Business partnerships are a powerful way to grow your company’s operations and forge your way into new markets. But a successful business partnership needs more than just a handshake to work, even if you and your business partners already trust each other.

Even the most well-aligned business partners need help and guidance in making the best decisions for their venture. The way you set up your partnership’s fundamentals – from partnership formation to profit and loss distribution, dispute resolution, and partnership dissolution – can make or break your business goals.
That’s why our business lawyers put together the Business Partnership Playbook – a guide to all the legal considerations you must make in a business partnership.

Download the FREE Partnership Playbook now.

Nothing beats personalized legal advice from a knowledgeable business attorney who can set up your partnership for the best chance of success. This comprehensive PDF is not legal advice, but it can help you understand what to look out for and how a business lawyer can help. As always, you can contact our business law team at 215-482-0285 or book a call with us now.
The Partnership Playbook addresses the most frequently asked questions about business partnerships and helps break down what makes a successful partnership.

How Do You Form a Successful Business Partnership?First, you must decide if you and your business partner will create a new business entity for your partnership or contract as partners to work on a business project together. Your partnership will function differently based on how you answer that question.

1. How do you choose the right partner(s) for your venture?
2. What characteristics make for a good business partnership?
3. How do you make sure partners communicate and collaborate effectively?
4. How can you make sure your long-term vision and goals are aligned?
5. What do you need to include in your partnership operating agreement?
6. Where should you register your partnership’s principal place of business?
7. Which state’s governing law should you choose for your partnership?
8. Which partners will be general partners versus limited partners?
9. What will each partner contribute to the partnership?
10. How will you measure your partnership’s success?

The clearer you are on these questions going into your partnership, the better you’ll be able to orient your efforts to meet your goals, and the more solid your partnership’s foundations will be.
You get a huge advantage from considering important issues ahead of time – before they become problems. A business attorney’s job is to help you anticipate these scenarios that you might not otherwise even think about, saving you time, money, and headache later on.

Equity, Voting Rights, Distributions, Allocations, and Profit/Loss Division in Business PartnershipsLaying out each partner’s roles, responsibilities, and benefits is one of the best ways to avoid running into conflicts and disputes down the line. The Partnership Playbook goes over the following questions and how they can affect your business relationship:

1. What will each partner contribute to the partnership?
2. What’s the best way to structure ownership or equity in a partnership?
3. How should you structure voting rights in your partnership?
4. Which partner gets the final say on important decisions in the partnership?
5. Which partners are responsible for making which types of decisions?
6. Which decisions require unanimous consent by all the partners?
7. Do you have a designated tie-breaker in case partners are unable to agree?
8. Will any of the partners receive a salary from the partnership?
9. How will partners get paid? When will they get paid, and how much?
10. How will business profits get split between the partners?

These questions do not have a one-size-fits-all approach. The answers depend heavily on your unique circumstances, goals, and vision. Only a business lawyer can help you set up the best partnership configuration that’s tailored to your specific needs.
Your lawyer can also help you avoid common pitfalls and mistakes that entrepreneurs make when they don’t have the right counsel and advice.
For example, you may think the most sensical way to split a partnership between two partners would be 50-50 down the middle, with equal voting rights for equal or similar contributions. But a 50-50 split on decision-making can easily lead to stalemates that can stall or even dissolve the partnership. Instead, splitting power 51-49 between partners gives final decision-making power to one partner, allowing the partnership to continue functioning even when partners cannot agree.
Disputes, Critical Developments, and Partnership DissolutionsEven with the best planning and risk assessment, partnership disputes happen. Lives and circumstances change, leading to critical developments for the partnership. The better prepared you are to handle these curveballs, the better your partnership is bound to fare. In other cases, partnerships naturally dissolve when the business venture is complete – hopefully as a success.

When you work with a business lawyer, they can help you lay the groundwork for how disputes and critical developments are handled in your partnership.
The Partnership Playbook covers common scenarios and questions, such as:

1. What will you do if your business partner gets sick or moves away?
2. What if your business partner passes away or withdraws from the partnership?
3. What’s your contingency plan if you run into supply chain issues?
4. How will you handle your assets and debts if your partnership goes bankrupt?
5. Are you open to bringing on new partners? If so, how will this be handled?
6. What’s the best way to negotiate a partnership agreement modification?
7. How will the partnership handle potential offers for a sale/buyout?
8. How do you properly dissolve your business partnership?
9. How will you handle the partnership’s outstanding debts and assets after dissolution?
10. How can you protect yourself from liability through this process?

The right knowledge and advice can make a world of difference to how a business partnership will fare. The Partnership Playbook will help you better understand the strategies that make partnerships more likely to turn their visions into reality.

Download the FREE Partnership Playbook now.

Still, you need a personal approach to the unique needs of your business.
To get started, contact our business law team at 215-482-0285 or book a call with us now.

Imagine this scenario: your business partnership is off to a great start. You and your partner get along and work well together. Your vision is aligned and you’ve knocked a few business goals out of the park already. And then one of you falls ill, or your partner has to move away, or another company offers to buy you out. What do you do?

We all know what happens to best-laid plans. Sometimes reality doesn’t work out as imagined, no matter how strong your vision and will. Nobody goes into a business partnership expecting it to go badly – hopefully, you’re excited and optimistic about your venture.

While you can’t anticipate everything that could possibly go wrong, you can cover the most common contingencies with a little bit of planning. Thinking about worst-case scenarios isn’t pleasant but it can actually save your business partnership in case of any unexpected turns.

