The first and most important thing a company can do to protect its intellectual property (IP) is to identify it.
“A business cannot protect its IP assets if it is unaware of the existence and significance of those assets,” says Robert G. Schuler, director and chair of the Intellectual Property area at Kegler, Brown, Hill & Ritter. “An IP audit is one way a business can identify its IP assets and ensure that proper steps have been taken to protect those assets.”
Schuler also says it’s important to educate your work force on the basics of intellectual property. “It does a business little good if the only ones who are aware of the company’s IP assets are those in upper management. More importantly, an educated work force is less likely to infringe another company’s IP, putting their own company at risk.”
Smart Business asked Schuler for tips on protecting intellectual property.
Why do businesses struggle with identifying their intellectual property?
Companies struggle for two primary reasons. First, when talking about intellectual property, you’re talking about intangible and quite often very abstract rights. It’s one thing to know how many widgets you have. It’s quite another thing to know how many copyrights or trademarks you may be using in the business, because that requires an understanding of what is subject to copyright or trademark protection.
Second, quite often the decision makers at a company are not on the front lines; they’re not actually in the room when various inventions are conceived or when marketing campaigns are developed. They may not be aware of the key IP that is being developed. This disconnect between employees and decision makers can result in a failure to take the proper steps to protect intellectual property and, accordingly, a loss in value to the business.
What areas are commonly overlooked?
It really depends on the business. If your company is heavily focused on technology research and development, you are more likely to be focused on patent or trade secret protection and may not be as focused on issues relating to trademark and branding. Conversely, if your company concentrates on marketing, you may be focused on trademarks and may overlook the value of other key IP assets, such as your trade secrets and know-how.
If I were to pick one category that is most often overlooked, or undervalued, it would be the business’s trade secrets, which comprise the truly confidential information and know-how that gives a business its competitive advantage. The law requires that you take reasonable steps to keep the information secret, and, if there is ever a dispute, the court will scrutinize the steps you took. So someone within the organization needs to be aware of the business’s trade secrets and ensure that appropriate measures are in place, which includes the use of non-disclosure agreements and appropriate IT security.
How can a company identify its intellectual property?
The first step is to have an intellectual property attorney do an audit to identify your IP assets and the steps you have taken to protect them.
The audit can usually be done within a few hours for a small company or within a day or two for a larger company.
Reach out to the attorney early on and he or she can identify who in your company will need to attend the meeting and let you know what those people will need to bring to the meeting.
Make sure all the right people are meeting with the attorney. If R&D is involved, have the head of the division there; if marketing is involved, have the person familiar with all marketing efforts present.
The attorney can also suggest best practices to help a company identify and ‘mine’ its valuable IP assets more easily going forward, which can include training, invention disclosure forms, and appropriate clearance and review procedures for marketing collateral.
How can a company protect its assets?
With respect to trademarks and copyright, if they are important to your business, you need to register them — period. Doing so will significantly enhance your ability to protect them.
In regard to new inventions, processes, and designs, talk to a patent attorney. If they are subject to patent protections, the patent can give you exclusive rights for a certain amount of time and the benefits can be immeasurable.
You also need to think globally. Make sure you’ve taken the proper steps to protect your trademarks in key foreign jurisdictions in which you conduct business. In regard to patent protections, be sure your patent attorney is aware of all countries in which you are making or selling your products so that a proper strategy for protection can be put in place.
How should a company proceed if it is accused of infringing on someone else’s IP?
The most important advice is this: Get experienced legal counsel involved immediately. If the attorney can put together a well-reasoned, researched response out of the gate, you’ll maximize your opportunity to avoid costly litigation.
ROBERT G. SCHULER is director and chair of the Intellectual Property area at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5410 or email@example.com.
Good news: It’s an ideal time to start a business in Columbus, according to Steve Barsotti, a director with Kegler, Brown, Hill & Ritter.
“The downturn in the economy has sparked a lot of activity in the startup space over the last few years,” Barsotti says. “Some people have started businesses by necessity as other career avenues have been cut off to them. Fortunately, the business community here is very open, with many resources available and a lot of formal and informal support.”
Barsotti emphasizes the importance of having a good business plan along with good records, books and documentation right out of the gate. “It’s critical to talk with good counsel and accountants when you first start out,” he says. “For a relatively small investment, they will help you set up the business in a way that will maximize your opportunity for growth and avoid more expensive problems down the road.”
Smart Business asked Barsotti about key considerations when starting up a business.
How does one determine the best legal structure for his or her startup?
The best legal structure depends on a number of factors, but it’s particularly important for startup companies to structure in a way that allows for flexibility and growth. The limited liability company (LLC) format is typically a good choice for startups because it provides for pass-through tax treatment and also allows the company to bring in different types of investors and structure preferred returns that investors in a start-up will often expect. Again, basic up-front legal and accounting advice can be critical. Oftentimes, new clients come to us and have already set up a structure that is less than ideal.
How important is the business plan?
