When you start a new business partnership, there’s a period of time when everything is exciting and nothing can go wrong. This honeymoon period can come to an end when you realize you’re no longer on the same page. Then what?

A partnership agreement is a simple and clean way to protect your business and your relationship. This document can structure everything from your rights and responsibilities to what happens when a partner leaves. Each state has its own default partnership law that controls absent an agreement, but your own agreement will give you some specialized guidelines and flexibility.

Here are some things to consider:

• How much money will each partner contribute? Determine each partner’s share of the profits and losses before there are any. If you can afford to pay for computer parts and your partner cannot, are you going to want more of the profit? If you do all the work and your partner contributes money, should the disbursements be equal? How will you value “sweat equity”? What if the business folds? What if you agree to provide equal startup capital, but your partners don’t pay their share? It can be uncomfortable to talk about these issues, but it’s worse when partners have a falling-out without answering these questions. Get it in writing now and avoid the headache.

• Are you a “numbers” person? If you’re not, or you’re uncomfortable with the idea of having your partner controlling the money, do yourself a favor and hire an accountant. Decide what your fiscal year will be and what accounting method you will use.

• Make sure the partnership keeps proper and complete accounts of its business at its main office. Also, confirm that your agents and attorneys have access to the records.

• Who will participate in the control, management and direction of your business? If you disagree with your partner, how will you make a decision in case of a deadlock? Some businesses have one partner who will make “creative” decisions and another who will make “business” decisions. If you do that, make sure you clearly define what constitutes “creative” or “business.”

• What if your partner wants to be involved in another business, like starting a consignment store? What if that consignment store starts selling computer equipment and offers installation and maintenance? Protect yourself from an awkward disagreement by discussing whether a partner can be involved in another competing business.

• What happens if someone wants to join the partnership? Can a partner sell or gift their partnership interest? What if your partner gives their interest to someone you dislike? Should you have the option of buying them out? What if one of you dies — does the business go to the remaining partner, or to the partner’s estate?

Partnership agreements should fit a partnership’s particular needs. If you are serious about starting a business, have the tough conversations now.

Mary Hudson is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I own a retail store in Napa and employ several sales associates. Some of my employees use the office computer when I’m away and get on Facebook. Recently one of them forgot to sign out and I looked through her profile and discovered that last week when she had called in sick, she was actually shopping with friends. The associate is now claiming I invaded her privacy. Was it OK for me to look at her profile?

The California constitution expressly provides that all persons have a right to privacy — or the right to be left alone. Although the right to privacy is fundamental, it’s not an absolute right. Generally speaking, some intrusion of privacy by an employer will be allowed if it’s justified by a compelling interest. A court would use a balancing test to determine whether your actions were constitutional.

The first step is to determine whether your employee had a personal and objectively reasonable expectation of privacy that you infringed.

There are several factors to consider — is her Facebook profile accessible to the public, or do her privacy settings limit access to her “friends”? Are you friends with her on Facebook? Does she regularly use the office computer? Was the information on her profile or her friend’s profile? If it was on her friend’s profile, is that profile public or private?

The key here is to focus on objective, rather than subjective standards. The question is whether a “reasonable person” in her situation would expect their boss to look at their Facebook profile, not whether she would expect you to do so.

The next question would be whether your conduct was reasonable under the circumstances, or simply, whether you had a really good reason for what you did. If you knew that she had been using the office computer, knew she hadn’t logged out of Facebook, and wanted to snoop, your actions were likely unreasonable.

On the other hand, if her profile was open on the computer and you wouldn’t have been able to use the computer without seeing it, that’s a different situation. You have a legitimate business need to use your computer and if her Facebook profile happens to be up, that’s not your fault.

It’s difficult to protect your privacy at work, especially if you work in a busy retail environment with a constant stream of customers.

The moral of the story is that employees shouldn’t put anything on Facebook that they wouldn’t want their boss (or anyone else, for that matter) to see. Facebook is forever.

Business owners should create clear policies about employee privacy. When an employer has a regular policy of inspecting or monitoring an employee’s Internet use, it’s reasonable to assume that an employee is not going to have a legitimate expectation of privacy in their Internet use.

Such a policy should be clear, easily understood, and administered fairly. It should be in the employee handbook, posted as a notice, or otherwise publicized.

Mary Hudson is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

I have an idea for a new business selling cookies made from my grandmother’s recipe. How can I find out if someone else is already selling cookies under the name I want to use? How can I protect my cookies — and my grandmother’s recipe?

Ideas (and cookies) are very important to businesses. The law protects intangible assets like names, labels and recipes in various ways.

Let’s start with trademark protection. Trademark law protects company and product identities and brands. Examples of things that may be trademarked are words (“The Napa Valley Register”), logos (the McDonald’s golden arches), pictures, slogans (“Just do it”), colors (the pink color of Owens-Corning fiberglass insulation), product shapes (the unique shape of a Coca-Cola bottle), and sounds (the NBC chimes).

