TOP 2 PROBLEMS ENTREPRENEURS FACE

By Raees Mohamed, Esq.

"I am always doing that which I cannot do, in order that I may learn how to do it." Picasso's words reflect the risks of artists who endeavor to accomplish known ends, but without knowledge of the process to reach those ends. Picasso often did not know what his works would look like, until his final brush strokes dried. The average entrepreneur's endeavors mirror this motif. But, already laden with many steep learning curves and unknown risks, an entrepreneur cannot afford to follow an unknown road-map in hopes of relying on after-acquired foundational know-how. Therefore, the goal is to minimize risks and resolve common issues before commencing your own portrait. So your canvass is dry and your paint is fresh, now, what do you need to know? Let's start with two common brush strokes that always result in unnecessary risks and problems.

I.   Failing To Accomplish The Formalities.
If you have ever painted a picture or even done a basic sketch, there are basics you cannot ignore. Make sure your brush is moist or pencil is sharp, your paper is clean and mounted, all your mediums are in front of you, and object is in view. Entrepreneurs rarely follow such formalities. Business formalities can be expansive, but the most common are easy to identify.


A. The Art of the Agreement.
Gone are the days where stellar plans were done on the back of San Jose coffee shop napkins. Draw it up! Entrepreneurs frequently dislike writing down understandings between partners or third-parties. But well drafted agreements are foundational, and there are many. Agreements will clarify common issues such as: "Where does my liability start and end"; "Who owns the results of this work?"; "Is this confidential?"; "Can I leave this failing start-up and start a competing concept?"; and "What are the responsibilities of everyone I involve?". This is true even if you are venturing solo, because 99% of solos engage others to assist them in their endeavors.


The bottom line -- put it in writing and cover yourself. Agreements add clarity. No professional should be offended if you offer them something in writing.


B. Legal Structure.
What kind of legal entity is most appropriate for you? You cannot afford not to make this consideration. Ask yourself the following-- "Am I ok with losing everything I put into my venture and all my personal belongings, too?"; "What happens if I wanna bail?"; "Is this dude a partner?"; and "Is this dude entitled to profits or just a wage?"; and "Um, shouldn't you be paying for this too?". There are at least 10 other questions I ask my clients to consider when developing a legal structure. But the critical point is to ASK these questions and form the appropriate structure. You are risking more than you think by not.


Most entrepreneurs are all too familiar with the alphabet soup of legal entities out there, SP, LLC, C and S, 501(c)(3), P, GP, LP, LLP, and T (the basics of each legal entity would be an entire article itself). The application of each entity depends on the facts and circumstances of your situation. Sometimes, it's ok to be be a SP (sole proprietor). But the moment you engage in joint efforts with others, there's a presumption (albeit, a rebuttable one) that you are partners. Fun, right? Like Batman and Robin? You might as well call it quits now. Although certain unwritten, common law protections will exist, you don't want this to happen. The most important goal for an entrepreneur is to mitigate risks. Unsorted partnerships exponentially increase many risks. For example: unclear ownership of and access to intellectual property; no limits on entitlement to decision making and profits; unclear duties; and my personal favorite---joint and several liability---also known as "I am sued, so I am suing all of you, and we're all going down together." However, in certain circumstances a partnership structure is desirable, particularly when in combination with other entities. Thus, an entrepreneur must include legal entity deliberations as early as possible.

II. A Clear Plan Of Action.
Remember when your art teacher would ask you to "do your doodle in pencil first!" There's sound wisdom behind creating a "rough draft". The entrepreneurial process tends to turns these elementary skills off. You know you've made this mistake when your thoughts are "I'll deal with X when it happens", or "it's way too early to think about X issue." But hindsight is always 20/20, and certain mistakes cannot be undone or will cost exponentially more to fix later. A business plan is not enough. You need to think through legal solutions. For example, what kinds of issues will you have if you leave your present X job and start your own XYZ firm? Are you breaching non-compete obligations? Are you using/taking trade secrets? Are you infringing intellectual property rights? Are you tortiously diverting business? Are you breaching fiduciary duties? If your finger is on one of these issues, you likely have your hand on all!


A clear plan of action includes a thorough examination of ALL the issues, business and legal alike. Imagine the horror of presenting a business plan to an investor to only later realize that the premise of your idea is illegal! I've even seen "original" concepts that were clearly infringing another's intellectual property. Legal planning is clearly important. Sometimes the only way to undue a bad plan or no plan at all is a settlement agreement (FYI---you have been sued or the threat of a lawsuit is imminent.)


In conclusion, these issues are just an introduction to the atmospheres of risks and considerations an entrepreneur must make. Remember, Picasso was better situated than an entrepreneur to take a learn-while-you-go approach. And although business is truly an art and not a science, Picasso's artistic value never had to be "sold" like an entrepreneur.  Plus...he always had an eraser. 
 

Italian Judge Nails Google, Threatens Publishers. Motives?

A Prosecutor in Milan, Italy indicted 4 Google Executives: David Drummond (senior VP and chief legal officer), Arvind Desikan (London-based marketing manager), Peter Fleischer(global privacy counsel), and George Reyes (ex-CFO)--- all on charges of criminal defamation and violation of Italian privacy laws. All but Arvind were convicted.

The case arises from an incident in 2006 where Italian high school students from Turin, Italy taunted and bullied an autistic classmate, and then uploaded the video to "Google Videos".

