Month: May 2020

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.