In your case, you would want to register the name of your cookies for trademark protection. First, you need to do a trademark search and what I call a “common sense search.” Google your proposed cookie name and see what comes up. If you see other cookies, you’re in trouble. If you see other things with the same name that have nothing to do with cookies, you might be okay. Is the domain name available?

Next, you’re going to do a search on the Trademark Electronic Search System (uspto.gov) to make sure the name is available. If you have a word, phrase, symbol or design that identifies and distinguishes the source of the goods of one party from those of others, and it’s not already taken, you can apply online for a trademark on the U.S. Patent and Trademark Office (USPTO) website starting at $275 per international class.

If you haven’t actually started selling your cookies yet but intend to, you can file what’s known as an “intent to use” application. Once you start selling your cookies, you can submit a “statement of use” showing that you are now using the mark in commerce. An intent to use application can be extended every six months for up to a total of three years.

Technically you do not need to register your mark to have the right to use your mark in commerce — in other words, you don’t actually need a trademark to sell your cookies. However, registering provides many advantages, including public notice of your ownership of the mark. The law makes a presumption that if you have a registered mark you have the exclusive right to use the mark. So if you start selling your trademark-protected cookies and a few years from now someone tries to sell cookies with the same name (or a confusingly similar name), you can make them stop using your name.

Keep in mind that if you have a trademark, it is up to you — and only you — to make sure no one else is using the mark. The USPTO does not enforce your rights in the mark.

Now let’s talk about trade secrets and your grandmother’s recipe. Trade secret law protects proprietary information that can be maintained as secret. Examples of trade secrets include formulas (like the recipes for Coca-Cola and KFC chicken), plans and designs, and processes. A trade secret must be valuable to the business and must actually be kept secret. To protect your grandmother’s recipe, do NOT share it with anyone. When it comes to sharing it with employees, consider using non-disclosure and non-compete agreements.

Intellectual property law is complicated. If your cookies really are the best around, you may want to hire an attorney to help you navigate these muddy waters.

Mary Hudson is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I own a small bookstore and can’t afford to advertise. A few months ago I searched around the Internet for the e-mail addresses of people who I know like to read. Is it OK for me to e-mail them special offers?

Politicians hate spam. In 2003, when their spam folders hit capacity, Congress responded with the CAN-SPAM Act, which created rules for commercial e-mail messages, with serious consequences for violations. An e-mail falls under CAN-SPAM if its “primary purpose” is “commercial advertisement or promotion of a commercial product or service.” Sending out a “special offer” e-mail to the addresses you find on the Internet falls under CAN-SPAM, regardless of how big or small your bookstore may be.

If you’re sending a customer an e-mail to update them about an ongoing transaction, that would likely be exempt from CAN-SPAM, although the e-mail or sender information still may not contain false or misleading information.

CAN-SPAM compliance is not that complicated. Here are some of the main requirements:

• Your “routing information” (message headers) must be accurate and identify the message source. For example, if your business is called “Bob’s Books,” the “From” address can’t say “Waldenbooks.”

• The “Subject” line must accurately describe the message content. If the subject is “Free Books,” you have to offer free books. Would a reasonable person understand the e-mail’s purpose without opening it?

• You must clearly and conspicuously identify your e-mail as an advertisement, unless the recipient(s) have previously opted-in to e-mails from you. Placing “ADV:” in the subject or “This message is an advertisement” at the bottom will suffice.

• Somewhere in the message you must include your mailing address. It can be a current street address, a post office box, or a private commercial mailbox.

• This one’s important: You must include a clear and conspicuous explanation of how the reader can “opt out” of getting

e-mail from you in the future. Read one of the commercial e-mails in your inbox now and you’ll see an “unsubscribe” link somewhere near the bottom in a tiny font. If someone asks to be removed from your list, you MUST remove them within 10 business days. You cannot ask for more information or demand money, you simply have to remove them. And you can’t sell or give away their e-mail address.

Be aware that if you hire a company to do e-mail marketing, you are both responsible for CAN-SPAM compliance.

Violating CAN-SPAM can cost you up to $16,000 per separate e-mail, and that’s assuming the e-mails aren’t considered deceptive advertising. Penalties are severe if you use someone else’s computer without permission to send spam, use false information to register e-mail accounts, or harvest e-mail addresses.

If you’re unsure whether an e-mail falls under CAN-SPAM, consider following the regulations anyway. They’re relatively easy to follow. If you receive an e-mail that violated the act and want to file a complaint, contact the Federal Trade Commission at ftc.gov.