A good business plan is the key. Without a good plan, there’s really no chance of getting any funding. It’s easy to get stalled. And it’s important to have a plan that is well researched and thought-out, but also builds in some flexibility. In the startup phase, you need the flexibility to improvise and adapt quickly.
Too often an entrepreneur might have a kernel of an idea, but they have not yet gone through the projections and numbers to determine if it would work as a business. The Small Business Administration (SBA) has good online resources for creating basic business plans.
How can an entrepreneur find funding in the present economic environment?
This is the toughest question for an entrepreneur to answer during the startup phase. The answer depends on the business’s capital needs and what is realistic.
A lot of businesses, in particular internet-based businesses, can be boot-strapped because they are not necessarily capital intensive. The owner uses personal savings, home equity, credit cards and ‘sweat equity’ to get the business off the ground. Asking friends and family is another common avenue, but this raises issues of securities compliance and can get pretty hairy if the business fails.
Because traditional bank financing has been difficult to come by, we’re seeing increased activity in private placement of equity investment with angels and accredited investors at an early stage, particularly for entrepreneurs who have a positive track record. Although bank financing is still tight, I always recommend talking with bankers to see what might be available. If nothing else, it can help develop a relationship and the banker can give helpful feedback on the business plan.
How can the owner protect his or her ideas and products right from the beginning?
At the startup phase, you’re trying to set up your business for cost-effective growth. Protecting your intellectual property is critical to that effort, and all startups should have an appropriate IP strategy, which will differ dramatically depending on the nature of the business. For some startups, strategic patent filings have to be made despite the cost in order for the business to have any real chance of success in the long-term. For others, patents may not be an issue, but speed to market or effective brand protection may be more critical. In all cases, you need to be smart and selective about whom you share your ideas with and you need to have basic contractual protections with those involved to protect confidentiality and to ensure that IP ownership is clearly vested in the company. Having template contracts drawn up is a small investment up front, but the consequences of not having them can be devastating and negatively impact the value of the business you’re trying to grow.
This will also help set the expectations of the people you’re dealing with.
What should the entrepreneur be aware of in terms of contracting labor or hiring employees?
Again, have good contracts. Ensure that confidentiality and non-compete agreements are in place and that intellectual property will be effectively transferred to the company. Be aware of regulatory guidelines that will help you determine whether someone is an independent contractor or an employee. If you need to hire employees, make sure you are in compliance with insurance requirements and tax filings. A good payroll service and a good accountant can certainly help avoid problems.
How can the business get additional help?
Columbus has really developed a solid network that supports startup activity. Technology companies (which include more than you may think) can find assistance with the TechColumbus TechStart Incubator, which has a high-profile presence and provides typical incubator support. In addition, the Columbus Chamber of Commerce is actively working to promote startup activity in the community and provides good networking, research and other support services. It can be a terrific resource for entrepreneurs. Many times, the key to success is simply connecting people with the right experience, vision and skill sets.
STEVE BARSOTTI is a director with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5458 or firstname.lastname@example.org.
Spending on unemployment compensation is at an all-time high, jumping from approximately $31 billion in 2008 to $120 billion in 2009, $160 billion in 2010 and a projected $120 billion for 2011. Numerous states, including Ohio, have depleted their unemployment compensation trust funds and have had to borrow from the federal government.
“Ohio employers have seen modest increases in their state unemployment taxes over the last few years as automatic triggers kicked in to try to keep the fund solvent. However, the increases just haven’t been enough to stay ahead of the benefits paid out,” says Anthonio C. Fiore, an attorney with Kegler, Brown, Hill & Ritter.
Eventually, the federal government will look to Ohio employers to replenish their fund through higher contributions or taxes. To keep the costs to employers from growing ever higher, Fiore says the state and its employers must work to reform the unemployment compensation system in Ohio and get people re-employed.
Smart Business spoke with Fiore about the tasks at hand.
What is the status of Ohio’s unemployment compensation (UC) trust fund?
Employers pay into both the state and federal unemployment compensation trust funds. Solvency of the state’s UC trust fund had been a growing concern for a number of years, but it finally moved into the red in January 2009. Ohio currently owes the federal government over $2.6 billion for loans from the Federal Unemployment Account (FUA) — commonly referred to as Title XII loans.
How does the situation in Ohio compare to that in other states?
Ohio is in the same boat as many other states. The highest unemployment in nearly three decades is spread across the U.S. and very few counties and states have been immune. State unemployment taxes increased as a percent of total wages on average by 34 percent from 2009 to 2010 and are expected to increase even more for 2011 and 2012.
As of Sept. 1, 2011, 27 states and the Virgin Islands have outstanding federal loans of over $36 billion. The United States Department of Labor (USDOL) projects a peak in 2013 of up to 40 states and $65.2 billion in outstanding loans. Interest on loans is charged at the rate of just over 4 percent for 2011. Approximately $1.7 billion will need to be paid from sources other than the state unemployment insurance (UI) tax — employers in 19 states (not including Ohio) will pay a special assessment to cover this cost. The first interest payment from states is due September 30, 2011, and interest will continue to accrue as long as loans are outstanding.
