Going, Going, GONE! Basics for Art Auction Entrepreneurs

By: Marisa Halm

The clock is ticking. The air is thick with tension. Adrenaline rushes through the audience. Suddenly, the auctioneer calls out, and the auction begins.

But what happens before this moment? What should be considered before the piece is even announced? United States Federal Regulations on auction houses may be sparse, but there are plenty of other regulations and legal considerations that should be accounted for prior to opening day. This post will focus on controlling federal regulations and other prominent legal concepts with which art auction entrepreneurs within the United States must comply.

primacy laws and regulations

Uniform Commercial Code (UCC)

The law considers art to be a “good.” Therefore, in basic legal terms, art auction houses are a means for people to sell goods to other individuals and the UCC regulates transactions for goods in the United States. Therefore, all art auction houses are subject to the UCC. There is no specific regulation for art auction houses; instead, all auction houses fall under UCC § 2-328. This section explains when a sale is made and what auctioning goods “with reserve” and “without reserve” should look like.

Local Laws and State Licensing

Before you open your art auction house, be sure to know what specific regulations are in place on the state and local levels for auction houses. In New York City, there are over fifteen basic auctioneer laws and rules that must be observed if an auction takes place within the city limits. Some states have certain restrictions based on the type of good that is being sold in order to ensure fair transactions. For example, certain states only allow jewelry auctions to take place during daylight hours. This time restriction accommodates the jeweling industry because gems are best viewed in sunlight where their worth can be properly evaluated.

It is also important to note that some states have licensing or operating requirements. For instance, the Pennsylvania State Board of Auctioneer Examiners maintains a public licensing database of all potential positions and entities related to auctions. There are numerous positions and potential entities listed in this database, from the auction house company to an apprentice auctioneer working in the auction house, and all must abide by certain standards to be licensed.

Legal considerations

Contracts

A contract is essential. Each and every piece that goes through an auction house should be mentioned in or have its own contract. Contracts establish everything, including but not limited to the right to sell the object at issue, commission, and who gets paid and how much they will receive. An attorney will be able to draft a contract according to your specifications and your needs, but all contracts will need to cover the basics: the parties, the price, and the piece being auctioned.

A contract will also cover any relevant requirements established by the Statute of Frauds. The Statute of Frauds is a legal concept that establishes additional protection for all parties and requires a contract if the end price of a “good” is over $500. Ideally, if your auction house is successful and your auctioneers are well-trained, the end price of the artwork will be over $500. If this occurs, having a contract in place is not only required but will also help lessen your risk.

Due Diligence

Despite the sophistication of the market, there is a surprising lack of regulation and recordkeeping monitoring the authenticity of artworks and ownership. This has become a great concern for art auction houses. Large auction houses, including Sotheby’s and Christie’s, have teams of experts on hand to research and authenticate the pieces in question. Even so, they prefer holding a certificate of authenticity prior to putting a piece on their floor.

A certificate of authenticity is a record of information about the artwork. It lists the artist, the name of the artwork, dimensions of the work, the year it was created, and more. This certificate grants an express warranty that the piece is authentic. This means that the buyer can bring a legal action under § 2-313 of the UCC if the piece has a fraudulent certificate of authenticity issued.  Today, many buyers expect a certificate of authenticity to accompany artwork. It is increasingly expected that the auction house performs its due diligence to verify that the work is legitimate and issue a certificate of authenticity when necessary. If you are issuing certificates of authenticity, you should notify your attorney and keep thorough records of certificates issued.

Fiduciary Duties

If you are opening an art auction house, you will owe both the seller and the buyer certain responsibilities called fiduciary duties. These fiduciary duties go above and beyond that of a regular business relationship and require the auction house to act in the best interest of both the seller and the buyer. This duty can become incredibly difficult, as the sellers want a high price and the buyers want a low price. A successful auction house will keep the auctioning process as uniform as possible, no matter what the piece is or who is bidding, and should consult an attorney to ensure that current business practices fall within industry norms. For instance, posting prices is not an industry norm and discreet chandelier bidding (planting auction house bidders in the audience to warm the room and get people bidding) is not as discouraged as you may expect.

other considerations

If you do find your auction business growing or you want to work in the international market, it would be best to speak with an attorney. Laws vary from country to country regarding the exchange of art, and each international transaction must follow the laws that correspond with the proper countries’ laws and international treaties.

Though these laws and regulations may sound overwhelming, a good attorney will help you navigate them all. The more you can focus on your business and the artworks themselves, the more you can enjoy the thrill of the auction.


This post was originally authored February 9, 2020, and can be found here.

Marisa Halm, at the time of this post, is a recent graduate of Penn State Dickinson Law. She is from a small town near Greensboro, North Carolina, where small business is everyone’s business. Her parents were successful entrepreneurs and were always looking to start something new. As a result, Marisa saw ingenious business ideas fail and other “silly” concepts become surprisingly successful. When she started working at her county’s courthouse, new entrepreneurs would ask questions, file paperwork, and learn about available resources. Marisa has completed courses related to business entities, tax, company creations, and corporations. She will be working at a construction law firm in Philadephia.

Sources

https://auctionlaw.wordpress.com/2007/08/18/auction-laws-in-the-usa/

https://www.stimmel-law.com/en/articles/law-auctions

https://www.law.cornell.edu/ucc

http://artlawpodcast.com/2019/12/02/art-of-the-chase-inside-art-auctions-revisited/

https://www.pals.pa.gov/#/page/searc

https://web.archive.org/web/20131220092839/http://www.masterworksfineart.com/art/certificates-of-authenticity.php

Photo Credit

www.artmarketmonitor.com

www.artcertificate.co.uk

https://artauctioneastafrica.com/auction-2015/

Quarantine Got You Thinking About Giving Your Business a Remote Remodel?

By: Jesse Barth

A growing trend in recent years has been for employees to work part-time or full time at home or another remote location. In the midst of the coronavirus pandemic, workplaces that have traditionally conducted business in one central location are now conducting business remotely.  But regardless of how we got here, remote employment is a trend that will likely continue to grow after the smoke from the pandemic clears.

If I hire someone for a remote position, are they an employee or an independent contractor? 

One thing to keep in mind when hiring for, or creating, a remote position is that the person you hire will not be an independent contractor solely by virtue of their remote position. To determine if a worker is an independent contractor or employee the IRS employs a balancing test, which includes the following factors but does expand with other factors. Also note that other agencies such as DOL and state agencies have their own tests.

the Balancing test and three factors:

1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how a worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
3. Type of Relationship: Are there written contracts or employee- type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

state law and taxes

The California legislature recently passed Assembly Bill 5, which reclassifies some workers as employees for certain wages purposes. The legislation was based on the Dynamex Operations West Inc. v Superior Court of Los Angeles decision from April of 2018. The test derived in the decision, on which the legislation is based, assumes a worker is an employee unless the hiring company can prove the following three things:

  1. The worker is free to perform services without the control or direction of the company.
  2. The worker is performing work tasks that are outside the usual course of the company’s business activities.
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

If your remote worker is an employee, you will want to determine which state’s employment laws will apply to them. If your remote employee will be working exclusively out of the same state you operate your business from, that state’s laws will govern. If your employee will be working remotely from a state different from where your business operates or will be working remotely in multiple states, you will need to consult the laws of each state. Different states have different laws regarding employment issues such as minimum wage, worker’s compensation, and overtime. You will want to contact an employment attorney familiar with the laws of the state your remote employee will be working out of.