You can start planning for the unexpected in your business partnership agreement. But even if you don’t prepare for the unexpected ahead of time, you can successfully work through many of these situations with a partnership agreement modification.

Depending on how well you and your business partner communicate, you could move forward with a partnership modification through mediation with a neutral third party or negotiation where you and your partner are each represented by legal counsel.

Creating a strong foundation in your partnership agreement will help you weather any storms that come your way. It’s important to get a personalized approach to your partnership since no two businesses face the same issues and risks. This is why templates often don’t work. A business attorney can look out for you and help protect you from these curveballs.

Handling Critical Partnership Developments
A business partnership is first and foremost a human endeavor. Business partners often act as driving forces, pouring their passion, efforts, capital, and time into the venture.

So when a partner’s circumstances change, that can dramatically affect your business. A strong partnership agreement will act as a guide for how to handle these situations.

In the absence of guidance from your partnership agreement, you and your business partner can sit down to negotiate new terms for how to move forward. Partners must be in unanimous agreement when making changes to the terms of their partnership.

• If a business partner gets sick or moves away, they may not be able to contribute to your partnership the same way that they have up to that point. A managing partner may become unable to carry out the day-to-day management of business operations. You may have to find another business partner or step up your own efforts to keep up. If the partner had a lot of authority and decision-making power before, they may be better off playing a more minor role as a limited partner moving forward.

In many partnerships, profit distribution is based on each partner’s contribution to the venture. So when that contribution changes, you’ll want to change the way profits are divided as well.

• A business partner may pass away or decide to withdraw from the partnership for whatever reason. Your partnership agreement should outline the procedures you’ll take in these circumstances. How much notice does a partner have to give before voluntarily withdrawing from the partnership? Do the remaining partners get a right of first refusal to buy the withdrawing partner’s share of the company? Will the partnership dissolve if a partner leaves or passes away? If so, what will happen to the business and its assets?

Similar complications may arise when your business partner is another company. Planning ahead of time can save you a lot of grief in these situations.

• A business may run into production or supply chain issues. Nowadays the economy is more volatile than ever. What happens if a partner is unable to deliver on the terms of the partnership? Does the partnership dissolve? Can the partnership find another partner or supplier? What would this process look like?
• What happens if a business partner goes bankrupt? This will affect your joint assets and debts, especially if the partner is a general partner. It’s absolutely critical that you properly strategize the structure of your partnership in your initial agreement. If your partner’s assets get frozen, that could affect the operation of your business.
• What about bringing on new partners? You can plan ahead for when your business grows and expands by specifying how new partners would be onboarded in the future. After all, as your operation grows, it’s common to need greater resources.

Ideally, you and your business partners are on good enough terms to sit across from each other in a mediation or negotiation. But in some cases, communication between partners could break down. This could happen over time or after a single inciting incident.

If you’re unable to come to a unanimous agreement to amend your partnership, you may have to halt operations, dissolve the partnership, and litigate the division of assets and debts.

How to Handle Sales Offers for Your Partnership

A business partnership could be sold in full with the unanimous consent of all partners or in part, where a single partner sells only their share of the partnership.

Again, it helps to anticipate the sales process in your partnership agreement before any offers come in. By following your previously agreed-upon terms, you and your partners have a solid idea of what to expect. This can help the sales process go much more smoothly.
When presented with a sales offer for your business, you must usually meet with all the partners in order to vote on how to proceed. The rules around this process will change based on your partnership terms and which state laws apply. So a Pennsylvania business sale will operate under different rules compared to New Jersey or Delaware.

You will have to decide which assets will be sold and how debts will be handled in the sale. In addition, you will have to consult with a business advisor and appraiser to get an accurate idea of how much your operation is worth. Your business lawyer can help by referring you to the appropriate experts, negotiating for you, and protecting your interests in the sale.

Call the Philadelphia offices of Holmes Business Law now at 215-482-0285 or use our online contact form to get started on your partnership modification or sale.

No matter how well matched you are with your business partner, disagreements and conflicts are inevitable. But conflict does not have to derail your partnership.
By preparing and setting up conflict resolution tools ahead of time, you and your partners can better weather the storms that come with the wild ride that is business ownership.

It’s great when business partners share the same values and have a track record of working well together. But circumstances change all the time, especially in a COVID-19 world – which can put pressure on even the strongest business relationship. Or you and your partner may be working together for the first time, still figuring out each other’s communication styles.

Either way, you can take certain steps to better position your partnership for success.

How Do You Avoid Partnership Disputes?Not all conflicts are inevitable. Some can be avoided with the right planning and foresight.
By minimizing avoidable conflicts, your business partnership can operate smoothly with fewer bumps, especially when you’re first getting started. The conflict resolution frameworks you put into place early on could end up saving your joint venture down the line.

Give Clear Decision-Making PowerIf you plan to enter into an equal partnership with one other partner, you might figure that a 50-50 split of decision-making power makes the most sense.
But a 50-50 split between two partners sets you up for a potential gridlock – a 1-vs-1 stalemate when you disagree. If you both refuse to compromise, your partnership may be unable to move forward in any way and you may have to dissolve your venture.

To avoid this stalemate, you should decide early on who will get ultimate decision-making power in the case of a disagreement. This could mean that you choose a 51-49 split between partners instead. Or you could choose a “designated decider” third party to break any stalemates – this could be a trusted business attorney or another stakeholder in the company.