Is this ridiculous or is it just me? Google did not create this content. Nor do they edit, recreate, or modify the user's content. They are simply a publisher. To create criminal liability for a company that publishers over 20 hours of videos a minute just doesn't make sense. Does Italy expect publishers to edit this content? To hold these guys liable even for defamation is outlandish, never mind criminal defamation.

In the United States this case would likely never have made it anywhere thanks to certain immunities granted by Congress through the Communications Decency Act, Section 230. Under the Act, immunity is granted to providers of "interactive computer services" -- defined as "any information service, system, or access software provider that provides or enables computer access by multiple users to a computer server". Courts have interpreted this to include blogs, forums, hosting services, listservs, and related web based publishers. In short, the Act distinguishes internet publishers from print and traditional media publishers. Distributors bear to responsibility to edit content compared to traditional publishers, and thus traditionally, "publishing" behavior creates liability because of the power to control the (wrongful or illegal) content displayed. In its absence, online information providers would face increased risks of liability for trying to edit and remove defamatory third-party content than if they sat silent.

Many argue that Italy's policy's should reflect those of the United States and European Union laws regarding a provider's liability for third-party content. Defamation claims against providers under Section 230 are generally barred. Immunity also generally extends to claims for invasion of privacy, misappropriation and even negligent age verification procedures (Doe v. MySpace, 474 F.Supp.2d 843 (W.D. Tex. 2007).

However, even U.S. law may not provide sufficient protection for the specific allegations made against the Google Execs. Noteworthy, Section 230 immunizes web publishers engaged in traditional editorial functions, but expressly excludes criminal claims, communications privacy, and intellectual property claims. Thus, under U.S. laws, the criminal defamation claim would likely survive the Act. Believe it or not, criminal defamation is still on the books in many states, and is a statutory crime. However, criminal defamation requires actual malice, an element that would likely remain unmet against Google.

What's peculiar about the Italian Judge and the lead Prosecutor's decision, is that Google pulled the video within hours and also helped to nab the 4 students from video. Moreover, this decision comes down just as Italy issued a decree to make ALL video content on the web subject to Government control. And to add just a little more spice to this recipe for disaster: Italy's Prime Minister Silvio Berlusconi is the owner of the largest private TV conglomerate in all of Italy; the PM's company is also seeking around $800 million from Google for copyright infringement.

Hmmm...this is all starting to make a lot more sense. The issue is not based in Italian principles of human rights or respect. It's about money. If your private media conglomerate is threatened by free web-based media content, that means your ad receipts are going to drop. Do you want to be the one to compete with Google? Or would you rather use your PM power to channel media business down your pipe?

Noteworthy, the charges were sought by an advocacy group for people with Down Syndrome but the boy does not have the Down Syndrome.

Matt Sucherman - VP and Deputy General Counsel of Google - personal blog: http://googleblog.blogspot.com/2010/02/serious-threat-to-web-in-italy.html

The Art of the Smoke Screen

The Securities and Exchange Commission along with frustrated and defrauded shareholders of Bank Of America (past and present) await a Federal Court's ruling on a $150 million consent judgment stemming from an investigation of B of A's multi-billion dollar losses and bonuses cover-up. The single issue being litigated: concealment. That's right. Despite heavy handed SEC regulations and the plethora of alleged "safeguards" in place, the B of A's of the financial world somehow forget to disclose material information to shareholders. What's material? How about $15 billion in losses. Marginal. Right?

But you see, one must understand the sophisticated circuitry of a publicly traded company's financial smokescreen (e.g. magic - now you see it, now you don't).
If B of A didn't:
1. hide $15 billion in losses,
2. fire their former general counsel Timothy Mayopoulos for advising against the Merrill merger,
3. hide 7-figure bonus checks, and
4. ask, beg, and steal for $20 billion palm-grease in bailout funds in January 2009 to mitigate losses from the Merrill transaction...
...how could they have possibly successfully dooped shareholders into voting for the merger??

You see, the smokescreen was all necessary, because $50 billion is a lot of money to pay for a failing publicly traded investment bank, never mind paying $50 Bils for the additional 1 -4 above. After all, that's $50 Billion in OUR money that subsidized a FAILED merger. :)

So what's the remedy? Independent disclosure counsel? Independent compensation counsel? I thought Sarbanes Oxley took care of that? I thought it already costs $3-5 million to setup compliance measures, and several million a year after that to maintain safeguards.

But I suppose justice will be served --B of A may actually have to pay [drum roll] $150 million to shareholders and the big bad SEC. This is a beautiful microcosm of a much larger grand deception. Now, who's in for some insider trading? Anybody?

SEC Complaint filed against Bank of America Corp.: http://www.nylj.com/nylawyer/adgifs/decisions/011310sec_complaint2.pdf

NY Attorney General Andrew Cuomo's Complaint filed against Bank of America for Concealment: http://www.nylj.com/nylawyer/adgifs/decisions/020510complaint.pdf

Five Unanimous Decisions handed down by U.S. Supreme Court

5 decisions with no dissenting opinions is rare, especially in this short span of time. Justice Roberts, Jr. is moving the bench towards his goal of a buddy club.

http://www.abajournal.com/news/supreme_court_unanimous_in_10_out_of_15_signed_opinions_this_term/#When:07:07:56Z

The subject matter for each of the five include:
1. Title VII Discrimination
2. Uranium Anti-Dumping in international trade
3. Distribution of pension benefit upon divorce (very murky area of community property law)
4. Official actions with prosecutorial immunity.
5. Fourth Amendment pat-downs without reasonable suspicion.

Links to each of the cases can be found below.
http://www.law.com/jsp/article.jsp?id=1202427754738&rss=newswire