For tax purposes, many states follow the “physical presence rule.” Under the physical presence rule, the employee pays taxes in the state that the work is performed. But note: not all states employ the physical presence rule. In some states, the employee may be subject to taxes in both the state the company operates out of and the state in which the employee resides. It is important to consult a tax attorney to determine which laws apply to you.

federal law also applies

Having remote employees can make compliance with certain federal labor and employment laws tricky. One such law is the Fair Labor Standards Act (FLSA). The FLSA sets requirements for minimum wage, overtime, record keeping, and employment of minors. When working remotely, especially from home, the line between “on the clock” and “off the clock” can get blurred. It is important for employees to keep records of the time they spend working while working remotely. It is also important for employers to realize that just because an employee does not have to leave their home to do their job does not mean that they are always on the clock. If the remote employee is not exempt from the FLSA the employer must still keep track of hours and observe overtime laws.

Aside from the FLSA, there are many other federal labor and employment laws that don’t disappear once a position has been moved remotely. Remote employees are given the same protections as on-site employees under federal laws such as the Family and Medical Leave Act (FMLA), Americans with Disabilities Act (ADA), Equal Pay Act, Age Discrimination in Employment Act (ADEA), and the Pregnancy Discrimination Act.

your employees’ home may be their castle but do they have a moat?

Allowing your employees to work remotely might decrease the chances that you or they contract COVID-19, but it may expose your business to a different type of virus. As you move your operations remotely, your business’ exposure to cyber-attacks and data breaches may increase. Be sure to have your remote employee work from a secured wireless connection or if using public WIFI use a virtual private network (VPN).

The United States Securities and Exchange Commission has issued guidelines to help protect you and your clients from data breaches. Some of their best practices include:

-Scheduling periodic assessments of your technology systems

-Developing a prevention, detection, and response plan

-Creating written policies and procedures

Having employees work remotely may be a temporary safety measure you are taking today, but it could also be a strategy to make your operations more flexible and nimble moving forward. As remote employment becomes more viable, and in some instances necessary, the laws that govern it will continue to evolve. Be sure to check with an employment or tax attorney before implementing policies that could expose your business to liability.


This post was originally authored on March 17, 2020, and can be found here.

At the time of this post, Jesse Barth is a rising 3L at Penn State Dickinson School of Law. Prior to enrolling in law school, Jesse served in the United States Marine Corps conducting air defense and embassy security. Jesse now lives in Central Pennsylvania with his wife, daughter, and dog pursuing a career in criminal defense while maintaining an interest in all things pertaining to individual liberty.

Sources:

https://www.dol.gov/agencies/whd/flsa

https://ct.wolterskluwer.com/resource-center/news/cybersecurity-best-practices

https://sbshrs.adpinfo.com/blog/remote-worker-faqs-how-to-comply-with-employment-laws

https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

https://www.thebalancesmb.com/pay-tax-and-work-laws-for-remote-employees-4795810

https://www.forbes.com/sites/chriscarosa/2020/02/27/will-californias-ab5-law-gag-your-gig-retirement/#773b1c9d6518

https://www.investopedia.com/california-assembly-bill-5-ab5-4773201

Photo Sources:

https://www.pexels.com/photo/close-up-photography-of-woman-sitting-beside-table-while-using-macbook-3178818/

Dickinson Law Students on Zoom | Penn State Abington, Berks & Harrisburg Events

By: Samantha Prince

In April 2020, three Dickinson Law student members of the Business Law Society took to Zoom to lead a pop-up clinic for Penn State Launchboxes located in Abington, Berks and Harrisburg! The clinics addressed how to decide whether to license and invention or start a company. Our speakers were Gregory Archibald, Sarah Phillips and Sarah Zomaya, all 3L students about to graduate. We were all excited to still be able to fulfill our mission of helping entrepreneurs despite the shelter-in-place orders.

Following the presentations, law students and I engaged in casual Q&A conversations via chat on Zoom. We were able to answer a lot of great questions!

Special thanks to 2L Alexis Shovel who organized these events! We are already booked for more events in the future, whether they be virtual or in person! Stay tuned.

Hannah Esch | Entrepreneur of the Month | May 2020

By: Sarah Phillips

I have the pleasure of introducing Hannah Esch as May’s Entrepreneur of the Month. Hannah is the founder of Oak Barn Beef, a farm-to-table beef subscription service that sells beef it purchases from her family’s ranch in Nebraska. Hannah started Oak Barn Beef, a one-stop online source where consumers can purchase quality beef, as a college student.

finding your “why”

Growing up on 8 acres in Colorado, Hannah became involved in FFA and 4-H at a young age, and it was in those programs that she first developed her passion for agriculture. At age 13, Hannah and her family moved to their current ranch in Nebraska. Hannah credits her ag-focused community and her family (who has been farming for 5 generations!) for helping foster her passion for hard work and agriculture.

For Hannah, the moment she heard a child in the grocery store say “eggs come from cow because they are next to the milk in the grocery store,” she knew she had to do something to bridge the gap between consumers and their food. At that time, Hannah was a sophomore Animal Science major at the University of Nebraska-Lincoln and was serving as the Nebraska Beef Ambassador. Hannah really enjoyed school and interacting with consumers, but was not quite sure how all of that fit into her career aspirations. But when she heard that child’s statement, she knew she had found her “why.” Knowing why she has started her business, and always focusing on what she hopes to accomplish, has kept her motivated, even with a busy college schedule.

focus on the problem first, then develop the solution

Hannah credits Oak Barn Beef’s success to her commitment to thinking about the problem first and then shifting her focus to developing solutions.

“If you are thinking about solutions first, how can you really be sure you are providing a product or service that solves a real customer’s problem?”