Create a Robust Partnership Operating AgreementYour partnership operating agreement is the single most important document when it comes to setting up your business for success. You may be excited to get started on your partnership and hit the ground running, but taking the time to properly consider and establish your partnership terms first could save you untold headaches down the road.
Some of the most important terms in your partnership agreement involve:

• Establishing the purpose of your partnership. What products or services will you be selling? What actions will you need to take to make your vision come true?
• Deciding what governing law will apply. In the case of a dispute, which state laws should determine the outcome? Which courts would you prefer to hear your case?
• Detailing each partner’s ownership, responsibilities, decision-making authority, and partnership contributions, such as capital, expertise, assets, or time.
• Determining how profits and losses will be divided among partners. Make sure everyone is on the same page when it comes to what they’ll be earning and what liabilities they can expect to take on for the partnership.

Managing expectations is key when it comes to minimizing unnecessary conflict. Your partnership agreement should reflect your vision and keep your venture on track.
You could also include a mission or values statement along with your partnership agreement, where you set out the culture, growth philosophy, and commitments of your venture.

Meet Your Partner(s) in the MiddleEvery partnership is unique. Consider how you and your partner complement each other. Cater to each partner’s strengths whenever possible and recognize your weaknesses.
Transparency is critical when it comes to the success of your partnership. You and your business partners must be able to communicate honestly and effectively with one another.
Problems often arise when communication breaks down, so one solution could be to schedule a regular meeting where partners can freely communicate their concerns. You could even detail a mediation plan in your operating agreement that gives you a path forward when conflicts arise.
Bring a Professional Into the RelationshipDespite the professional nature of business, partnerships can get extremely personal. Bringing in an objective third party such as a business attorney can be a game-changing source of support, helping partners anticipate and resolve difficult issues before they become problems.

When you’re in the thick of starting your business partnership, the bigger picture is often hard to see. A business lawyer can help you focus on your goals with effective strategies catered to your partnership’s unique needs. An objective professional can also make sure each partner’s needs and expectations are met when they might otherwise get overlooked.

How Do Business Partners Resolve Conflict?Conflict does not have to tear apart your partnership. The strongest partnerships aren’t free of all conflict – rather, they can successfully work through conflict to keep moving forward.
Address Disputes Early OnWhen needs don’t get addressed, they can fester into resentment. Have a conflict resolution procedure in place to help partners bring up any issues before they get worse. Hopefully, you and your partners have a regular meeting where you check in with each other. If you don’t, you should bring up any issues with your business partners as soon as they arise.
This is where a third-party professional can really help grease the wheels of communication.
Partnership MediationMediation involves bringing in a neutral third party who acts as an intermediary between two disputing partners. Business mediators are trained in communication, negotiation, and conflict-resolution techniques. Mediation is a great alternative to litigation – going to court to resolve a partnership dispute can get complicated and expensive.
When you choose mediation over litigation, you and your partner negotiate the resolution instead of a judge deciding the outcome of your dispute.
Business partnership disputes are bound to happen. When they do, you should keep your partnership’s ultimate goals in mind. Ideally, you and your partner can come to a resolution amicably and effectively. The more prepared you are for the possibility of a dispute, the better chance you’ll have at resolving the issue and continuing your venture’s growth.
Call the Philadelphia area offices of Holmes Business Law now at 215-482-0285 or use our contact form to prepare your partnership for success.

If you’re entering into a new business partnership, you should decide how you’re going to split profits and losses between partners before you start making money. You don’t want to find yourself fighting over debts after the fact. The best way to avoid partnership disputes over profits and losses is by planning their allotment in your partnership agreement.

Without a partnership agreement in place, equal partners assume profits and losses equally. This might work in some cases, but partners with absolutely equal power risk running into a decision-making stalemate that could derail their partnership.

Partnership profits and losses are often distributed based on capital contributions and management responsibility. General partners take on greater personal risks and are often rewarded with greater profits to reflect their precarious position, while limited partners are shielded from liability beyond whatever they’ve invested in the partnership.

Technically, your partnership’s profit and debt-sharing ratios could be whatever arbitrary numbers the partners agree upon – as long as you specify the terms in your partnership agreement. Your arrangement should reflect the investments made and risks taken by each partner in the venture so that nobody feels shortchanged when it comes to profit distributions.

A qualified business attorney can help you weigh all of the relevant factors and come to a profit- and debt-sharing agreement that sets up your partnership for success.
How Can Partnership Profits and Losses Be Distributed?However you decide to divide your profits and losses, you should clearly lay out these terms early on in your partnership, ideally in your partnership agreement. Unless you specify otherwise, the law will generally divide profits and losses equally between equal partners.
Many factors can affect how a partnership splits its profits and losses. The amount each partner gets will depend first on whether they are a general or limited partner.

• General partners tend to take on more of the risks so they often get more of the profits. In the case of debts, general partners are personally liable for a partnership’s losses. Also, general partners tend to be actively involved in managing the partnership’s operations, contributing more time and effort than limited partners.
  
• Limited partners are only liable for the amount that they invest into the partnership. Unlike general partners, their personal assets are off limits to the partnership’s creditors. Limited partners also tend to have less management responsibility. Compared to general partners, limited partners often get a smaller proportion of the partnership’s profits.
  

