agreement for the two sides so that each side understands the other. Unfortunately, instead of understanding, obfuscation (how’s that for a fun lawyer word), whether intentional or not, is too often the result.
Stay engaged with your lawyer as she or he negotiates a contract for you. If there are aspects you have trouble understanding, it’s not because you are dumb; rather your lawyer needs to do a better job. Kindly ask him or her to explain and to explain again, as necessary. I value clients who are active participants in their legal affairs and I bet your lawyers will feel the same way.
Once the process of communicating expectations (i.e., negotiating) is complete, the contract is signed and hands are shaken. The parties trust each other and understand what each needs to do, so the contract goes into a drawer, hopefully to be pulled out only to refresh an understanding. Do this and you end up with a contract that should do what all good contracts do: gather dust as opposed to being Exhibit A at trial.
A let’s-do-business handshake acknowledges two things: (A) you believe the other person to be trustworthy and (B) you and that person have reached an understanding about whatever it is you want to do. So before you sign a contract, be sure you can shake on it.
Trustworthy. It’s no accident that “A Scout is trustworthy” is how the Boy Scout Law begins. Any relationship worth having should begin with trust, so before beginning, check out your prospective business partner. Sure, “trustworthy” is hard to boil-down to a checkbox on a due diligence list, but asking the right questions can sure go a long way.
Recently I had the pleasure of attending a presentation by Frank Abagnale, Jr. Mr. Abagnale’s story is portrayed in the film Catch Me If You Can. Formerly infamous as a young imposter and forger, Mr. Abagnale is now famous for his work investigating and, most importantly, preventing fraud. Mr. Abagnale explained that when a fraud encounters someone who asks too many questions, the fraud most likely moves on to an easier target. So while you might not be able to be absolutely sure of “trustworthy,” you might prevent being taken advantage of by being careful and thoughtful about your business partners before signing the contract.
Understanding. Having a contract is not nearly as important as negotiating a contract. The value of a contract done right is that it forces the parties to communicate their expectations of a relationship. Those communications should be facilitated by the lawyers drafting the agreement for the two sides so that each side understands the other. Unfortunately, instead of understanding, obfuscation (how’s that for a fun lawyer word), whether intentional or not, is too often the result.
Stay engaged with your lawyer as she or he negotiates a contract for you. If there are aspects you have trouble understanding, it’s not because you are dumb; rather your lawyer needs to do a better job. Kindly ask him or her to explain and to explain again, as necessary. I value clients who are active participants in their legal affairs and I bet your lawyers will feel the same way.
Once the process of communicating expectations (i.e., negotiating) is complete, the contract is signed and hands are shaken. The parties trust each other and understand what each needs to do, so the contract goes into a drawer, hopefully to be pulled out only to refresh an understanding. Do this and you end up with a contract that should do what all good contracts do: gather dust as opposed to being Exhibit A at trial.
Thursday, July 9, 2009
Lawyers as Lighthouses
The lighthouses of North Carolina's Outer Banks are statuesque and poignant as they advise of hidden dangers.
Lighthouses were essential elements in commerce and the growth of our nation. Their primary jobs now fufilled by newer technologies, the lighthouses still work to remind us of place and possibility, and today they cause me to reflect on the relationship between lawyers and human-owned businesses.
Business owners daily face risks, known and unknown, that might flounder or sink their companies. A good business lawyer should be like a lighthouse for his or her clients, pointing out trouble spots. However, too many lawyers are instead either stop signs or vague warnings-- Duck!--that don't allow an entrepreneur to do what she or he does best: make choices in navigating risks to grow a business.
There's not much hope for me in terms of statuesque or poignant, but a watchful and helpful navigation adviser, that I can be.
--Post from my iPhone from the town of Duck on the beautiful Outer Banks of North Carolina.
Lighthouses were essential elements in commerce and the growth of our nation. Their primary jobs now fufilled by newer technologies, the lighthouses still work to remind us of place and possibility, and today they cause me to reflect on the relationship between lawyers and human-owned businesses.
Business owners daily face risks, known and unknown, that might flounder or sink their companies. A good business lawyer should be like a lighthouse for his or her clients, pointing out trouble spots. However, too many lawyers are instead either stop signs or vague warnings-- Duck!--that don't allow an entrepreneur to do what she or he does best: make choices in navigating risks to grow a business.
There's not much hope for me in terms of statuesque or poignant, but a watchful and helpful navigation adviser, that I can be.
--Post from my iPhone from the town of Duck on the beautiful Outer Banks of North Carolina.
Wednesday, July 8, 2009
Never Say Never: The IRS Clarifies its Rights to Your Employee Incentives
To build a great business, you must first build a team of great people. Incentive planning for key employees is, accordingly, an important part of my law firm’s practice.