It was when Hannah recognized that there was a gap between consumers and food producers—the problem— she was able to focus on developing solutions for educating consumers on where their food comes from, starting at the farm and ending at the dinner table.

the best time to start a business

Even though it might seem challenging to start a business as a college student, Hannah states that college is the best time to start a business. She explains that there are so many great (and often free or discounted) resources available to college students to help kickstart their businesses. For example, Hannah is part of the Engler Agribusiness Entrepreneurship Program where she has access to mentors, resources, and support from her fellow entrepreneurs. This entrepreneurship program is open to all University of Nebraska-Lincoln students who want to start their businesses now. The program has allowed Hannah and her peers in the program to bounce ideas off each other, learn by actually doing, develop her business plan or operating documents, and find support within a community of other entrepreneurs who also are trying to start a business while in college.

just get started

Hannah knew that if she waited for everything to be perfect, she would never get started on her business. This is one piece of advice Hannah gives during her presentations and conversations with other entrepreneurs – don’t be afraid to take a risk and just get started; if you wait until the perfect moment, you’ll be waiting forever! For Hannah, this meant not letting the fear of being young, or the heavy workload that comes with being an animal science major, stop her from pursuing her business goals.

In addition to just going for it, mentorship has also been an extremely beneficial tool in growing her business. In the Summer of 2018, Hannah took a big leap of faith and emailed Five Marys Farm, a ranch in Fort Jones, California, and asked for an internship. As a result, Hannah got to learn from a working ranch and developed a relationship with other female entrepreneurs. Hannah says that she has found the benefit of having mentors to be that you have someone in your life who can reflect on your experiences with you. A mentor can also provide guidance and assistance along the way. Those always evolving and growing mentorships have helped Hannah grow her company into what it is today.

use your resources wisely

Hannah also recommends that young entrepreneurs take advantage of podcasts and audibles for free guidance on starting your business. Hannah frequently listens to the “Goal Digger” podcast by Jenna Kutcher which has provided her with practical advice and inspiration when it comes to seeing her business succeed.

Additionally, Hannah has taken advantage of using tools she is familiar with—Facebook and Instagram—to market her product at a low cost. Hannah also knew that telling her story would be important for connecting with consumers. Posting pictures and sharing stories via social media has allowed her customers to get to know her and her family, and ultimately helped consumers trust her to produce their food. For young entrepreneurs, letting your customers get to know you and providing insight into the business allows them to feel confident in both you and your process; this trust has been critical in getting and retaining customers within Hannah’s company.

meaningful moments

Although starting, managing, and running your own business can be challenging, the little meaningful moments that happen along the way make it all worth it for Hannah. Oak Barn Beef is a team effort between Hannah and her family. The ability to work together as a family and achieve a common goal is something that Hannah really appreciates about her business.

When asked about some of her favorite moments with Oak Barn Beef, Hannah immediately said “seeing all the orders come in.”

For Hannah, seeing orders come in means that customers trust her to raise and produce their food; that is the victory for her.

Hannah considers it a great honor to provide food for her customers, and every time she sees an order, it reminds her that she is capable and that her story is resonating with others.

To wrap up our conversation, I asked Hannah what the last piece of advice she would offer to other college students or young entrepreneurs who are just starting out in their careers. Hannah replied, “Be patient and make time to take care of yourself.” It’s so easy to want to accomplish everything at once, but starting a business is a journey that takes time. Focus on accomplishing the little things every day, and before long, you will be surprised at just how far you and your business will have grown.

You can learn more about Hannah, her family, and Oak Barn Beef by following her story on Instagram and Facebook.


Sarah Phillips, at the time of this blog post, is a third-year law student at Penn State’s Dickinson Law. She is from West Amwell, New Jersey and has interests in agricultural, land use and business transactional law. She is currently serving as an Honor Code Representative and a Law Lion Ambassador. Sarah is the Editor-in-Chief of the Dickinson Law Review.

Preparing your Business for Divorce

By: Allison Grady

By now, this fact is almost common knowledge, but it is worth repeating- roughly 50% of U.S. marriages end in divorce. And with stay-at-home orders forcing already disgruntled couples to hunker down together, many couples have begun filing. Yet, many people got married without preparing for the possibility of a divorce. For business owners, failing to prepare your business for unexpected life events can cause significant issues down the line. Below is information on how marital assets are split in Pennsylvania, and how business owners can protect their businesses ahead of time through marital and operating agreements.

what is marital property and equitable distribution?

Like most states, when couples get divorced in Pennsylvania, their assets are split equitably. “Equitable distribution” means that each party receives a percentage of the marital property that the court considers to be fair. So, in situations where one spouse has a job that produces income, and the other spouse provides domestic work (like cooking, cleaning, and childcare) without an income, the spouse who provides domestic work is entitled to part of the other spouse’s income upon divorce. This situation describes a partnership theory of marriage, where both spouses contribute valuable work to the marriage, whether or not they produce an income.

Anything obtained during marriage until the date of divorce is marital property, except for a few specific situations. If you started a business during your marriage, the business itself is considered “marital property,” meaning that your interest in the business belongs to your marriage and is subject to equitable distribution.
Even if you started your business before you were married, your actions after getting married could make the business marital property. Actions, like putting your business capital in a joint bank account, or acquiring a loan with your spouse’s name on it, can entitle your soon-to-be former spouse to part of your business’s assets. Additionally, any income you earn through your business during the marriage is marital property.

Your business is probably the largest asset of your marital property, and also probably the most difficult to turn into cash to be divided. Issues may arise for your business when assets are divided equitably upon divorce. Some of these issues can be avoided by planning ahead.

planning your marriage around your assets 

A prenuptial agreement is a binding contract that marrying couples enter into before they get married. The agreement would address each spouse’s property rights if they were to get divorced. Even though about half of American marriages end in divorce, only 5% of married couples have a prenuptial agreement. This low percentage might be because people do not believe that they will ever get divorced, or even if they do, their partner will not take from their personal property. Even though people hope their marriage will last forever, it is best to plan in case that doesn’t happen.

Your prenuptial agreement can include provisions that limit your spouse’s entitlement to your individual business ventures during the marriage. You must fully and fairly disclose your financial position to your spouse before entering into the agreement for it to be valid. If you materially misrepresent your finances, your spouse can challenge the enforcement of the agreement. If your spouse is successful, he or she may take an equitable share of your business and other property. If you got married without a prenuptial agreement, you and your spouse could enter into a postnuptial agreement after getting married to achieve the same goal.

planning your business around a potential divorce

You can also plan your business anticipating major life events, including a potential divorce. The best practice is to utilize both marital and operating agreements to protect your business. As I have mentioned, your business is probably your most valuable marital asset, and the hardest to turn into cash. If you do not have enough personal cash on hand or the ability to take out a loan to pay your former spouse their share, it can affect your business operations.

Your operating agreement, regardless of the business entity form, can affect your property distribution. Courts often find it difficult to determine the value of the business when dividing it for divorcing couples. In Pennsylvania, the court usually values the business for its marital value, rather than its fair market value.