A partner’s contribution to the partnership could take the form of:

• Money or capital – Many partnerships are formed because one partner has the ideas but not the money necessary to see them through. In your partnership agreement, you could include terms for profits and losses to be divided based on the ratio of capital contributed by each partner over the course of that year. So the partner who contributes the greatest capital will get the greatest proportion of profits.
  
• Knowledge or resources – While one partner may be contributing financially, another could bring valuable information or resources to the table. One partner’s patent or copyright could be worth just as much as or more than a significant capital contribution. One partner’s professional expertise could be critical to the success of the partnership, where the partnership would fail without their knowledge or industry connections. Your partnership agreement could split profits to reflect this value.
  
• Time and effort – Even if one partner brings in a significant chunk of capital, another might spend dozens of hours every week to ensure the success of the partnership. They may act as the partnership’s boots on the ground, making sure the business operates on a day-to-day basis as well as keeping on track to meet long-term goals. You can reward their time and effort by reflecting that value in the partnership’s profit-sharing agreement.
  

There is no one-size-fits-all approach to profit and loss sharing in business partnerships, which is why templates you might find online will often fall short. The arrangement you and your partners agree upon should depend on the unique circumstances of your partnership.
Examples of Profit and Loss Distribution in PartnershipsYour loss distribution and profit-sharing agreements make up two important parts of your partnership agreement. Ultimately, your partnership agreement should show a full picture of your business arrangement: the number of total partners, the responsibilities and contributions of each partner, and the liabilities each partner takes on.
Some common examples of profit-loss sharing scenarios may look like:

• Partner A and Partner B each contribute $100,000 in forming a business partnership. Partner A manages all of the day-to-day operations while Partner B is a silent backer. Because Partner A has greater responsibilities, their partnership agreement states that they will share losses equally but Partner A will receive 80% of the profits.
  
• Partner A contributes $200,000 while Partner B contributes $100,000 to their new partnership. Both are equally responsible for managing the partnership’s day-to-day operations. Their partnership agreement states that profits and losses will be divided in proportion to the amount in each partner’s capital account on the last day of the year.
  
• Partner A contributes $200,000 while Partner B contributes $100,000. Partner A is responsible for day-to-day operations while Partner B handles upper-level management. Their partnership agreement states that Partner A will take on 70% of the profits and losses based both on their greater capital contribution and because their responsibilities require a greater amount of time and effort compared to Partner B.
  

The hypotheticals can go on and on. If your partnership receives contributions beyond cash capital, you may have to bring in expert appraisers to properly determine what they’re worth. You may need appraisers for real estate, office space, patents, trademarks, copyrights, office equipment, machinery, or other technologies that partners bring to the table.
You can also revisit your profit-sharing and loss-sharing agreements as your partnership grows. You can always update these agreements to reflect changes in your business.
The best approach is to come up with a profit and loss distribution model that makes sense to you. It’s best to do this early on in your partnership, ideally with the help of a business attorney who has experience evaluating partnership contributions. Call the Philadelphia area offices of Holmes Business Law now at 215-482-0285 or use our contact form to get started.

Your partnership operating agreement is the most important document when it comes to setting up your business partnership for success. A proper partnership agreement should establish several key operating decisions, such as each partner’s contributions to the venture, their voting rights, percentage of ownership, management duties, and share of profits. But the basics of your partnership operating agreement are just as important – your business name, where your office will be located, the actual purpose of your business. These “basics” of establishing your business partnership are often not that basic after all, which is why you should get a business lawyer involved early on in the process.

To start, picking a name for your business partnership sounds simple enough. But before you settle on a name, you must make sure the brand or trademark isn’t already taken. You must also make sure to include the proper legal name of your business as well as any additional trade names or “fictitious names” such as “doing business as” (DBA) names.

For example, the legal name of your limited liability partnership could be “Company ABC, LLP,” but you may also refer to your business as “The ABC Company” in advertising materials and simply “ABC” in internal documentation. These trade names should all be properly registered and associated with your partnership’s legal name.

Missing these critical details could cost you later on – for example, if you have to change the name of your business after months of building your brand. The best approach is to be as thorough as possible from the start so that the foundations of your partnership start off strong.

Where Should You Register Your Partnership’s Main Office?
As you set up your business partnership, you must decide where your business will be registered (with a registered agent) and where you will have your “principal place of business.” Your headquarters does not have to be the same place your agent is registered.
Your principal place of business is the primary location where your partnership conducts the bulk of its business functions. Usually, this is the place where the partnership keeps its business books and records as well as where the partners or senior management report when they go on-site.

However, this may change depending on the nature of your business. For example, you may have one office for board meetings but another location where the company’s operations are actually coordinated and managed.

Your principal place of business does not have to be a “traditional” office. A dentist’s main office could be the location where they see patients. For an auto mechanic, your principal place of business could be the garage where you repair vehicles.

If your principal place of business is in a different state than where you originally registered your partnership, you will have to register and designate a registered agent in both states.

For example, if you registered your partnership in Delaware but your headquarters operates out of Pennsylvania, you will need a registered agent in both states.

Your partnership’s state of registration and principal place of business will determine how you get taxed, whether you have any additional legal requirements to fulfill, and where your partnership could get sued in the case of a legal dispute. A business lawyer can help you determine the best and most strategic configuration for your partnership.

What Is the Length and Purpose of Your Partnership?
How long do you and your partner plan to be in business together? Are you collaborating on a one-shot or long-term venture? Do you plan to sell your company or take it public?
What products or services will you be selling exactly? How do you plan to conduct your day-to-day business? What metrics will you use to calculate your success?