Human-owned businesses have at their disposal a number of different tools for retaining and motivating key people and the impact of income taxes, no surprise, is a major factor in distinguishing and choosing among them. Whether an incentive is equity or non-equity, qualified or non-qualified, current or deferred, you can bet that the IRS has rules for how that incentive is used or taxed.
So it was with some amusement that we read of one of the IRS’s latest rulings on stock options, specifically a subset of stock options called “Incentive Stock Options” or ISOs. The IRS has for years specified a number of hoops you and your employees have to jump through in order to claim the tax benefits of an ISO. One of those hoops has always been that the ISO had to be non-transferable, meaning that the stock option belonged to the employee and the employee only, and could not be sold or even given away.
Well, now the IRS is telling us that non-transferable really means the ISO can’t be transferred to anyone other than the IRS. If your employee gets into tax trouble, the IRS can seize the employee’s non-transferable ISO and sell that option right (transfer it) to pay off the employee’s tax debt.
Human-owned businesses have at their disposal a number of different tools for retaining and motivating key people and the impact of income taxes, no surprise, is a major factor in distinguishing and choosing among them. Whether an incentive is equity or non-equity, qualified or non-qualified, current or deferred, you can bet that the IRS has rules for how that incentive is used or taxed.
So it was with some amusement that we read of one of the IRS’s latest rulings on stock options, specifically a subset of stock options called “Incentive Stock Options” or ISOs. The IRS has for years specified a number of hoops you and your employees have to jump through in order to claim the tax benefits of an ISO. One of those hoops has always been that the ISO had to be non-transferable, meaning that the stock option belonged to the employee and the employee only, and could not be sold or even given away.
Well, now the IRS is telling us that non-transferable really means the ISO can’t be transferred to anyone other than the IRS. If your employee gets into tax trouble, the IRS can seize the employee’s non-transferable ISO and sell that option right (transfer it) to pay off the employee’s tax debt.
Saturday, July 4, 2009
Opportunity, the Blessing of Independence Day
For food, for raiment,
For life, for opportunity,
For friendship and fellowship,
We thank Thee, O Lord.
(The Philmont Grace)
My four summers on the Philmont Staff bound me to those words forever. The fact that my daughters picked it up at a Staff reunion and now say it at most evening meals gives me further opportunity to reflect on the grace. Philmont, I should add for my non-Scouting readers, is the premier High Adventure camp of the Boy Scout of America, each summer attracting thousands of young men and women for backpacking and unforgettable experiences.
The campers will say these words, many without giving them more thought than other public blessings. But there, in the middle, two phrases after “for raiment” (which I must admit, made many a Scout stop and ask its meaning--clothing), is the definitive blessing of this country and its people: opportunity.
I hope you and your family have a wonderful Independence Day—calling it just “the Fourth” seems to miss the point —but sometime during the day (or every day of the year), pause to consider the blessings you have simply by virtue of living in the United States of America.
I am an avid listener and supporter of National Public Radio. One of my favorite NPR traditions is the reading of the Declaration of Independence the morning of July 4th followed by the postscript (I hear Bob Edward’s voice in my head as I type):
“On July 4th, 1776, George III, king of England, wrote in his diary, ‘Nothing of importance happened today.’”
Opportunity happened and is happening still. God Bless America.
For life, for opportunity,
For friendship and fellowship,
We thank Thee, O Lord.
(The Philmont Grace)
My four summers on the Philmont Staff bound me to those words forever. The fact that my daughters picked it up at a Staff reunion and now say it at most evening meals gives me further opportunity to reflect on the grace. Philmont, I should add for my non-Scouting readers, is the premier High Adventure camp of the Boy Scout of America, each summer attracting thousands of young men and women for backpacking and unforgettable experiences.
The campers will say these words, many without giving them more thought than other public blessings. But there, in the middle, two phrases after “for raiment” (which I must admit, made many a Scout stop and ask its meaning--clothing), is the definitive blessing of this country and its people: opportunity.
I hope you and your family have a wonderful Independence Day—calling it just “the Fourth” seems to miss the point —but sometime during the day (or every day of the year), pause to consider the blessings you have simply by virtue of living in the United States of America.
I am an avid listener and supporter of National Public Radio. One of my favorite NPR traditions is the reading of the Declaration of Independence the morning of July 4th followed by the postscript (I hear Bob Edward’s voice in my head as I type):
“On July 4th, 1776, George III, king of England, wrote in his diary, ‘Nothing of importance happened today.’”
Opportunity happened and is happening still. God Bless America.
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