Mary Hudson is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Dear Mary, I own a small clothing boutique here in Napa. I hired a student to work here part-time, but I’m not sure if I’m supposed to treat her as an employee. My friend says that it’s better to call her an independent contractor. Is he right? What’s the difference?

The IRS loves this question. Generally speaking, an independent contractor is a person who provides goods or services to you under a contract on a “freelance” basis. An employee provides services regularly under the direction of their employer. Businesses prefer hiring independent contractors over employees for several reasons, including reduced liability, flexibility in hiring/firing, and general savings to the business.

How does one get on this gravy train with biscuit wheels? Let’s discuss what makes a worker an independent contractor or an employee.

The local student you hire to sell clothes after school is an employee. I don’t care if she only works weekends. She comes in when you tell her to and she leaves when you tell her to leave. She works at your store, not at her home or office. She wears the apron purchased for her by the company. She will continue working for the store until she quits or is terminated. All of these things indicate to me that she is an employee — even if you call her an independent contractor and you make her sign something saying she is an independent contractor. It may sound clever to just call her an independent contractor, but I promise you the IRS has heard it before.

So who is an independent contractor? Here’s a lawyer’s answer for you: it depends. The plumber you call to fix your restroom is an independent contractor, because he has his own business, he sets his own schedule, and he decides how much he will be paid for his services. Your doctor is an independent contractor, as is your accountant, the girl who cuts your hair, your dry cleaner and your personal trainer, just to name a few.

In making a determination, the IRS emphasizes the right to control and direct the individual who performs the services. There are many other factors that go into deciding, including how the worker is paid, whether their expenses are reimbursed, whether there is a contract, how long the relationship will continue, and more. It’s the IRS — they never run out of questions.

If you call an employee an independent contractor, you could be exposing your company to considerable liability for the payment of back taxes, even more so if the mischaracterization is intentional. Generally, businesses must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee, none of which are usually required for independent contractors.

If you are planning on hiring someone whom you know will be an independent contractor, document that arrangement in a written agreement. If you are paying an independent contractor more than $600 in one year, you are required to report it to the IRS and the contractor using a Form 1099-MISC.

Still not sure whether your worker is an employee or an independent contractor? The IRS will give you an official determination if you fill out a Form SS-8, which can be filed by either the business or the worker. Be warned, though, that the IRS takes its time with these things and it can take at least six months to get a determination.

Mary Hudson is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 877-6279. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.

Napa Valley Register

Dear Mary,

I just bought a taco truck and would someday like to turn it into a mobile catering empire. I used most of my savings to buy and fix up my taco truck, leaving me very little for legal fees. Do I really need to pay an attorney to turn me into a corporation?

Let’s ignore DBAs, business licenses, zoning laws, and all of the other legal issues that come up when you start your own company and just look at selecting a business entity. It’s an important step that many small new businesses don’t spend enough time on, for the same reason that you have already stated—they don’t think they have enough money to do it right.

There are several different kinds of business entities from which you can choose. You can run your taco truck as a one-man (or woman) show, and be a sole proprietor. You could bring a friend into the business and form a partnership. If you’re really interested in developing this truck into a bigger company, you could also choose to set up a limited liability company (an LLC) or a corporation. Those are your basic options, although there are more out there.

Nine times out of 10, I recommend a limited liability company to entrepreneurs, regardless of their size. An LLC offers you the tax advantage of a sole proprietorship or partnership, with the added benefit of limited personal liability. What’s personal liability, and why do you want to limit it? Well, say Paula Plaintiff orders a taco from your truck and the awning on the truck falls down and hits her on the head, causing serious brain damage. Let’s further assume she sues you for $2 million, a not unreasonable sum considering the

$3 million McDonald’s coffee verdict. Your taco truck is worth $50,000. If Paula can’t be made whole again by taking money from the business, she could go after you personally for the rest — including your house, your car, and if you’re married, your spouse’s assets also. Now let’s rewind a bit and assume that you have properly set up your business as an LLC. The most Paula could walk away with is what’s in the business — your taco truck.

Many people think that they don’t need an LLC because they have a good insurance policy. While insurance is important, it will cover you up only to a certain amount. Let’s assume that you have a $1 million policy in the above scenario. Paula would get your taco truck, the $1 million in insurance, and then …  your house. If you properly limit your personal liability, all Paula would get is the taco truck and the insurance policy.

An LLC is also extremely flexible. You can choose to pass your profits and losses through the company to its members, or you can choose to be taxed like a corporation. LLCs do not have stock like corporations, nor do they observe corporate formalities (like having a board of directors, holding annual shareholders’ meetings, issuing stock certificates, keeping minutes, maintaining a corporate record book, etc.).

Corporations are far more complex than the other forms of business and involve more regulations. If you think you may want to set up a corporation, please see an attorney.

Mary Hudson is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 877-6279. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.