These are all important questions to consider while you’re forming your partnership. And although the answers may seem basic or even self-explanatory, your partnership benefits from laying out the length and purpose of your venture in clear terms from the beginning.

Stating your partnership’s purpose helps keep you on track towards your goals. Not only that, but the terms of your partnership operating agreement will come into play if there’s ever a partnership dispute. For example, if you sense that your business partner is taking your company in an unsanctioned direction, you could show the terms of your partnership agreement as evidence that their actions do not align with your original goals.

What Types of Partners Make up Your Partnership?
Pennsylvania and New Jersey state laws recognize limited partnerships, limited liability partnerships, and general business partnerships. Each of these partnership structures comes with pros and cons for limited and general partners.

What’s the difference between a limited partner and a general partner?Simply put, general partners have a lot more to gain and lose from your partnership. They tend to get the bulk of the profits while also taking on the greatest risk of liability.

If the partnership fails, general partners would be on the hook (personally liable) for paying off the partnership’s debts. In contrast, limited liability partners are only liable for the amount they’ve invested into the partnership. Creditors can go after a general partner’s personal assets to recover their losses but cannot reach the personal assets of a limited partner.

Because general partners have a greater stake in the partnership, they often get the bulk of the venture’s profits as well as managerial control. Limited partners tend to have limited responsibilities and privileges as well as limited liability. In many cases, limited partners act as “silent partners,” especially if their primary contribution is capital investment, not expertise.

Your status as a general versus limited partner will affect your voting rights, decision-making authority, debt liability, and profit share in the partnership.

How Should You Choose Governing Law for a Partnership?
The laws that govern business partnerships vary by state. States have different requirements and processes for filing partnerships and resolving partnership disputes. You can include a “choice of law” or “governing law” provision in your partnership agreement to specify which state’s laws you wish to apply to your partnership in the event of any legal issues.

Why is a governing law provision so important? This allows you to choose a state with laws that benefit your partnership. Your choice of state law also helps make the dispute process more predictable and manageable for your partnership. You’ll know exactly which laws apply to your venture and you won’t have to deal with an unfamiliar state’s laws.

An experienced business attorney can help you structure your partnership in a way that is best geared for success on your terms. Call the Philadelphia area offices of Holmes Business Law now at 215-482-0285 or use our contact form to get your partnership started on the right foot.

If you’re doing business in New Jersey, you’ve got to keep up with changes in the Garden State’s employment and labor laws. Many legal changes that get passed during a legislative season go into effect on the first of every year – and 2022 is no different.

Is your New Jersey business ready to comply with legal changes on January 1st, 2022?

The best way to stay on top of changes in state and federal law is to work with a business lawyer who’s got your company’s best interests in mind. Proper and timely compliance with the law allows your business to operate without interruptions, penalties, or fines. Your business attorney can help you anticipate and implement new business policies in order to adapt.

When it comes to complying with new laws, it’s better to get started on the process sooner rather than later. You want to be prepared for legal changes before they come into effect, if possible. This ensures a much smoother transition for you and your employees. Failing to comply with these changes could leave you open to liability and employee lawsuits.

Higher Minimum Wage for New Jersey Employees

Starting January 1st, 2022, New Jersey is raising its minimum wage for most employees to

$13 an hour

. This is a dollar more than the 2021 minimum wage of $12 per hour and $5.75 more than the federal minimum wage. Your business must be in compliance with the new minimum wage by January 1st or you could face penalties or employee liability.

Some types of business and employees are still exempt from minimum wage laws:

• High school and college employees working part-time (up to 20 hours per week) must be paid a minimum of $9.35 per hour, or 85% of the standard minimum wage.
• Agricultural employees and farm workers must be paid a minimum of $10.30 per hour, or 70% of the standard minimum wage.
• Seasonal and small businesses must pay employees a minimum of $10.30 per hour.
• Workers under the age of 18 in certain roles such as in-home childcare may be entirely exempt from the state’s minimum wage laws.
• Tipped employees must receive a minimum cash wage of $5.13 per hour but their total wage earned including tips must be greater than or equal to $13 per hour.

Also remember that New Jersey allows employers to use tip credits and tipping pools, which are tightly regulated by the NJ Department of Labor and Workforce Development (NJDOL). Paying your workers improperly could cost you significant sums of money so it’s important to make sure you’re in compliance with all the relevant wage and hour laws.

How can you ensure that your business remains competitive and compliant?

• Carry out a financial audit of your cash flow and expenses. This will help you catch any common payroll mistakes and create a hiring plan your business can afford.
• You may be able to raise your prices. While customers are never happy about price increases, they’re a regular part of doing business. When raising prices, check and compare what your competitors are doing so that you don’t raise them too high.
• Look into automation and other tech solutions. You may be able to save large amounts in production or operational costs with new tech. This could be anything from new payroll management software to new manufacturing technology.

A business advisor such as a business attorney can help you analyze and take stock of your company’s current performance as well as trends in your industry.

The minimum wage in New Jersey will increase by $1 every year until 2024 when it will reach $15 an hour. The state currently has no additional local or city minimum wage laws.

Penalties for Employee Misclassification
Employee misclassification is a major workplace violation that can leave you vulnerable to thousands of dollars in lawsuits and penalties.

Misclassification happens when companies misclassify employees as independent contractors in order to avoid the cost of providing benefits and insurance to those employees. This is an illegal business practice that can get your company in hot water. Not only can you be fined and penalized by the government, but your workers could sue you in court.