State and federal unemployment taxes will continue to increase over the next three years and remain at higher rates for at least 10 years on average. Average UI taxes will more than double with some employers experiencing much higher tax increases as a percentage of total wages. Increased taxes will increase the cost of hiring. Increased duration of unemployment compensation will continue to be a disincentive to individuals deciding whether to actively seek and accept work available in the labor market. Relief from automatic Title XII interest and Federal Unemployment Tax Act (FUTA) offset credit penalties is possible only if states, businesses and workers push for them. States with no debt may be less supportive of relief, arguing that they have already addressed solvency and did not get relief.
How long will it take Ohio to get its fund solvent once again?
The goal is not simply to pay back the $2.6 billion to the federal government. The goal is to replenish the fund to what is called ‘minimum safe level’ in order for it to weather future economic downturns. The minimum safe level is around $2.5 billion; therefore the state UI fund is approximately $5 billion away from where it needs to be in the future. It could take three to five years to get the fund back to this level.
How can Ohio get the fund back to solvency?
Obviously, the best case scenario is finding a way to get more individuals employed, so fewer individuals are collecting unemployment. That would help Ohio rebuild the fund the fastest, versus raising employer taxes. In terms of direct costs to companies, businesses can work with third-party claims administrators and/or an attorney to more aggressively manage their claims to eradicate fraudulent claims and overpayments. The state itself is taking numerous proactive efforts and is focusing on ways to reform Ohio’s unemployment compensation system, keep businesses in Ohio, attract new companies to Ohio, and get Ohioans re-employed.
How will developments at the federal level impact Ohio?
Pending legislation (H.R. 1745, also known as the Jobs Act) would reform aspects of the unemployment system. Ohio would benefit from some of the reforms that are being advocated by a broad coalition of national and state business associations. One of these is a requirement that would strengthen job search requirements for those receiving unemployment. In addition, President Obama recently released the ‘American JOBS Act’ with several provisions affecting unemployment compensation. While some provisions of the proposal have merit there is still uncertainty surrounding what price tag will be levied on those who fully fund the system — employers. The current system was developed in the 1930s and was not set up for the situation the country is currently in. Reforms would focus on getting people re-employed faster and into the jobs that are available.
ANTHONIO C. FIORE is an attorney with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5428 or email@example.com.
Ohio will soon get four casinos — one in Columbus, Cleveland, Cincinnati, and Toledo. Since the time that Issue 3 passed in 2009 until the present, most of the major hurdles have been removed and the Ohio Casino Commission is beginning to work on regulations.
A dispute that threatened to stall progress in Columbus — about where Penn National Gaming would build its casino — was settled on July 22, 2011.
“There were some in the Columbus business community who felt that a casino in the Arena District, which was the original site where the casino was going to be built, would threaten residential development and business in that area,” says Michael E. Zatezalo, managing director and chair, Gaming Law practice, Kegler, Brown, Hill & Ritter.
Smart Business asked Zatezalo about the outcome of that situation and what it means for Columbus and the state in general.
Where will the Columbus casino be located?
Penn National will annex an old GM plant site on Columbus’ west side near I-270 and Broad Street, about 20 minutes from the Arena District. Nationwide Realty Investors will buy the Arena District property that Penn National had intended to build the casino on from Penn National for $11 million. Penn will receive $15 million in incentives from the city to help clean up the site where the casino will be built.
How soon will the casino open?
Between regulation and construction issues, it looks like late 2012. Because of the controversy in Columbus about where the casino would be built, it might be one of the later of the four Ohio casinos to come online.
Will the Ohio casinos be subject to the Commercial Activity Tax?
Having to pay the Commercial Activity Tax would have meant the operators would have to pay an additional $10 million to $12 million to the state per year, which gave the investment bankers financing the casinos a concern. A compromise was reached so that instead of having to pay the Commercial Activity Tax, the casinos will pay the state $115 million over 10 years.
History shows that casinos located in the lowest tax jurisdictions (Nevada, Mississippi and New Jersey) invest more money into their facilities and produce more jobs. So there are tradeoffs. It remains to be seen what will happen in Ohio. Yes, the state ‘could’ have gotten more money, but a high tax rate is not necessarily the best way to create jobs. There are people who feel that the payment over 10 years is a fair break.
How will the casinos impact Ohio’s race tracks and charities?
Gov. John Kasich has signed into law an amendment that will permit relocation of Ohio’s horse race tracks. Penn National Gaming has indicated it would like to move its Beulah Park race track out of Columbus and into Dayton, and its Raceway Park track out of Toledo and into Youngstown, so the race tracks won’t compete with the casinos. In addition, the state has authorized video lottery terminals (VLTs) at race tracks, but the Ohio Lottery Commission will have to develop the regulations — it could take about a year, but we can’t say for sure. It’s a very fluid situation.
Charities are already negatively impacted and will continue to be. They are under siege by casinos, VLTs and sweepstakes parlors, which are not regulated. A bill has been introduced at the request of the Attorney General’s office that would license and regulate sweepstakes parlors and skill games. Veterans’ organizations are also trying to get VLTs into their posts, but that would open the door for bar owners to argue for them as well.