In a 1990 Pennsylvania Supreme Court case, McCabe v. McCabe, the Court stated that lower courts need to view a partnership agreement as “the preeminent factor in valuing a partner’s rights” in equitable distribution. In this case, the Husband’s partnership agreement (between the Husband and his law firm) contained provisions preventing a partner from ending the firm and selling its assets. Partners were also limited in receiving their share of firm profits. Considering that the husband was unable to receive the full value of his partnership interest, the court reduced his partnership interest to what he would be able to receive to distribute to his ex-wife. This decision reduced the husband’s interest upon divorce from $286,000 to $18,900 for equitable distribution. According to this decision, an operating agreement that limits a partner’s right to liquidate the partnership can make a huge difference in the amount valued at divorce. If your business’s operating agreement does not limit a partner or member’s ability to liquidate the business, the court may force you to sell your business property to pay out an ex-spouse, which will seriously impact business operations.

Consult a lawyer 

You should always consult a lawyer before entering into an agreement to ensure that it is enforceable and executed properly.


This post has been reproduced with the author’s permission. It was originally authored February 10, 2020, and can be found here.

Allison Grady, at the time of this post, is a 3L at Penn State’s Dickinson Law. She grew up in Freehold, NJ, and always knew that she wanted to be a lawyer. Her parents owned a small business when she was in high school, and she helped with some of their marketing in her free time, which sparked an interest in small business operations. Upon graduation, Allison will be working for a public interest organization to assist underprivileged individuals with their civil legal needs.

Sources

Divorce Image- https://www.moneycrashers.com/filing-taxes-after-divorce-tax-implications/

equitable distribution image- https://burrowsatlaw.com/2018/06/dividing-marital-property/

Prenuptial agreement image- https://www.weinbergerlawgroup.com/relationship-agreements/prenuptial/

Partnership Agreement Image- https://raichattorneys.com/important-nevada-llc-operating-agreement-clauses

Erin D. Hollis, Divorce and the Owner of the Closely Held Business,38- Feb PALAW 42.

Buckl v. Buckl, 542 A.2d 65 (Pa. Super. 1988).

23 Pa.C.S.A. §3501.

Berry v. Berry, 898 A.2d 1100 (Pa. Super. 2006).

Steven L. Fritsch, Prenuptial Agreement Statistics. Dec 7, 2018. https://www.oceansidedivorcelawfirm.com/prenup/prenuptial-agreement-statistics/

Porreco v. Porreco, 811 A.2d 566 (Pa. 2002).

McCabe v. McCabe, 575 A.2d 87 (Pa. 1990).

Small Business Owners Beware: Avoiding PPP Scams During COVID-19

By: Mari Boyle

Fraudulent actors and scammers have attempted to take advantage of all aspects of the Coronavirus pandemic, especially targeting small businesses and government relief programs. In the wake of unprecedented economic disruption, the Paycheck Protection Program (PPP) is a financial assistance program administered by the U.S. Small Business Administration (SBA) and is designed to help small businesses and self-employed persons cope with the financial impact of the Coronavirus pandemic. (See our post here as to how to apply.)

Unfortunately, on April 15, 2020, the New York Times reported that the PPP reached its funding cap. Currently, Congress is working on a bill to replenish the PPP fund and ensure relief and support for small businesses. Despite the fact that the SBA has currently halted PPP applications, scammers have not halted their schemes. Many small businesses are awaiting their PPP funds and scammers are targeting those recipients and those still seeking to apply for the PPP.

The PPP was scheduled to be open until June 30, 2020. The Treasury Department advised small business owners to move quickly due to the funding caps.

In the rush to secure PPP funds, small businesses have reported the emergence of scams and fraudulent activity.

It is an unfortunate but necessary sentiment that small business owners must be vigilant in protecting themselves against scams and fraudulent actors. This blog post will assist you by providing tips on how you can avoid being the target of a scam and safely receive your PPP funds.

beware of scams

The government warns small businesses to beware of scams and fraudulent actors. This past week, the Federal Trade Commission (FTC) filed a case against Ponte Investments, LLC for falsely claiming to be an SBA-approved lender offering PPP loans and soliciting loan applications from small businesses. The company used a misleading url, “SBAloanprogram.com,” to deceive hundreds, if not thousands, of small businesses. (Do not use the aforementioned site. It is not affiliated with the SBA and is an FTC-alleged scam site! You can see how easy it would be to think that it was legit.) The SBA site you should start with is here.

The SBA also has received reports of fraudulent emails containing the SBA’s logo asking PPP applicants to submit documents disclosing personal information. Unfortunately, these are not the only fraudulent schemes targeting PPP loan applicants. However, there are actions you can take to minimize the risk of scams and safely receive PPP funds.

tips to avoid scams

1. Be Wary of Unsolicited Communication

Do not reveal personal information or financial information in response to an unsolicited call, letter, or email.

The SBA does not initiate contact related to PPP loans. If you receive unsolicited communications claiming to be from the government or the SBA, do not provide private information, especially social security numbers, credit card information, or banking information. The FTC advises that the government will never randomly call you to ask for money or personal information. At the time of this posting, the SBA is not accepting new PPP applications due to reaching its funding cap. Until the SBA announces that it is resuming the application process, be wary of entities claiming to guaranty PPP loans and do not reveal personally identifiable information.

2. Look for “.gov”

Just because an email communication or letter contains the SBA logo, does not mean the information is coming from the SBA. This could be a potential phishing attack meant to obtain personally identifiable information. Any email communication from SBA will come from email accounts ending in “sba.gov.”

3. Do NOT Click on Links

If you receive an email that claims to be from the SBA, your bank, or looks like it’s from the SBA, do not click any links within the email. Instead, go directly to the organization’s website and search for the relevant information. Cross-reference any information you receive with information available at www.sba.gov.

4. Be Cautious of Offers to Expedite and Upfront Payments

 If an entity offers to expedite your PPP loan for a fee, it is likely a scam.

Be cautious of companies that offer to expedite or facilitate your ability to get PPP loans. If you are contacted by a company that requires an upfront payment with the promise of a PPP loan, the SBA warns, suspect fraud.

5. Cross-Reference Your Lender

If PPP applications resume, stick with lenders you already know and trust. Since you must apply for PPP through an SBA-approved lender, be wary of companies you have never heard of, especially those who initiate unsolicited contact. The SBA provides a list of authorized lenders that can be found here. Before disclosing personal information, confirm your lender is authorized by the SBA. The FTC advises that anyone who tells you to pay by Western Union, Money Gram, or by putting money on a gift card is a scammer. “The government and legit businesses will never tell you to pay that way,” says Paul Witt, Lead Data Analyst of the FTC Division of Consumer Response & Operations.

6. Search and Confirm First

Government sites will be the best source of accurate information. Legitimate government entities have websites and emails ending in “.gov”. Cross-reference any information you receive with information available at www.sba.gov (not SBA.com). Stay up to date on reported fraud schemes by monitoring the Scam and Fraud Alerts portion of the SBA website.

final thoughts

During a time of uncertainty and economic hardship, the PPP provides necessary financial support for small business owners. For those awaiting PPP funds or, if the PPP is replenished, those who may apply for PPP loans, proceed with caution and be aware of the signs indicative of a scam. As the Treasury has advised, it is important that small business owners move quickly in securing PPP funds. But, it is just as important that you don’t put yourself at risk of fraud schemes in the process. Do not reveal personal information in response to unsolicited communication, confirm that your lender is SBA-approved through the list of authorized lenders on the SBA site, and monitor the SBA website for accurate information. If you suspect report fraudulent activity, the SBA advises reporting it to the Office of Inspector General’s Hotline at 800-767-0385 or online.


