No Fireworks Here. The 2011 New Year’s Day Legal Holiday, with a Continuing Resolution for Change.

There are ten federal holidays in the U.S. and this one is the dud. At my law firm, Minor & Brown, this is particularly so, as we don’t do an “observed” holiday on Friday when New Year’s Day falls on a Saturday. (Can I speak to the folks in charge?)

New Year’s Day has no story or compelling national interest behind its status as a legal holiday. New Year’s Day, like the Christmas federal holiday, recognizes the “cultural” significance of the day, but, unlike Christmas, it lacks constitutional tension for interest. There is no separation of football and State, despite the religious fervor. The annual practice of making, but not keeping, resolutions may be punishing, but it is not cruel and unusual. Do I have to add that Prohibition was repealed in 1933?

My favorite fireworks of 2010 came from Disney, not this legal holiday.

The need to celebrate a new trip around the sun is a compelling, ancient human tradition, with the only disagreements being which calendar and where a circle begins. This blog’s tradition of covering our legal holidays is somewhat less compelling, but I’m an Aggie and Aggies are all about traditions. So, in the spirit of the culture honored by the legal holiday, I am proposing (again) a resolution for every owner, current or aspiring, of a human-owned business. I offered this resolution last year, but with the continuing effect of the Great Recession on most parts of the economy [soap box alert] other than the folks on Wall Street who started it, you can be forgiven I you made little progress toward it in 2010.

In 2011, resolve to make yourself less important to your business. This may seem counterintuitive, but “entrepreneurs” who brag about how hard they work, how little vacation they take, and how they carry the weight of the business on their backs, have created nothing more than high-paying jobs for themselves. Not only are such folks (you, possibly?) risking health, marriage, family, etc., they are missing the opportunity to create more personal wealth by building a more sustainable business that can spin-off more income to them while they own it, and result in a much higher purchase price when the business is eventually sold.

Resolving to be less important to your business requires you to develop key people and systems to do the company’s critical work. Your development work could be challenging and frustrating, but the pay-off, a business that doesn’t rise or fall, live or die with you, is a huge, huge benefit to you, your family, your employees.

How Many Owners Should Your Business Have?

Human-owned is my term for businesses that are otherwise labeled closely-held or private. My conceit is intended to emphasize the intimacy in the relationship between owner, business and advisors to the business. Even though its stock is not traded on a public exchange, I wouldn’t call Facebook a human-owned business, and I’m not sure it is even a private business, a doubt shared, apparently, by the Securities and Exchange Commission (SEC).

This week The New York Times and The Wall Street Journal are reporting on investigations by the SEC of Facebook and other fast growing companies for whom an initial public offering (IPO) of stock seems likely. At issue is a federal law that requires otherwise private companies to disclose publicly certain financial information (as public companies do) when they have at least $10,000,000 in assets and 500 or more shareholders.
These companies have good reason to cap their shareholders at 499. While your company is unlikely to approach 500 owners, the situation begs the question: how many owners should your business have?

My answer: not one more than you absolutely need and have a signed shareholder agreement with.

Other than this SEC issue and the 100-shareholder limit on S corporations, the law isn’t that concerned by the number of owners in your business. Some states (not mine, Colorado) have special corporate statutes designed to work only with businesses owned by a limited group of folks, but those are supposed to help smaller companies, not be traps for the unwary.

There are, of course, plenty of legal gotchas that hinge on the number of people you employ. Other SEC rules governing how stock is offered kick in from the beginning of your business, without any connection to the 500 owner threshold. So, as laws go, the number of owners in a business doesn’t seem a big deal.

My real point (about time, eh?), however, is a practical one, and it is a big deal. Stock in a human-owned business should be owned only by those who bring substantial value to the business, and the terms under which that stock is owned should be thought-out and carefully documented.

The “substantial value” part of that equation is not just about money, though investors and details about their investments are critical. Stock-based incentives for key employees can be very effective tools for growing a business; just be sure the employees really are key before you start diluting your own interest by giving equity to folks who generally would be happier with a cash bonus.

The “terms under which stock is owned” bit is easier illustrated with a few of the questions I typically pose to my clients. For example, will you be happy with absentee owners, or do the owners of your company have to be active contributors to the workings of the business? If the majority owners want to sell the business, what are the rights of the minority owners? Can they buy the majority owners’ interests? Do they have to sell their stakes, too? Conversely, can the minority owners be excluded from the sale? Numerous ownership terms are possible—discuss them with your business lawyer, and put your decisions in place via a written shareholder agreement or buy-sell agreement.

Disputes over ownership of a business are some of the ugliest and most expensive around. Facebook, the early years as told in the film The Social Network, is a case in point, as is the tragic story of a Utah murder/suicide that followed a lengthy business ownership battle, as told this week by The Salt Lake Tribune.

I’ve not seen those extremes in my own practice, but I have seen ownership issues add complexity, delay, cost and emotional turmoil to a number of situations. Almost always, the troubles started with decisions to add owners that weren’t carefully made and thoroughly documented.

Do yourself and your business a favor, however many owners your business has or will have—talk to your legal advisors before offering stock to anyone, and be diligent in documenting the ultimate decisions, including any terms on ownership, in a written shareholder or buy-sell agreement.

"Isn't There Anyone Who Knows What Christmas (the 2010 legal holiday) is All About?"

My series of posts on our country’s “legal” holidays began out of concern that, for many, these days were just another day off.  My idea was that, perhaps, some reflection on the reasoning behind our national holidays was in order. Well, it turns out that the Christmas federal holiday is, in fact, just another day off, legally at least, and this year, as December 25th is a Saturday, that legal day off happens a day earlier.