How can businesses that want to work with casinos best prepare?
Anyone who wants to serve as a vendor will have to be thoroughly familiar and compliant with all the rules, regulations and licensing requirements. The Ohio Casino Commission is just beginning the process of developing the regulations. At present, they have given priority to determining how the casino operators themselves will be regulated.
The gaming industry is probably the most regulated industry in America. There are many protections in place to ensure the integrity of the games and that the gamblers are getting a fair shot at winning. That said, you don’t want the regulations to be so tight that they restrict the ability to do business. So we are hoping for a regulatory scheme that recognizes the need for flexibility — one that is set up in a way that will maximize revenue for Ohio.
Will the casinos have a positive impact on the local and state economies?
I think that they will. But there will be tradeoffs. The casinos might create problem gambling issues for some people and may take entertainment dollars away from local businesses, but then again, they will also create jobs and draw people to Ohio who otherwise would not travel here. And once people are in town, they might start looking for other things to do as well, such as go to a baseball game or visit a museum.
In Biloxi, Miss., for instance, there are now 32 golf courses surrounding the local casinos. The net bottom line is that the new casinos will keep money and jobs in Ohio.
MICHAEL E. ZATEZALO is managing director and chair, Gaming Law practice, Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5497 or firstname.lastname@example.org.
Alot of business owners avoid the topic of business succession planning. They’re happy doing what they’re doing and life is good.
But what if something happens? What if the owner has a significant health event or dies? What if the family takes over when that was not the owner’s intention at all?
There can be a lot of strife and unnecessary financial loss without a plan in place. The owner knows the business better than anyone and should be the one who decides how to maximize its value after he or she is gone.
Many owners reason that they don’t have the time to develop a plan. However, it can be done in manageable steps.
“You can at least get started on defining your goals and then, through regularly scheduled meetings, craft the plan over the course of several years if need be,” says Chuck Kegler, director, Kegler, Brown, Hill & Ritter.
Smart Business asked Kegler for guidance on how owners can best navigate this process.
What is the starting point for business succession planning?
First you must come to the point of acceptance that you’re not going to be around forever, and that developing a plan is in your family’s best interests. Then you need to define your goals. There is no cookie cutter way to develop a plan. Goals, families and finances are all different, so therefore, each plan is different.
Also, there may be conflict among the goals — everyone wants to have their cake and eat it too, but that’s not always going to be the case. Owners can get very overwhelmed with the goal identification process. Anything their adviser can do to simplify the process — such as breaking down the goals into several categories — and keep the owner focused will help move the process along.
What happens after the goals have been identified?
The next step is to have a business valuation conducted by a third-party firm. How much is the business actually worth? Most owners don’t really know. Interview two or three investment bankers (brokers) and ask how they would go about selling your business. What do they think it’s worth? Brokers and investment bankers will often provide valuation estimates for no charge in hopes of being engaged to sell the business. Once you have a sense of a range of values you can work on the exit model — will you sell to an independent party, to family members or employees, or transfer the company to the next generation? How will your decision impact all of your other goals?
What are some of the most common roadblocks the owner will face during this process, and how does he or she overcome them?
The roadblocks will depend on the road taken. Even if you think it’s relatively straightforward (e.g., I’m transferring the business to my son), there are still many decisions to be made. Will this decision create conflict among the other siblings? How much money will they get, even those who don’t work in the business? Will any of this be gifted? Will your son pay you? How will your health care needs be provided for? What if you become disabled? Based on your goals and future needs, how much money will you actually need? Do you still want capital to invest in other opportunities in the future? Do you need some degree of certainty in terms of a guaranteed future income stream, such as an annuity? How would that decision impact your children at the time of your death? The answers to these questions may require you to refine your goals.
Owners who want to sell have other issues to consider. Unless an owner has health problems, is overly stressed, or just wants to get rid of the business, it may be decided that he or she ‘can’t afford’ to sell. Perhaps the proceeds from the sale will not enable the owner to maintain the lifestyle to which he or she is accustomed. On the other hand, if the most important goal is, ‘I need more time for my personal life,’ the owner might come to the conclusion that, ‘yes, this will be a different life than I am used to, but I can do this.’
What are some key considerations for structuring a plan that minimizes exposure to taxation?
There are two primary taxes to think about. First, if you’re selling, how do you minimize the income tax side? The goal is to pay one level of tax at the capital gains tax rate. Next, there are the gift and estate taxes. The $5 million ($10 million for married couples) exemption has been extended through 2011 and 2012, so many owners think the financial pressure involved with making estate planning decisions is off. However, that’s temporary — we don’t know what’s going to happen Jan. 1, 2013. Even the least informed members of Congress understand that we have a significant deficit and that an easy way to reduce some of that deficit is to go back to the $1 million/55 percent exemption. If this happens, it will once again change the estate planning ball game.
Chuck KEgler is a director, as well as chair of the business and tax and estate planning areas, at Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5446 or email@example.com.