Mari Boyle, at the time of this post, is a second-year law student at Penn State Dickinson Law. Mari is from Pittsburgh, Pennsylvania and is interested in corporate law and litigation. Mari currently serves as President for the Business Law Society and as a Senior Editor of the Dickinson Law Review.

 

Important Sources:

SBA Programs – Scam and Fraud Alerts: https://www.sba.gov/document/report–sba-programs-scams-fraud-alerts

SBA List of Lenders: https://www.sba.gov/partners/lenders/microloan-program/list-lenders

SBA Paycheck Protection Program: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

Paycheck Protection Program Information Sheet: https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf

References:

https://www.consumer.ftc.gov/blog/2020/04/alert-small-business-owners-needing-ppp-loans?utm_source=govdelivery

https://www.sba.gov/content/beware-scams

https://www.sba.gov/document/report–sba-programs-scams-fraud-alerts

https://www.sba.gov/sites/default/files/2020-03/SA2001.pdf

https://home.treasury.gov/system/files/136/PPP–Fact-Sheet.pdf

https://www.ftc.gov/news-events/press-releases/2020/04/ftc-takes-action-stop-company-posing-sba-lender-preying-small

https://www.consumer.ftc.gov/blog/2020/04/covid-19-scam-reports-numbers

https://www.reuters.com/article/us-health-coronavirus-usa-lending-idUSKCN21Y2BV

Photos:

https://lifars.com/tag/cyber-security-questions-and-answers/

https://www.sba.gov/sites/default/files/2020-03/SA2001.pdf

https://www.trendmicro.com/vinfo/us/security/news/online-privacy/identity-theft-and-the-value-of-your-personal-data

 

Covid-19 Paycheck Protection Program: Relief for Small Businesses & the Self-Employed During a Global Pandemic

By: Sarah Phillips

The COVID-19 pandemic has changed daily life for everyone, and as a result, small business owners have been forced to shut down or significantly change their operations. Adding more stress to the already emotional situation is the flood of information from all sources, often leaving small business owners overwhelmed at the thought of moving forward. Luckily, relief programs are finally starting to take effect, and many programs are designed for helping small businesses survive.

If you are a small business owner, self-employed, or a sole proprietor, chances are you have heard about the new Paycheck Protection Program (PPP) administered by the U.S. Small Business Administration (SBA). This program aims to help small businesses or self-employed individuals keep their dedicated employees (and themselves) on payroll by administering loans with extremely favorable terms. The following guidelines should help you determine if you qualify, how much assistance you can receive, and clarify the program requirements. Note that the loan application process is now open to all applicable individuals and businesses, so it is better to get started sooner rather than later—the deadline to apply is June 30th, 2020. Also note that there is currently a backlog at most financial institutions and the SBA so that is another reason to get your application filed as soon as possible!

terms of the loan

For a small business owner to receive a loan, no collateral or guarantor is required. The loans will have a 1% fixed rate, payments are deferred for six months (interest will accrue), and full payment will be due in two years. However, the benefit of these loans is that if you and your business meet the requirements listed below, the loan could be entirely forgiven by the government. The loan can be used to cover payroll and other costs associated with keeping your employees employed, including:

· Salaries and Wages (capped at $100,000 per year per person)

· Benefits (vacation time, sick leave, parental or family leave)

· Health Care and Retirement Benefits

· State and Local Tax Costs

· Mortgage Interest, Rent Payments, and Utility Expenses (only up to 25% of the funds you receive can be used for this category of expenses). The application calls these “Non-Payroll Costs.”

Eligible businesses or individuals can receive up to 2.5 times their average monthly payroll expenses! Funds received in excess of the estimated payroll costs can be used to pay non-payroll costs, but remember only a maximum of 25% of the funds received can be used for non-payroll costs. If you are going to use any funds for mortgage interest, rent payments, or utility expenses, those services or agreements must have been in place before February 15, 2020.

If you are self-employed, rather than using the funds to pay employees, you are using the funds to pay yourself. Your loan amount would be used to help you continue covering your living expenses, and can assist in making payments on business utilities or rent/mortgage payments.

Does my business qualify?

The following individuals and small businesses qualify for relief under the program:

· Small Businesses and Nonprofits with 500 or fewer employees (Including Agricultural Operations);

· Independent Contractors;

· Sole Proprietors; and

· Self-Employed Individuals.

Additionally, the business must have been in operation before February 15, 2020. Updated SBA guidelines also indicate that hotels and food service businesses that are (1) franchises and (2) have more than 500 employees can still apply for relief under the program.

repayment terms

Here’s the best part about the PPP—if all employees are kept on the payroll for at least eight weeks after receipt of the funds, and the funds are used for the costs outlined above, the entire loan (principal and interest) will be forgiven.

You will need to submit the appropriate paperwork with your lender to finalize the process. It is also important to maintain documentation of how you use the funds; evidence of proper use of the money is essential in order for the loan to be forgiven. Finally, an added perk of the PPP is that any forgiven funds are not counted as taxable income in this tax year. Given this, it is very advantageous that any business owner or self-employed individual who receives funds makes sure that they follow all the necessary steps to have the full amount forgiven.

how do I apply?

Before you begin to fill out an application, you should gather the following documentation for your business:

· A list of any owner who holds a 20% or greater stake in the company (Each 20% or greater owner will need to sign off on the application);

· Mortgage or Rent Statements for the last 12 months;

· Utility Bills from the last 12 months;

· An Updated Profit/Loss Statement or your 2019 Tax Filings; and,

· An accurate list of all current employees who live in the United States and their salaries.

Once you have the necessary documentation and information, you should begin to work through the application. First, you should download the application here. You will need to start by filling in basic information about your business – address, phone number, EIN (or your Social Security Number if you do not have an EIN) in the top portion of the application on page 1.

The most important part is your average monthly payroll cost or, if you are self-employed, your average monthly profit. This number goes in the box titled “Average Monthly Payroll” in the top portion of the first page. You will multiply this number by 2.5 (in the next box) so that the reviewer of your application can determine the loan amount you should get.

For a business that needs to use the average monthly payroll amount, look back at your previous payroll costs. You should use the numbers for the past 12 months, or the number you included on your 2019 Tax Forms if you already filed them.

If you are self-employed, you will need to know your Annual Income, which you can find by referencing your books for tax year 2019. You will take your annual number (for an entire 12-month period) and divide it by 12. That will give you your monthly income, which ideally should represent your “salary.” Like with a small business, multiple your monthly number by 2.5, and this figure will help the reviewer determine your loan amount.