While the Christmas religious observance is centuries old, a federal Christmas holiday was not recognized until 1870. More surprising, the constitutionality of the legal holiday was not challenged until 1999. In her decision in Ganulin v. United States (ultimately supported by the U.S. Court of Appeals and the Supreme Court), District Court Judge Susan J. Dlott concludes that a Christmas federal holiday does not violate the First Amendment of our Constitution: “By giving federal employees a paid vacation day on Christmas, the government is doing no more than recognizing the cultural significance of the holiday.”

Judge Dlott’s appreciation of the cultural significance of Christmas is most clearly illustrated, not by her formal decision, but by her Dr. Seuss-inspired poem:

The court will address
Plaintiff's seasonal confusion
Erroneously believing Christmas
Merely a religious intrusion.

Whatever the reason
Constitutional or other
Christmas is not
An act of Big Brother!

Christmas is about joy
And giving and sharing
It is about the child within us
It is mostly about caring!

One is never jailed
For not having a tree
For not going to church
For not spreading glee!

The court will uphold
Seemingly contradictory clauses
Decreeing "The Establishment" and "Santa"
Both worthwhile "Claus(es)"!

We are all better for Santa
The Easter Bunny too
And maybe the Great Pumpkin
To name just a few!

An extra day off
Is hardly high treason
It may be spent as you wish
Regardless of reason.

The court having read
The lessons of Lynch
Refuses to play
The role of the Grinch!

There is room in this country
And in all our hearts too
For different convictions
And a day off too!

The ditty actually lays out the judge’s legal reasoning. Employment lawyer Philip Miles’s post “Christmas and the Constitution” walks through those legal principles, if you want to read more.

On Christmas night, 1776, General George Washington crossed an ice-clogged Delaware River to take the fight to the British and thus reinvigorated a flagging war for independence. As bold as his move was, it pales in comparison to the idea that we could create the world’s first nation-sized, secular republic. Before America, nations existed by virtue of coercive political authority and common religious convictions. Now, mutual respect for individual religious and cultural traditions is part of the glue that we, “the people,” use to hold our country together.

So in the United States, on December 25th (or 24th, this year) you can celebrate the birth of Christ, the visit of a jolly old elf, or a day not spent at work. It’s up to you, and no matter your faith or absence of faith, that is a blessing. So to paraphrase Linus, from A Charlie Brown Christmas another of our Christmas culture classics: "That’s what the legal Christmas holiday is all about, America."

Being Sued is Not #1. A Lawyer's Tale of Social Media Worries and Business.

I just finished describing my social media story in an article the Denver Bar Association asked me to write. If lawyers can learn something from my story, then maybe this adapted version might be helpful to you and your business.

Two years ago my social media bio consisted of a poorly-utilized LinkedIn account and an announced aversion to the very idea of “friending” business and community connections. Today, I’m 4100+ tweets into Twitter. I have Facebook friends that are my friends, but many more who share my interests in business and community. I have this blog and a spot on Huffington Post as well as guest posts in other blogs. And I have an under-utilized LinkedIn account.

The intersection of social media and the law has even become part of my legal practice. My seminars on the subject are always well-attended (if only the same was true for my more traditional topics). While there are some serious legal issues to keep in mind (and post on here at a later date), in the real world harm to your business is much, much more likely from the mundane pitfalls of looking stupid and wasting your time.

For most businesses, B2B or B2C, profit or nonprofit, branding—making yourself more attractive and memorable— and networking on an unprecedented scale are two primary reasons for using social media. The good and bad of any branding effort or in-person networking event applies to your social media as well, only multiplied by a factor that is always bigger for the bad than the good, and it’s forever. The offhand remark you might regret making at a cocktail party gets passed around and around in social media and saved on servers across the globe.

Reduce the risk of a dumb post going viral by setting your social media goals up front and applying those goals in every tweet, Facebook comment and their kin. Goals will also reduce the time you will waste. Wasted time is inevitable; staying on goal limits the huge time traps inherent in the games, quizzes and videos that will stream by you. I use the blocking/filter/list features found in most social media to segregate or eliminate the time-wasters.

Another sure way to waste your time is making your social media all about you and your great business. The “social” in social media means you should be sharing useful information (which is not limited to promoting your latest blog post) and by engaging in conversations that relate to your goals.

Not to mean that your social media should be all business, either. I reminded the lawyers that clients don’t hire lawyers, people hire people; that same may be true in your business. If so, don’t be afraid to show a little of your personal life, but not too much about your kids or your vacations, please. Something on your hobbies or activities is good (several of my connections are road cyclists, and now they know I am, too). If you or your business is active in charitable or community efforts, tell us about it and why that activity is important, and don’t forget to “tag” the charity (in Facebook include “@” before the name) so your comments can be seen by others who support it, too.

Your social media should have a style reflective of your personality, or at least the part of it you use when you talk with clients. Will your intended audience be engaged by posts written like a press release? Probably not. No Funny Lawyers was started on not much more than the whim that if I could bottle the non-technical and sometimes funny (or at least attempted) explanations of business law I give my clients, then maybe some other business owners might find enough value in them to pick up the phone.

A word of advice on blogs. There are a bazillion blogs, but few are on topics and updated regularly enough to be relevant to your potential clients (and the search engines they will use to find you). Be intentional in your decision to blog: pick a subject, a voice, and an audience, and make a commitment to set aside the hours it will take to post good content regularly. Then take some time to learn at least the basics of SEO (search engine optimization), or talk to an SEO consultant, so that your good content can be found.

If you don’t want to leap as far as a blog, following most of the guidelines I’ve touched on will make your Facebook page, LinkedIn profile, or Twitter feed something like a blog and, thus, valuable to those interested in the business concerns that matter to you. By sharing and showing, not telling, your knowledge and dedication to your business and your customers, you will be an engaged and valuable member of the business social media community.