Buying or leasing real estate is a necessary pursuit, yet one fraught with risk.
“If you don’t do your due diligence with regard to those risks, you may end up locked into an asset that, instead of helping your business prosper, drains your profits,” says Jeff Roberts, associate with Kegler, Brown, Hill & Ritter Co., LPA.
“The steps you take to analyze those risks will determine whether you have an asset or a large liability on your hands.”
Smart Business spoke with Roberts about how to manage risk when buying or leasing real estate.
What risks should companies be aware of when buying or leasing real estate?
There are different risks associated with buying and leasing. On the buying side, we can break it down into business and legal risks.
From buying standpoint, the No. 1 business risk is affordability. How does this purchase fit into your business plan going forward? What is your exit strategy with this location? If you are not paying cash, what are your financing options? Obviously, if you are in retail it’s all about location, location, location.
Legal risks include obtaining clean title to the property, environmental issues, access and the permitted use of that location. Does the zoning match up with what you are trying to do?
When it comes to leasing, the first issue to consider is the length of the lease: long-term versus short-term. If you find a space you really like, you may want to look into a longer-term lease because you can get better business terms. The flip side to long-term is it locks you in for a while, so you need to try to work as much flexibility into the lease as possible. Look into expansion rights and rights of refusal, because your company may potentially need more space to accommodate growth. Also, you may want to negotiate a termination right and subleasing rights, in the event that the business has a downturn and you have to shrink the space or get rid of it altogether.
From a leasing standpoint, if you are in a long-term situation without much flexibility, you can be stuck with a real potential drain on the profitability of your company. The same risks are present if you buy and you bought too much space, or the space is highly leveraged, or it is not exactly what you wanted.
Why is flexibility important?
If you are moving into a large space with potential for growth, it is more desirable to have the potential to expand your operations or offices than to have to find a brand new space and negotiate with a new landlord. You already know what you’re dealing with at that space at that time.
Conversely, you want to negotiate a termination right, or a right to sublease in case things start to go badly — especially when you are considering a long-term lease. Because, although these termination rights come with penalty, at least you can quantify what that downside would be.
Landlords will offer better pricing if you sign a long-term lease, because they have a longer stream of cash flow that will minimize their risk. Given this longer-term commitment, you should work these outs into the lease, just in case.
How should companies deal with risk in today’s real estate market?
If you’re looking at purchasing a property, explore your potential financing sources early in the process. Financing takes longer to get approved than it used to. Exploring financing sources early in the process will allow you to know whether buying or leasing that space will be an option for you in the first place.
If you are leasing, you should be aware that the financing is coming due on many commercial spaces. Banks have been shrinking their commercial real estate portfolios. Often, they are not willing to renew on a long-term basis for some buildings. From a tenant’s perspective, you want to protect yourself and your lease in the event your landlord is foreclosed upon and the lender becomes your new landlord.
A good tactic is negotiating subordination and non-disturbance agreements in connection with your lease to protect yourself in the event that the landlord’s financing goes bad.
Also, sit down with your legal counsel and do some business planning. You may want to create a single-purpose entity like a holding company to own the real estate in order to shelter the operating business from potential liability. The last thing you want is a slip and fall in your building leading to a lawsuit targeting the operating company, rather than the owner of the property.
In addition to talking to your legal counsel, get advice from either your tax counsel or your accountant to determine whether leasing or owning real estate would be better for you. One way may benefit the operating company more than the other.
What tips would you give someone in the process of buying or leasing real estate?
Be proactive throughout the process. Stay in front of potential issues before you actually purchase or lease that space. Ask lots of questions. There are no stupid questions, especially if you’re not experienced in the area. Make sure you do your due diligence. Determine your financing capabilities. No. 1, is it available to you, and No. 2, can you afford it? Last, consider hiring a good broker who knows the market.
These are all ways to manage risk, but the combination of hiring good counsel and being proactive rather than reactive is important.
JEFF ROBERTS is an associate with Kegler, Brown, Hill & Ritter Co., LPA. Reach him at (614) 462-5465 or firstname.lastname@example.org.
There is not one single credit policy that will be perfect for each and every company. But, a well thought-out credit policy can help weigh the risks of a customer defaulting and determine whether their business is a risk worth taking.
A company looking to expand its market share may decide to extend credit to just about anyone, besides, of course, obvious bad debts. On the other hand, a company with a more mature and established market position might not be interested in taking any risks at all, and may choose to only extend credit to customers that are completely credit-worthy.
“Receivables are a big part of a company and write-offs hurt,” says Dan Bennett, an associate with Kegler, Brown, Hill & Ritter. “So it’s important to have a handle on the quality of your receivables.”
Smart Business spoke with Bennett about how the collection process works and how tweaking your credit policy can help you with it.
What are some common mistakes companies make in their credit policies?