The remainder of the application asks “Yes” or “No” questions about your business. It may be helpful to watch this step-by-step video tutorial as you work through the application process. Self-employed individuals may want to watch this video tutorial about the PPP for application considerations specific to being self-employed.

When finished, your application will need to be submitted through one of the several approved SBA lenders. You can find your local SBA approved lender here. Fortune reports that Paypal is now offering these loans as well.

final considerations

There are 349 billion dollars available for funding through this program, but you should work to get your application in as quickly as possible since they are approved on a first-come, first-serve basis. Remember, you cannot apply for more than one PPP loan, so it is important to fill out the application accurately and completely in order to receive your maximum amount of funds. You should also continue to monitor the SBA website for updates and announcements regarding additional relief programs available to small businesses.

See the Important Sources section for additional links that may aid in the application process.


Sarah Phillips, at the time of this blog post, is a third-year law student at Penn State’s Dickinson Law. She is from West Amwell, New Jersey and has interests in agricultural, land use and business transactional law. She is currently serving as an Honor Code Representative and a Law Lion Ambassador. Sarah is the Editor-in-Chief of the Dickinson Law Review.

 

Important Sources:

To access the PPP application, click here

For a video tutorial on how to apply, click here

For a video specifically regarding self-employed individuals, click here

For more information on SBA’s relief programs, click here

References:

https://www.agcountry.com/News/2020/April/sba-paycheck-protection-program

https://www.kabbage.com/paycheck-protection-program-loans/

https://quickbooks.intuit.com/learn-support/en-us/help-articles/how-to-apply-to-the-paycheck-protection-program/00/527483

https://www.forbes.com/sites/kellyphillipserb/2020/04/08/overwhelmed-plain-talk-on-the-paycheck-protection-program-for-small-businesses-affected-by-covid-19/#2bcfc7ff1cbf

 

If They Booze, You Lose! A Guide to Dealing with Minors in PLCB Licensed Establishments

By: Nick Cherry

If you are an entrepreneur that wants to open up a restaurant, there’s probably a pretty good chance that you will want to sell alcohol to your patrons. Selling alcohol can be a major part of any successful restaurant, but it can come with some problems, especially when it comes to minors being on the premises. As an emerging restauranteur, it is important to know about the enforcement of liquor laws, the penalties for violations, and how one can both sell alcohol and have minors on the premises legally.

don’t get stung 

While the Pennsylvania Liquor Control Board (PLCB) is the entity that sets the regulations for companies that are granted a liquor license, they are not the only entity that has control over violations. The Pennsylvania State Police, Bureau of Liquor Control Enforcement (BLCE) is the entity that takes charge when it comes to compliance with the Liquor Code. They ensure compliance through on-site visits, ones that are often undercover, known as “Sting Operations.”

These Sting Operations use an underage patron, who, under the instruction of the BLCE, enters a bar and attempts to purchase alcohol. The underage patron does not use a fake ID, and if the underage patron is served, without getting carded or occasionally even after getting carded, the agents of the BLCE make note and the owner is later notified that they sold alcohol to a minor. Obviously, this action comes with some hefty penalties.

paying the price

If a business is caught in the sting, they will, at the very least, have to pay for their actions. Minor offenses usually end up costing a business $1,000 while the more serious offenses can end up costing a business $5,000. Additionally, a business caught selling alcohol to a minor can have their liquor license temporarily suspended or even revoked, and have to undergo mandated liquor training.

If you are a restaurant owner and want to avoid paying these penalties, there are some steps you can take and policies you may implement for your business. You may choose to institute 100% carding policies, where regardless of appearance, a person must verify their age to purchase alcohol. While at first, this policy seems extreme, it is increasingly being used by businesses to ensure compliance. Additionally, you should mandate continued training for your employees, and do not be afraid to discipline any employees that ignore or violate your carding policy.

some very important exceptions

The general rule in Pennsylvania is that no minors may be present in an establishment licensed to sell alcohol. While at first, this may lead a restaurant owner to think they are forced to ban all minors from the premises, especially to avoid any penalties from the aforementioned stings, that is not the case. There are five exceptions to the general rule:

1) Proper Supervision Exception

A restaurant that sells alcohol may allow a minor on the premises if the minor is under proper supervision. A proper supervisor is someone who is at least 25 years old and is directly responsible for the care and conduct of the minor while on the premises.

If your establishment wants to host an event, it is important to understand that a proper supervisor is generally an unpaid volunteer. If you choose to have your employees act as a proper supervisor, you must not allow them to perform any other employment-related duties, unless you want to be penalized (pretty tough choice here, huh?). Generally, there must be one proper supervisor for every twenty minors.

2) Social Gathering Exception

A social gathering is an event that is marketed to or catering to minors. If you have no plans to market events like this to minors, you can just skip to the next exception. If not, you must give at least 48 hours advance to the BLCE about the event, no alcohol may be sold to any individual, regardless of age, and the alcohol must be removed from the premises or secured by lock and key.

If a significant portion of your nightly business is predicated on the sale of alcohol, an event such as this might not be the wisest one to have, unless the cover fee for the event is substantial.

3) Parent Exception

This exception is fairly simple. If a minor is with one or both of their parents, they are allowed on the premises, may sit anywhere, and their parents may be served alcohol.

4) Guardian Exception 

This exception is exactly like the parent exception except instead of a parent, it is a legal guardian.

5) The Pizza Hut Exception

This exception requires the restaurant owner to do some math but is perhaps the easiest to comply with. If the premises have gross sales of food and non-alcoholic beverages that are 50% or more of its total gross sales, then minors are allowed to be on the premises without any supervision.

If you wish to legally allow minors into your business using this exception, minors still may not sit in the bar section. Additionally, no alcohol may be served to any adult at the minor’s table, unless they are there with, as stated above, a parent, guardian, or proper supervisor.

If you as a restaurant or bar owner do not wish to have minors on the premises, you do have the authority to limit their access. You may ban minors from certain areas of your business, require them to leave by a specific time, or simply not allow them there at all. All of these actions are entirely legal, provided they are not motivated by illegal or discriminatory motives.

Make note of the kind of restaurant you wish to operate. As noted above, there are different courses of action you must take in order to reach that goal. Those are important because, if you fail to comply, you could be paying the price!


Nick Cherry, at the time of this post, is a second-year student at Penn State Dickinson Law. When he is not writing about issues facing entrepreneurs, he enjoys going to theme parks, playing and watching sports, and watching movies.