In 2021, New Jersey Governor Murphy signed new bills into law that make it easier to identify companies who are misclassifying employees and penalize them for violations.

• Stop Work Orders and Injunctions – As of July 8th, 2021, the NJ Commissioner of Labor and Workforce Development has the authority to aggressively pursue wage, benefit, and tax violations in court and impose significant penalties on businesses found in violation. If the commissioner finds your business in violation, they could issue a stop-work order to pause your operations until you fix the issue. You could be fined up to $5,000 for each day that you continue business in violation of the stop-work order. Meanwhile, you must continue paying any affected employees for the first 10 days of the order. Additionally, the commissioner can take you to court and make you pay for attorney’s fees, litigation expenses, and investigation costs.
• Office of Strategic Enforcement and Compliance – A new state government office was created as a part of the NJDOL. Its purpose is to oversee and coordinate the enforcement of wage, benefits, and tax laws with other agencies. With an entire office dedicated to the issue, employee misclassification is under much greater scrutiny.
• NJ Insurance Fraud Prevention Act (NJIFA) Violations – Purposefully or knowingly misclassifying employees as independent contractors in order to save money on insurance premiums is a violation under the NJIFA as of January 1st, 2022. In addition to the other misclassification penalties, you could get penalized for insurance fraud. Fines start at $5,000 for the first violation, $10,000 for the second, and $15,000 each after that.

In order to keep on top of these legal developments, you should review and make any necessary adjustments to your workplace policies, employee handbooks, and independent contractor agreements. You should consult with a business attorney who can help you properly classify your workers as employees or independent contractors.

Call the Philadelphia offices of Holmes Business Law now at 215-482-0285 or schedule a call with our legal team. The sooner you get started on compliance for the new year, the better.

It’s critical to keep your business up to date with changing state and federal laws every year. Many laws that get passed in a legislative cycle go into effect on January 1st of the following year – and 2022 brings new laws for both Philadelphia and Pennsylvania businesses.

Is your business prepared for the new year? Have you taken steps towards compliance?
The sooner you get your business operations compliant with new laws, the better.
In fact, you should start the compliance process as soon as you find out about any new legal changes that apply to you. This gives you time to iron out any kinks that come up so that you’re fully in compliance by the time the law goes into effect. By being proactive, you can keep your business operating smoothly without interruptions, fines, or unexpected liabilities.

Your business lawyer can help you stay on top of any relevant developments that affect your operations, especially if you’ve got any employees on your payroll.

Changes to Philadelphia Pre-Employment Marijuana TestingEver since Pennsylvania legalized medical marijuana, the cannabis market and the cannabis legal landscape have been in a state of near-constant change.

Philadelphia Bill No. 200625 affects businesses that carry out marijuana testing. Starting January 1, 2022, businesses can no longer require that prospective employees undergo pre-hiring marijuana testing as a condition of getting a job.

This new law does not apply to employees who must get drug tested because of government regulations, contracts, or grants, as well as law enforcement agents, employees who supervise or care for children, caretakers of medical patients or the elderly, or workers who have the ability to significantly impact the health or safety of other employees or the public.

In addition, the new law does not affect how businesses test current employees. You can continue to test your active employees for cannabis, you just cannot ask new employees to take a marijuana drug test during the interview process before they’re hired.

What’s the reasoning behind this law? Cannabis can be detected in a person’s body for weeks or even months after last using the drug. So if you test an employee before hiring them, there’s no telling how recently they were exposed. This new law protects workers from being unfairly denied opportunities because of actions completely unrelated to their employment.

It’s important to keep ever-changing medical marijuana laws in mind when putting together a drug testing policy for your business. In many states, zero-tolerance drug policies are getting challenged in court by emerging medical marijuana rights, especially if employees show no signs of drug use or impairment during work hours. The last thing you want is to get pulled into an expensive wrongful termination lawsuit because you fired a worker for failing a marijuana test when they’re a medical marijuana user in their personal time outside of work.

Philadelphia’s Fair Workweek Law

Philadelphia’s new Fair Workweek law went into effect in April 2020 and the Philadelphia Office of Worker Protections began enforcing predictability pay in June 2021. Employers who aren’t aware of the law could be on the hook for hundreds of dollars owed to their employees.

Philadelphia’s new Fair Workweek law applies to any retail, food service, or hospitality business with more than 30 locations worldwide that employs more than 250 workers anywhere in the world, including all full-time, part-time, and temporary workers.

Under this law, food service, retail, and hospitality workers in Philadelphia must get written “good faith estimate” schedules of how many hours they’ll work in a 90-day period. Employers must give employees their schedules 14 days in advance. If you make any changes to a worker’s hours or shifts more than 24 hours after you’ve given them their schedule, you must pay that worker “predictability pay” for each change.

For example, a worker is entitled to predictability pay if their manager asks them to stay longer on their shift, changes the start time of a shift, or cancels their shift. Workers are allowed to request changes to their own shifts without this penalty. Generally, predictability pay comes out to one hour of pay at your usual rate.

In addition, these businesses must offer any additional hours that become available to current workers before they hire new employees to take on the extra shifts.

Pennsylvania Wage Exemptions for Salaried Workers

Effective September 7, 2021, the Pennsylvania General Assembly made some changes to state rules around executive, administrative, and professional worker minimum wage.