From a legal perspective, one of the biggest mistakes companies make is not knowing their customers. Literally, you have to know exactly who your customer is. The customer may use a trade name, or it could be an individual and not an entity. Once a matter hits my desk and the client wants to proceed to suit, if I have to spend time researching what entity actually owes the debt, the entire collection process becomes much more difficult, expensive and uncertain. The worst cases I’ve seen are where the customer doesn’t actually exist from a legal perspective — in other words, the entity listed on the credit application is not an actual registered entity.
Another mistake is not maintaining the file properly. This might sound basic, but if a client wants to proceed against a debtor under its standard contract or a personal guaranty, I need to have a fully executed copy. If the creditor is secured and wants to take advantage of its remedies as a secured creditor, I need a signed Security Agreement and the security interest needs to be perfected.
From a business standpoint, the biggest mistake I see is continuing to extend credit when there are red flags associated with the account. An ounce of prevention is better than a pound of cure, and so if an institution is looking to minimize credit risk, the credit managers need to be proactive any time there is a warning sign on the account.
How does the collection process work?
Assuming we’ve done our homework on the debtor and we think collection efforts make sense, we’ll either send out a demand letter or proceed directly to suit. The claims we’ll bring and the entities we sue will depend on the facts of each case. Is the creditor secured? Does the creditor have a mortgage? Is the debt personally guaranteed? Were sales made pursuant to a contract or on an open account? Has the debtor been doing anything nefarious that might make claims against shareholders or affiliates viable? Is the debtor the type of business where we could seek to have a receiver appointed?
Once a complaint is filed, and assuming we’re unable to work out a settlement, the case proceeds to judgment and then post-judgment collection remedies. We’ll continue to attempt to collect until the judgment has been fully paid, we’re unable to identify assets to collect on, or the debtor files bankruptcy.
How long does the litigation process take?
It varies greatly. It could last a bit more than a month if the debtor fails to even defend the case. If a debtor defends the litigation all the way through trial — which would be rare, almost all collections cases end without a full-blown trial — it could last between a year and a year-and-a-half. After obtaining a judgment, forcible collection could last anywhere from a couple of months to indefinitely. It just depends on the financial health of the judgment-debtor.
Are there any solutions when the debtor has no assets?
No. You can’t get blood from a turnip. Post-judgment collection results are going to mirror the quality of the credit decision the client made in the first place. When a client comes in to us with a potential new case, the first thing we do is gather all the information we can on the debtor to determine the likelihood of collection. If, for example, we see there are four judgments already outstanding, a federal tax lien, no assets to speak of, and a home in foreclosure, the reality is we’re never going to see a dime from that debtor. We’ll advise the client not to proceed — there’s no sense in throwing good money after bad.
A company should know in advance based on how it’s structured its credit policy whether it will experience a high volume or low volume of write-offs. If it’s not matching up with their expectations, they need to revisit their credit policy.
Dan Bennett is an associate with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5448 or email@example.com.
As the regulatory framework continues to evolve, the role of a company’s board of directors and its corporate governance policies and practices will continue to be under intense scrutiny.
“The board of a corporation has overall responsibility for the activities of the corporation,” says Aneezal H. Mohamed, an attorney with Kegler, Brown, Hill & Ritter. “If the board of directors is conveying conflicting information, that cannot be good for the organization. So the message coming out of board deliberations has to be consistent as such.”
Smart Business spoke with Mohamed about how to ensure your board is at its most effective.
Why is corporate governance important?
Effective corporate governance helps a company achieve its objectives, which generally are strategic and business planning, risk oversight, financial management, HR planning, compliance and accountability through effective controls and procedures. Also, effective corporate governance helps a company prevent corporate fraud, scandals, and possibly civil and criminal liability. At the end of the day, it makes good business sense; a company with a good corporate governance image enhances its reputation. It is attractive to investors, customers and suppliers and other entities would be comfortable doing business with a company that has a good corporate reputation.
What is the role of the board of directors?
Generally speaking, the primary duties of a board start with its fiduciary responsibilities. Members of the board of directors have a fiduciary responsibility to act in good faith and with a reasonable degree of care. They must not have a conflict of interest. So the interest of the company must take precedence over personal interest of the individual board members. Board members are also responsible for setting the mission of the company. The board can change the company’s mission, but it should only be done after careful deliberation. The board does not manage the day-to-day activities of the company, but it does set overall policy and exercises oversight responsibility.
What are some common problems that companies have with their boards of directors?
Because the board of directors is so critical to an entity, it is very important that the organization utilizes a well-thought-out nominating process to nominate qualified individuals to the board. One factor companies may need to assess when selecting a board member is whether the potential board member is able to devote the necessary time to be sufficiently engaged in fulfilling his or her obligations. The individuals selected to be on a board have responsibility for the activities of the corporation. The board acts on behalf of the shareholders to make these overall policy decisions. It is very important to have the right nominating process to select qualified individuals who will work to do what’s in the best interest of the company. If individuals are on too many boards, they may be stretched too thin and not have enough time to focus on board matters. Most large companies have a nominating committee handle the process of selecting potential candidates. They generally have a vetting process in place to identify the right candidate, and review qualifications and expertise. The committee is looking for what these people can bring to the table to add value in a very meaningful way — along with their ability to commit the necessary time.