 

Sources

47 P.S. § 1-102

47 P.S. § 493(14).

Commonwealth Foundation, Double Standard in Liquor Control Enforcement (March 7, 2011), https://www.commonwealthfoundation.org/policyblog/detail/double-standard-in-liquor-control-enforcement

David S. Zuckerman, PITTSBURGH AND WESTERN PA FURNISHING ALCOHOL TO MINORS DEFENSE ATTORNEY (Visited Mar. 14, 2020) https://www.zuckermanfirm.com/furnishing-alcohol-to-minors

Evan Pappas, Restaurant Employees Can Be Your Best Defense or Your Worst Enemy When it Comes to Liquor License Citations (July 8, 2019), https://www.tuckerlaw.com/2019/07/08/restaurant-employees-can-be-your-best-defense-or-your-worst-enemy-when-it-comes-to-liquor-license-citations/

Gambone Law, Bartenders, Bars, and Criminal Charges in Pennsylvania (Visited Mar. 15, 2020),  http://gambonelaw.com/bartenders-bars-and-criminal-charges-in-pennsylvania/

Jason Dunkle, What are the penalties for Furnishing Alcohol to a Minor? (Visited Mar. 16, 2020) https://www.mystatecollegelawyer.com/q-a/furnishing-alcohol-to-a-minor-q-a/what-penalties-are-associated-with-a-conviction-of-furnishing-alcohol-to-a-minor/

Pamela Lehman, Liquor control sting finds some Valley businesses selling to minors ** State police have busted 55 places this year for selling alcohol to underage buyers (Oct. 28, 2007), https://www.mcall.com/news/mc-xpm-2007-10-28-3795745-story.html

Pennsylvania Liquor Control Board, Pennsylvania Liquor Control Board Introduces New Licensee Compliance Program (Nov. 30, 2017), https://www.prnewswire.com/news-releases/pennsylvania-liquor-control-board-introduces-new-licensee-compliance-program-300564461.html

PLCB, MINORS ON THE LICENSED PREMISES, (May 2017), https://www.lcb.pa.gov/Legal/Documents/000814.pdf

WTAE, Pittsburgh-area bars, restaurants cited for alleged liquor law violations (Visited Mar. 17, 2020), https://www.wtae.com/article/pittsburgh-area-liquor-control-enforcement-citations-december-2019/30600644#

Photo Sources

Beverage Media Group, ID Check-Up (May 25, 2016) https://www.beveragemedia.com/2016/05/25/id-check-up/

Wendy Leonard, Parents play key role in preventing underage drinking (+videos) (Mar. 31, 2016), https://www.deseret.com/2016/3/31/20585798/parents-play-key-role-in-preventing-underage-drinking-videos

 

 

Brewing Additional Revenue for Your Farm: How Pennsylvania’s Changing Liquor Laws Open New Market Opportunities for Agricultural Producers

By: Sarah Phillips

Part of running a successful business is knowing when and how to diversify. As the agricultural market becomes more competitive and consumer-driven, farmers are becoming experts on creating niche market opportunities to meet consumer demands.

Over the last several years in Pennsylvania, the liquor laws have become more relaxed. Thanks to the passing of Act 39 by Governor Wolf, farmers have been able to expand their offerings to include farm-fresh, locally produced beer, hard cider, and wine. The new laws allow agricultural producers to not only grow, process, package, and sell their own alcoholic beverages, but they can also do all of this right on their own farms. It is not uncommon to see farms opening their own “tasting rooms” in old barns on the farm property, and now, doing so is a much easier process than obtaining a traditional liquor license.

River Bend Hop Farm and Brewery located in Newport, PA. It opened in 2017 thanks to the passing of Act 39.

getting started

Obtaining the appropriate licenses and permits can be a lengthy process, so it is best to start filing the necessary paperwork right away. A delay in receiving the required approvals could mean a delay in opening your new business, which could severely impact your cash flow and the ultimate success of the business.

Because there are several different types of licenses you can apply for, before you file, you must first decide which license is appropriate for your particular business goals. Each license comes with its own set of requirements and only allows your business to engage in certain activities.

Your first option under the new liquor laws is to apply for a Manufacturing License, known in the business as a “G” license. This license allows you to manufacture wine, beer or hard cider on your premises and sell it to consumers for both on and off-site consumption. The “G” license requires that you have at least ten seats and food available on the premises. A “G” license will also permit you to sell your alcoholic beverage in pints, growlers, and even kegs. For agricultural entrepreneurs who have limited funds, want to start small, or are not interested in managing a huge operation, a “G” license may be the best option to provide supplemental income for the farm.

A second license option for your farm is to apply for a Brew Pub License, which is known as a “GP” license. Keep in mind that your farm would need to apply for both a “G” license and a “GP” license to enjoy the perks and benefits that come with a “GP” license. Under this license, your on-farm tasting room can stay open until 2:00 a.m., but you must have seating and food for at least 30 people. Additionally, under this license, your business must apply to the Pennsylvania Department of Health for a health permit.

It is important to remember that the federal government has its own set of laws that govern the production and sale of alcohol for on-farm operations. Getting the appropriate federal approval is even more complicated and time-consuming, so it is best to start this process right away. You can apply for both federal and state approval at the same time, so there is no need to wait to receive approval from one before applying for the other. For more information on that process, check out this resource.

additional profit-making opportunities

Act 39 also changed existing law to allow farmers and agricultural producers to sell their alcoholic beverages off-site at a farmers market. Like the other types of licenses discussed above, a farmer is required to apply for and receive a special license to sell at a farmers market. There is a filing fee, and you must inform the Pennsylvania Liquor Control Board of the location of the market you want to sell at as well as the hours you expect to be there. In addition to the farmers market license, you should always check with the coordinator of the farmers market you wish to attend because most markets also require proof of insurance and inspection certificates.

Reid’s Winery is just one of many Pennsylvania vendors that attends farmers markets throughout Adams County to sell their locally produced wine and hard cider.

Act 39 provides additional incentives to create your own on-farm tasting room by making it permissible to sell beverages from other local breweries. This allows agricultural entrepreneurs to not only expand their product offerings but increases their ability to collaborate with other local agricultural entrepreneurs.

other important considerations

As an agricultural entrepreneur, expanding your business to offer your own locally produced beer, hard cider or wine can bring in additional revenue that will make your larger farm business more sustainable. Like all new entrepreneurial endeavors, you should always consult your local township’s laws to make sure you do not violate any zoning ordinances. Attending local town council meetings or consulting with a local attorney is advisable to make sure your business is operating in accordance with all applicable permits and licenses. It is also recommended that you consult with your farm insurance agency to make sure you are in compliance (or start complying) with any regulations the agency has about on-farm businesses and customers.

You can stay up to date with Pennsylvania’s changing liquor laws by subscribing to the Pennsylvania Department of Agriculture’s Weekly Roundup Newsletter, which provides timely updates on laws and regulations that can affect agricultural entrepreneurs and their respective businesses.


This post was originally authored February 9, 2020, and can be found here.

Sarah Phillips, at the time of this blog post, is a third-year law student at Penn State’s Dickinson Law. She is from West Amwell, New Jersey and has interests in agricultural, land use and business transactional law. She is currently serving as an Honor Code Representative and a Law Lion Ambassador. Sarah is the Editor-in-Chief of the Dickinson Law Review.