Previously, the law was written in a way that the Pennsylvania state minimum wage for executive, administrative, and professional workers would exceed the federal minimum wage requirements starting in October 2021. Lawmakers removed Pennsylvania’s amendments so that moving forward the minimum wage requirements would match that of federal law.

What does that mean for Pennsylvania businesses that employ executive, administrative, and professional workers? You must continue paying the federal minimum wage for these employees. As of October 2021, that is $684 per week. This rate changes every year.

Paid Sick Leave in Allegheny County, Pennsylvania

If you run a business in Pittsburgh’s Allegheny County with 26 or more employees, you must give your employees paid sick leave starting September 14, 2021.

Under this ordinance, you must give your employees one hour of paid sick time for every 35 hours that they work within the geographic boundaries of Allegheny County. Your workers must be able to accumulate up to 40 hours of paid sick leave in a calendar year. This is simply a baseline requirement – your company is free to offer a more generous paid sick leave plan.

Each violation of this County Ordinance could be fined up to $100.

To complicate matters, Pittsburgh also enacted the Pittsburgh Paid Sick Days Act in March 2020. The Pittsburgh Paid Sick Days Act has similar requirements to the County Ordinance except the city law applies to companies of all sizes. Businesses with less than 15 employees must offer a year of unpaid sick time accrual before switching to paid sick time. Businesses with 15 or more employees must offer the same amount of sick time as the County Ordinance.

Since these laws are so new, they remain relatively untested in the Pennsylvania court system. A knowledgeable business lawyer can help you comply with changes in the law, avoid penalties and fines, and keep your company running smoothly. Call the Philadelphia offices of Holmes Business Law now at 215-482-0285 to get started on your compliance plan.

The time has come – you’re ready to sell the business you’ve built over the course of years or decades. Every business owner has their own reasons for selling. You may be ready to retire or move to another city. You may simply be looking for a new challenge or venture. Your sales may be down and your business may need new capital or management to continue competing.

Whatever the reason, selling a business involves more than simply putting up a “for sale” sign on the front window. Preparing for a business sale with a winning strategy will net you better-qualified buyers and a significantly more profitable transaction.

With the right steps, you could get the best possible value for your business, one that reflects all the hard work you’ve invested into growing your company.

How Do You Prepare Your Business for Sale?
First, you’ll want to get a business lawyer involved as soon as possible. You should never go into a business purchase transaction without legal representation. A business attorney can help you not just execute the sales agreement, but also position your company in a way that makes it more appealing to potential buyers. The sooner you get started with counsel, the better.

Your reasons for selling your business will play a big role in shaping your business purchase transaction. After all, one of the first questions an informed buyer will ask is why you’re selling. The negotiations will proceed differently if you’re selling because your company is losing revenue versus selling a profitable company from which you’re retiring.

Second, you should determine what would be a successful outcome from the business sale. Is your goal to sell above a certain price, stay on board as a consultant, ensure your company maintains its original vision, or protect the jobs of your employees? Your lawyer can help you establish baselines for success then target those goals in your strategy.

When Should You Sell Your Business?Theoretically, you can sell your business immediately – as soon as you make the decision that you want to sell. But if you sell right away without getting your company’s affairs in order first, you could be leaving a lot of value on the table.
Think about selling a business similar to selling a home. According to a study by the National Association of Realtors, homes that are staged to be attractive to buyers sell faster and for more money than those that are not staged. The same goes for businesses.

By taking the time to prepare your business for sale, you can address and overcome your company’s weaknesses to make it as attractive as possible to prospective buyers. This could take just a few months or more, depending on what types of adjustments are needed. The difference could mean hundreds of thousands or even millions of dollars.

You can also time the sale of your business with other opportunities in your industry. For whatever reason, your industry may be booming – that could be a high-value time to sell. Conversely, if you’re still profiting in an “endangered industry” that’s shrinking in demand or value, you may want to sell sooner rather than later.

Your attorney can help put together an action plan for selling your business that takes into consideration your personal motivations, time limits, and sales goals.

Preparing Your Business for Sale Checklist
Every business is different and yours will benefit from a tailored approach. Your lawyer can help you get through the steps below to set your business sale up for maximum success.

1. Identify your company’s weak points and areas for improvement. Does your business have any pending litigation or court cases? Are all of your business licenses up to date? Do you have any zoning issues? Are all of your taxes and debts currently paid? Do you have trademarks and other IP protections in place? What do your revenue and cash flow look like? Do you have any staffing shortages?
2. Determine the cost-benefit of addressing these weak points. Is the problem affecting an integral part of your business success, or can it be disregarded without affecting your company’s performance? Is the condition important enough that it will lessen a buyer’s interest or the price they’re willing to pay? Is the cost of addressing the problem less than the effect of the weakness on the sales price? Can your company actually implement the necessary changes in a reasonable time before the sale?
3. Commit to a pre-sale action plan to improve the weak points you choose to address. Determine the exact steps you’ll take to strengthen each area, the timeline for making changes, how much investment and resources the improvements will take, and what duties will be assigned in order to execute the plan. You want to develop your business to maximize sales and profits. You may want to keep your plans to sell the company on the down-low, as rumors of a sale could rattle employees or customers.
4. Record metrics of success that show your company’s performance. Many industries have industry-specific metrics that determine how well your company is operating. You can also show projections for success under different scenarios, especially if you’re looking for investors to infuse the company with new capital. This may involve creating a pitch deck to present to potential buyers.
5. Get your company’s financial documents and operations in order. The healthier your business finances and operations, the more attractive your company will be to a buyer. If you’ve got an airtight, automated invoicing and customer management system that ensures you get paid on time, that means much less hassle, uncertainty, and risk for the buyer. If your accounting system involves filing cabinets filled with loose receipts, that’s not nearly as encouraging. Make sure you have an accurate organizational chart along with all the proper contracts and agreements between your company and its customers, vendors, employees, partners, and banks.
6. Do your due diligence. Your lawyer can help you bring on expert appraisers to evaluate the value of your business, brand, and assets. You can strengthen your position by presenting market research or statistics that support your company’s success.