How can a board that is not in line affect the company?
A board that is not in line will not be beneficial to the company or its shareholders. Keep in mind that the board works to advance the interests of the corporation and its shareholders. If a board presents a united front, then the message conveyed to shareholders, investors, the management team and the company’s other partners is that the company functions as an organization — not as individuals. A board that is not in line is not conveying the same message as a company that is very well organized and has good governance processes in place. If the message is not consistent that would not be good for a corporation.
How can the board debate the company’s direction while ensuring its message to shareholders is consistent?
A lot of work must be done behind the scenes. Board meetings should be a forum where the members can freely express their opinions and deliberate in private. It is critical that those deliberations remain private. There is no reason for those discussions or disagreements to be publicized, other than if something improper or illegal was being done. Board members should be able to deliberate in confidence and freely express their opinion, but the message that is conveyed to shareholders, investors and the management team should be consistent. That one unified message must always advocate what is ethically in the best interest of the company.
What steps can be taken to avoid trouble and ensure a strong, cohesive board?
The board of directors must remember its key purpose, which is to ensure the company’s prosperity by ethically and collectively directing the company’s objectives and advocating for what is in the best interest of the company. In addition to business and financial issues, the board must deal with challenging and complex issues relating to corporate governance, corporate social responsibility and corporate ethics. All of those issues play into making sure the message is consistent. The board also has oversight responsibility over the management team. That is important because if there is no accountability, it will not be in the best interest of the corporation.
Aneezal H. Mohamed is an attorney with Kegler, Brown, Hill & Ritter. *Mohamed is authorized to practice federal and Michigan law, but not Ohio law. Reach him at firstname.lastname@example.org or (614) 462-5476.
The Ohio legislature is facing an unprecedented budgetary challenge, and businesses throughout Ohio are concerned about how the lawmakers plan to fill the hole.
The biennial operating budget must be passed by July 1, and businesses worry that a structural deficit of between $6 billion to $10 billion could mean tax increases.
“There is an old adage in the statehouse that if you aren’t at the table, then you most assuredly will be on the menu,” says Steve Tugend, a director and chair of the government and legislative affairs practice for Kegler, Brown, Hill & Ritter. “It’s very important that businesses stay engaged in the processes and debates of their elected officials.”
Smart Business spoke with Tugend about how to build relationships with elected officials in order to survive the budget crisis.
How will the state’s pending budget crisis affect businesses?
If you have a business that pays a lot of fees to the state government, you are going to see some additional exposure in the area of fees. If you are currently doing business with the state, you can expect your client agency or department to have less money than it previously had to buy your goods or services. If you’re in a business that performs services that might be outsourced from the public sector to the private sector because of favorable costs, there might be an opportunity to enhance your top line.
How can businesses stay aware of potential opportunities?
First and foremost, watch the debate carefully once the budget is introduced. The budget is set to be introduced by the governor on or before March 15. As the governor tries to tackle the budget crisis, he has been encouraged to review the government’s back-office functions, like accounting, legal services, fleet management and print shops, in order to look for areas that might be more efficiently done in the private sector than by state employees. If your business is in those areas, you may have an opportunity to compete for state business where previously no such opportunity existed.
What conversations should be happening between businesses and government?
Businesses should provide a legislator with a general description of the goods or services they provide and ask the legislator to help them schedule meetings with the appropriate individuals within the administration who might be interested in purchasing services.
How can businesses get in touch with the right people in the government?
First of all, they need to identify their public officials by visiting the Ohio General Assembly’s website. Then, simply start having those conversations with elected officials. Elected officials want to make sure businesses in their district do well, so they will connect those businesses with opportunities to do business with the state.
Why is it important for a company to have a government relations strategy?
When legislators are involved in cutting deals and forging compromises, the final result is often harmful to businesses. It’s important for businesses to follow what government is doing. Some compromises move so quickly that you can’t keep up with them, but most move far more deliberately and provide points for businesses to get involved.
How can a business develop its own government relations strategy?
Every business should make an assessment of its current and potential interaction with government. Before you have a government affairs strategy, you have to know what government-caused costs you have, such as taxes, regulatory roadblocks, or fees.
You have to know not only how much business you are currently doing with the federal, state and local levels of government, but also identify how much business could be done. Perhaps you have some products and services you’ve not marketed to government agencies, and perhaps there is an opportunity there. Once you have assessed that, then you put together your strategy.
Regarding costs, at the least you need to be educating public policy leaders and elected officials about your costs. They may not be aware of the ramifications of their policies on your business. You may find an opportunity to reduce your costs. What is more likely, however, is if legislators are aware of the costs you are already paying to the government, they are less likely to increase those costs.
Then you need to assess how you can sit down and have a conversation with public policy leaders. Sometimes that means your executives simply need to meet with elected officials. If there are issues that require a more prolonged interaction, then you probably need to assign government affairs responsibilities to a member of your staff.