Sources:

https://www.lcb.pa.gov/Legal/Documents/003462.pdf

https://www.agriculture.pa.gov/consumer_protection/FoodSafety/Retail%20Food/Documents/Winery%20and%20Farmers%20Market%20QandA.pdf

https://www.lcb.pa.gov/Licensing/ResourcesForLicensees/Documents/February%202017%20Presentation%20for%20PA%20Producers%20and%20Licensees.pdf

https://www.wesa.fm/post/farmers-markets-get-boozy-thanks-pas-relaxed-liquor-laws#stream/0

http://www.riverbendhopfarmandbrewery.com

https://bit.ly/2OHIgJX

Picture Sources:

https://bit.ly/2H7OCht

https://www.reidsorchardwinery.com

Take a Whisk & Start a Business from Scratch: Registering Your Kitchen as a “Limited Food Establishment” in Pennsylvania

By: Jasmine Sandhu

I frosted my carrot cake with buttercream icing. I thought to myself: “Drop out of law school; this masterpiece will make millions.” But this recipe already had made millions. Yes, I used a store-bought cake mix and icing. If the thought crossed my mind, people with actual baking skills must think about starting a business often. Unfortunately, 60% of traditional food businesses fail within their first year, and 80% fail within four years.

You may be able to test your idea without the risks associated with starting a traditional food business – “Cottage Food” state laws allow entrepreneurs to sell food produced in their kitchens. In Pennsylvania, a person may start a food business in their home as a limited food establishment (“LFE”).

I’m not the face of the next Cake Boss, but this blog makes Pennsylvania and federal rules about LFE registration digestible.

why register your kitchen as a lfe?

Selling food within friend circles or on social media without LFE registrations may be illegal. The first violation is a summary offense. Three violations within two years is a third-degree misdemeanor. Each violation can also result in a $10,000 fine.

what are the barriers to obtaining a lfe registration?

Before discussing the LFE application, you should be aware of the barriers below that could prevent you from obtaining an LFE registration. If you cannot overcome a barrier, consider: (1) contacting a nearby commercial kitchen; or (2) creating another kitchen in your home and applying for commercial status with the Department of Agriculture (“Department”).

  1. Prohibited Foods

The Department prohibits Time/Temperature Control for Safety (“TCS”) foods. Typically, foods requiring refrigeration are TCS. Rejected TCS foods include:

  • Fresh fruits/vegetables;
  • Garlic-in-oil products;
  • Meat; and
  • Desserts with cream-based fillings (no Boston crème donuts – I know, blasphemy).

What if your masterpiece is a moist cake or salsa? These foods are “questionable products.” You must submit the food to a lab to test the pH and water levels.

2. Pets/Animals
You cannot register your kitchen if you have pets in your home at any time. However, the Department may grant the registration if there is:

    • A physical barrier (e.g., door) to the kitchen making it inaccessible to pets; and
    • A separate entrance to the kitchen, so ingredients are transported through areas inaccessible to pets.

    Fish, reptiles, or other cage-confined animals aren’t considered “pets,” as long as they aren’t located near the kitchen.

    1. Private Water and Sewage System

    Water supply and sewage disposal must be approved. If you use public water and sewage system, you’re in the clear. If your source of water is private, you must submit the water to a lab to test for chemicals. Annual testing is required to maintain registration. If you have private sewage disposal, you must contact your certified Sewage Enforcement Officer to discuss if your system is appropriate for a food business.

    1. Local Requirements

    Local zoning or ordinances may prevent the use of home kitchens for businesses. Department approval doesn’t imply that the business complies with local requirements.

    Contact your municipality to ensure that a food business from your kitchen is allowed.

    how do I prepare and submit the application?

Everyone who wants to sell from their kitchen must fill out a free application to register it as a LFE. Submit the application to your regional office, who will review it within 3 to 5 weeks. The application packet is 20 pages. Don’t be alarmed – the actual application starts on page 15. Here’s a checklist to help you prepare:

Click to learn more about allergensNet Wt. calculations, and licenses to collect taxes.

what should i expect after submitting the application?

If your application is rejected, the Department will issue a letter specifying reasons for the disapproval. You can resubmit applications.

If your application is approved, an inspector will examine your kitchen and collect a $35 registration fee upon a successful inspection. After this, you can sell foods produced in your kitchen. The inspection report serves as approval before you receive registration in the mail.

If the inspector finds deficiencies, you may correct them and ask for another inspection.

what rules are there to consider when running a lfe?

  • Don’t process business and personal food simultaneously. Don’t commingle ingredients between business and personal food processing.
  • Don’t allow children in the kitchen during business food processing.
  • Be wary of health claims on labels (e.g., “Gluten-Free”). These must be verified through sub-ingredients or testing.
  • Food and Drug Administration requires nutritional labeling if you sell foods across state lines. A small business exemption may apply.

final “food” for thought…

Debbi Fields, an entrepreneur, explained: “I loved making cookies, and every time I did, I made people happy. That was my business plan.” She started her business from scratch – baking cookies from her kitchen, which turned into a million-dollar company.
I’m not a baker. Yet, I felt joy from baking a store-bought cake mix. This joy must be small compared to what Ms. Fields or you may experience. Starting a food business is risky, but the risk is lower when you can use your kitchen. Register your kitchen as a LFE, so you can take that whisk, roll in the dough, and make that bread.


This post was originally authored January 30, 2020, and can be found here.

Jasmine Sandhu, at the time of this post, is a third-year law student at Penn State’s Dickinson Law. She grew up in Northern California and completed her B.S. at UC Davis. Jasmine is interested in transactional law, specifically corporate and real estate. She is also passionate about legal topics where the law intersects with race (e.g. immigration and criminal law). She currently serves as a Law Lion Ambassador and the Symposium Executive Editor of the Dickinson Law Review. After graduation, Jasmine will join a transactional practice group at Dechert LLP in Philadelphia.

Sources:

Official Website for Limited Food Establishments

PA Consolidated Statutes, Title 3, Chapter 3

Statute Language on Criminal and Civil Liability for Violations

https://forrager.com/law/pennsylvania/

https://www.pickyourown.org/CottageFoodLaws-Pennsylvania.php

Photo Sources:

https://www.vectorstock.com/royalty-free-vector/hand-hold-gavel-icon-cartoon-style-vector-23227498

https://www.countrycottagesonline.com/pet-free-cottages-uk.htm#.XkF9Qi2ZOu4

https://www.wikihow.com/Check-Zoning-Laws 

https://blog.insyncinsurance.co.uk/index.php/takeaway-insurance-tips-how-to-prepare-for-health-inspections 

https://www.amazon.com/One-Smart-Cookie-Housewifes-Multimillion-Dollar/dp/0671618385