The process doesn’t have to be overwhelming, especially with a capable business lawyer as your advisor. Once you find the right buyer for your business, your attorney can make sure you have all the proper documentation to complete a successful sale.

To get your business positioned for its best chance at success, call the Philadelphia offices of Holmes Business Law at 215-482-0285 or use our contact form to get started now.

Buying a business is an exciting time for any entrepreneur.
By purchasing an existing business, you can avoid many of the risks that come with starting a venture fresh from the ground up. The company you plan to acquire may already enjoy brand recognition, a solid customer base, or profitability. You can infuse a growing business with new capital and build upon its proven formula for even greater success.
But you must do your due diligence before you commit to purchasing a business or any business assets. One of the most important parts of a business purchase transaction involves establishing the worth and sales price of the business.

The only way to find out how much a business is worth is to evaluate the financial records and daily operations of the company – ideally, with the help of a trained professional and negotiator.

Despite being a business transaction, emotions can skew the perceived worth and value of a company. You may get excited and emotionally invested when you find a business you really love. Plus, the current owner has probably poured their own time and money into the venture. To them, the company may be worth much more than the number on paper.

The more thorough your due diligence, the stronger your position will be at the negotiation table. The last thing you want is to buy a business without an accurate understanding of its prospects and liabilities. You could end up overpaying or even worse – taking on unknown risks or debts that could sink your investment after the ink has dried on the sale.
How Is a Business Typically Valued?The process of valuing a business isn’t always as objective as you might think.
Even with advanced appraisal formulas, the future is impossible to predict. Your evaluations can certainly get more confident with the more evidence you have. But many aspects of appraising a business are subjective or intangible – for example, determining the value of brand recognition or customer goodwill. You and the seller may disagree on how much these are worth.
Even if there is no “perfect price,” you can use different valuation formulas to get to a reasonable price range that both buyer and seller can agree upon.

• Income and revenue valuation – If you’re looking to buy a business as an investment similar to real estate, stocks, or bonds, you need to find out what kind of return (ROI) you can expect to get from your investment. To do this, you’ll want to take a deep dive into the financial records of the business. How much revenue does the business bring in? What are the operational costs of running the business? Does the company have any significant debts? What is its market outlook for the next year or decade?
  
• Asset valuation – What is the current resale value of any assets owned by the company? Assets could be tangible (i.e., real estate or furniture) or intangible (i.e., copyrights or trademarks). You may have to work with appraisal experts or brokers to get an accurate account of how much different assets are worth.
  
• Industry formulas and guides – Some industries actually have commonly used rules of thumb to help appraise their value. For example, a brewing company is valued much differently than a publishing company. These formulas may be based on the company’s earnings average over a certain period or its “book value,” calculated by taking the difference between the company’s total assets and liabilities.
  
• Comparable businesses – You can get a better idea of a company’s selling price by looking at how much other similar companies have sold for recently. However, this may not always work because small businesses tend to be unique. You may struggle to find a recently sold business that is actually comparable to the one you’re thinking of buying. Many startups are created with the explicit purpose of disrupting markets and innovative businesses may offer new products or services that have no similar competitors.
  

Even with these formulas, there is no one-size-fits-all approach to valuing a business. Every business is unique and requires a close look to value properly.
You don’t want to take any shortcuts when evaluating the worth of a business. You want to make sure you’ve left no stone unturned so that you don’t encounter any surprises later on.
How Do You Determine the Value of a Business to Buy?When determining the price of a business you want to buy, you can expect to negotiate within a price range with the seller, taking into account the company’s financial health.
The lowest end of the price range would cover the current market value for any of the assets the company still owns, minus its debts. This might be the case if a company is going out of business and liquidating its assets – and you don’t plan to continue operating it.
The higher end of the price range would cover any business assets plus expected earnings for the future. If the business you plan to buy has a solid reputation and strong customer base with a high likelihood of increasing revenue and profits, that will affect the purchase price.
But assets and revenue aren’t the only factors to consider in a business purchase transaction.

• What are the terms of payment and will that affect the final purchase price?
  
• What is the market demand for the company’s products or services?
  
• What are your reasons for buying this company?
  
• What is the seller’s intent and do they have any personal needs or goals?
  
• Does either party have time limits they must consider?
  

For example, negotiating with a small business owner who built their labor of love from the ground up but has plans to retire soon will be much different than negotiating with a franchise owner or investment firm. You’ve got to consider these circumstances in your approach.
When you buy a business, you get more than just a company. You could be investing in a personal dream, a lifelong goal, or a new adventure. You want to make sure you get the most of the new venture you’re getting into – and the best way to do that is to have a business lawyer on your side, covering your back and watching out for unexpected curve balls. You want a seasoned negotiator who can get you the best deal possible.
Thinking of buying a business? Get the experts on your side. Call the Philadelphia offices of Holmes Business Law at 215-482-0285 or use our contact form to get started now.