That’s a very conservative step. Another idea is to hire someone full time to handle government relations responsibilities. An in-between alternative is to find an external professional who can advocate for you in front of public officials.
How can a business determine what type of representation is necessary?
When it comes to just updating public officials on how your company is doing and the cost government causes to your company, that can be done by executives within your company. But if you discover pending legislation that creates a significant threat or a significant opportunity for your business, then it may be wise to devote additional resources to an internal or external advocate in government.
Steve Tugend is a director and chair of the government and legislative affairs practice for Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5424 or email@example.com.
When speaking about his recent trip to India, President Obama said, “India is not an emerging economy…but has emerged.” In this emerged economy, there are many opportunities for U.S. businesses.
“The main sectors of opportunity for U.S. business are higher education, defense, retail and manufacturing,” says Vinita Bahri-Mehra, chair of Kegler, Brown, Hill & Ritter’s Asia-Pacific practice.
But, there are many challenges as well. Vast legal and cultural differences can make an Indian expansion daunting for any business.
Smart Business spoke with Bahri-Mehra about how U.S. businesses can avoid the pitfalls and succeed in India.
What kinds of opportunities exist for domestic businesses in India?
India’s higher education sector has recently witnessed a paradigm shift. Once viewed as a charitable or philanthropic activity, it has morphed into an industry in its own right. Due to a rapidly globalizing competitive marketplace coupled with the increasing need to expand quality education at the grassroots level, policymakers in India have slowly but surely set the Indian education sector on the track toward reform.
Analysts estimate the current private education market in India to be worth approximately $40 billion and expect it to grow by 70 percent in the next three years. A large growing population of youth and an inadequacy of existing educational facilities to cater to such a population means India is one of the world’s largest markets for education and training. We are working with several U.S. universities on projects with educational institutions in India, including establishing R&D centers, providing education support services, twinning arrangements and the franchise model.
The second sector filled with opportunity is defense. India’s new defense procurement policy includes a change long sought by U.S. and European defense contractors, making it less complicated for them to pursue big-ticket deals in India. The new policy gives foreign firms more flexibility in meeting ‘offsets’ — the requirement that they invest a portion of proceeds back into India to promote indigenous industries. However, there is a strong demand by U.S. firms to see India increase its limit in foreign direct investment in defense from its current cap of 26 percent, which discourages joint ventures because U.S. firms are not willing to transfer sensitive technology with such a small stake.
What opportunities are available in retail and manufacturing?
India has a growing middle-class market with higher purchase power parity, which is making them hungry for branded world-class goods. Presently there is a limit of 51 percent in foreign direct investment in retail; however, there is strong likelihood that India will open up its retail market. Companies like Wal-Mart and Costco — and their suppliers and service providers — are already positioning themselves for when the market opens up.
India’s growing automobile market and other industries are in need of components, tools and supplies that can be used in domestic products and/or sold at the domestic markets. There are opportunities for U.S. Small and Medium Enterprises (SMEs) to export/manufacture their products for the Indian market in industries such as infrastructure, automobiles and consumer goods.
How can businesses determine whether these opportunities are right for them?
Businesses must have a strategy in place, which must involve thorough study and analysis of the Indian market to ascertain if there is a potential for their products. That should help determine if they should focus their efforts, time and money in establishing a presence in India. Due diligence is the key to creating a profitable operation.
An opportunity from a potential customer or a potential partner seeking a joint venture is generally the triggering point to evaluate whether it is the right opportunity. It depends on whether a business can really devote the necessary resources to make an opportunity a successful venture.
What challenges could prevent domestic businesses from succeeding in India?
Companies need to understand that the legal regime in India can be quite different from the U.S. The courts in India are backlogged with cases, and the judicial system works very slowly. Enforcing a judgment in India can take up to 10 years. So an arbitration clause in a contract is sometimes necessary to avoid lengthy civil procedures. Companies may also face cultural differences as the work style could become slow and negotiations could drag on, as sometimes Indians have trouble saying ‘no’ outright in negotiations.
Other challenges companies may face are protecting their intellectual property — U.S. intellectual property regulations won’t protect you in India — and analyzing the tax exposure the business will have for the type of operations in India. And using a realistic timeline and budget for the project will be useful.
What steps can be taken to overcome those challenges?
India is fondly known as an ‘Asian Tiger.’ However, I believe its comparison to an elephant is more appropriate, because an elephant is slow in its approach but strong and formidable in its growth. In order to be successful in India, companies need to remember that analogy: things may take time to get done in India, but once they are done, the sky is the limit for growth in that market.
Indians believe in relationships, so it is important to build trust with your customers, partners and counterparts. If a company wants to do a joint venture, it is important that the project leader spends significant time in India. That sends a strong signal to the Indian partner that the company is committed. It is important not to take the human element out of business. Indian companies like to do the handshake first, and then the deal, unlike in the U.S. where the deal comes first.
Vinita Bahri-Mehra is the chair of Kegler, Brown, Hill & Ritter’s Asia-Pacific practice. Reach her at firstname.lastname@example.org or (614) 255-5508.