Many small businesses are formed between family members or friends. But when a relationship, or the business itself, starts to break down, an owner may decide that it is time to move on. In more positive instances, owners may leave a business to pursue a new career, make more time for hobbies, or retire. This post breaks down some important steps to consider if you are thinking about leaving your business.

Communication is Key

Before getting into the nitty-gritty of withdrawing from your business, you should consider when and how you will inform your fellow owners that you are leaving. This conversation is often difficult and emotional, but you can prepare for the inevitable by reflecting on the specific reasons for your departure. Honest communication between owners can make your withdrawal less complicated and help you avoid issues later in the process.

Review Controlling Documents

Before you initiate your departure from the business, you will need to review the Operating Agreement (if your business is an LLC) or the Partnership Agreement (if your business is a partnership). Review these documents to determine if any provisions govern the withdrawal of an owner. Keep an eye out for a buyout provision, which may describe how to determine the price of your ownership interest in the business or whether anyone has a right of first refusal to buy your interest.

If your LLC or partnership does not have an Operating Agreement or Partnership Agreement, state law will control your withdrawal from the business. The relevant state statutes contain provisions detailing how to proceed with the sale or transfer of your interest in the business. 

Generally, an owner of an LLC may withdraw from the business if they provide written notice to the other members within a specified time frame. However, provisions in the Operating Agreement may contain more stringent requirements. Again, you must review your business’s controlling documents, if they exist, before assuming state law will control your withdrawal.

Similarly, a partner may generally withdraw from a partnership at any time, so long as they provide the other partners with adequate notice of their withdrawal. However, in some states, the withdrawal of a partner will trigger a dissolution of the partnership. If your partnership does not have a Partnership Agreement in place, it may be best to contact an attorney to help you determine whether this provision applies in your state.

Valuate Your Business

Once you have an understanding of what provisions will govern your withdrawal from your business, you will need to determine the value of the business. This includes obtaining a full grasp of your business’s assets and liabilities, as well as potential future earnings or distributions. If your business’s bookkeeping is unclear, you may want to consider obtaining a third-party valuation. Business valuations can be expensive, but the price tag is well worth the ability to successfully negotiate the best value for your ownership interest in the business.

Finalize Terms

An attorney can help you negotiate with your fellow owners and record the final terms of your departure. This contract, sometimes called a separation agreement, will likely contain a provision on who will buy your interest in the business and how you will be paid for your interest. It may also contain a provision on how existing obligations will be distributed between owners. Two common types of payments for departing owners’ interest in the business are buyouts and earn-outs. A buyout is a sale of your ownership interest governed by a preexisting agreement, such as a buyout or buy/sell provision in a Partnership or Operating Agreement. Such provisions contain a formula for determining the price of the ownership interest. An earn-out is a sale of your interest in which the price is contingent on the business’s future earnings. If any business contracts, debts, or other documents include your name, you should ensure that the separation agreement protects you against future liability. Again, an attorney can help you negotiate an appropriate provision to address this concern. 

Reaching Resolution

If reaching a final agreement between yourself and your fellow owners isn’t going as smoothly as you had hoped, you may want to consider taking part in alternative dispute resolution (ADR) with your fellow owners. Consider participating in arbitration or mediation to resolve any outstanding issues between owners to avoid future litigation. ADR can be costly, but you and your fellow owners will be able to resolve disputes much faster than if you litigate unresolved issues in court. Some ADR processes impose binding decisions on the parties, so make sure that you understand the terms of the process before agreeing to participate.

Announcing Your Departure

Before your departure, consult with your fellow owners on if, when, and how you will announce your withdrawal from the business. Be mindful that telling customers, employees, competitors, or other related parties may expose you to liability.

Withdrawing from a business that you built from the ground up can be challenging and emotional. No matter your reason for leaving your business behind, you should take steps to protect yourself as you enter the next chapter of your life.

Sources:

All photos contained in this post were found on https://unsplash.com/

https://www.nolo.com/legal-encyclopedia/withdrawing-from-partnership.html

https://www.mylawteam.com/articles/partnerships/leaving-partnership-without-agreement-business-owners-need-know/

https://www.mylawteam.com/articles/partnerships/leaving-partnership-limited-liability-company-llc/

https://www.jdsupra.com/legalnews/about-that-llc-buyout-39640/

https://online.hbs.edu/blog/post/how-to-value-a-company

OpenAI first shared ChatGPT with the public on November 30, 2022. Since then, the use of generative Artificial Intelligence (AI) has exploded across many industries. If you haven’t already taken advantage of AI tools in your business, now may be the time. According to a 2023 study by the Chamber of Commerce, 23% of small businesses already use some form of AI platform. Another 2023 survey found that “91% of small businesses who are currently using AI say it has made their business more successful.” The Chamber of Commerce study also found that businesses who leverage multiple tech platforms, including AI, see positive outcomes:

Small businesses that make greater use of leveraging technology platforms are more likely to have experienced a growth in sales and profits over the past year, as well as an increase in their workforce.

This post will share several ways that small businesses can implement generative AI tools. Next, it will lay out some best practices for integrating AI into your business.

Common Uses

There are endless opportunities for businesses to use AI platforms, and the number of available tools continues to grow every day. Many platforms, such as ChatGPT or NightCafe, offer free or affordable options that are accessible to small business owners and entrepreneurs looking to launch a new business.

1. Customer Service
One of the most popular uses for AI is automating or enhancing the customer service experience. For example, chatbots can categorize customer requests, obtain necessary information, or provide customers with automated responses. Examples of such tools include IBM’s watsonx™ Assistant and Zendesk Advanced AI. Proceed with caution (and review the best practices described below) if you plan to ask customers for personal or confidential information during customer service interactions.

2. Content Creation
Generative AI can save you time by quickly creating custom content, such as marketing materials, blog posts, and product descriptions. There are many low cost or free tools available to create content that conforms with your business’s message and branding. For example, you can use generative AI to create a custom logo. You should consult with your attorney if you choose to use generative AI to create images or text for your business, as there is debate over how intellectual property laws will apply to such creations.

3. Operations and Strategy
Your business may also benefit by the use of AI platforms to create marketing plans or sales forecasts. Some tools, like Asana Intelligence, offer comprehensive workflow organization, while others offer more specific functions. Zoom’s AI Companion, for example, is helpful for transcribing and summarizing virtual meetings. AI tools like Motion can also be used as a virtual operations manager for your business.

Best Practices

Develop an internal AI use policy to set forth when and how your employees will use AI platforms. Update your company policy on AI use as needed to ensure that your employees properly use all tools and protect customer data. You should also offer thorough and continuous training for your employees regarding the AI use policy.

Comply with data privacy regulations if your business interacts with customers online. The European Union’s General Data Protection Regulation (GDPR) and California’s Consumer Privacy Act (CCPA), as amended by the California Privacy Rights Act (CPRA), regulate how businesses collect and protect customer data. Compliance with these laws is required for businesses who handle any personal data of California or EU residents. Proactively complying with both laws will help your business prepare for future regulation. Additionally, compliance may be required even if you currently don’t have customers in California or Europe. For example, a business may be required to obtain informed consent from customers before collecting any personal data. Providing an AI disclosure to your customers, even if this specific requirement does not apply, may help protect you against future litigation. Many of the available AI tools are open source, so it is important for you to understand what, if any, data protection exists within the platform before you integrate it into your business. Seeking legal advice on how to best comply with data protection regulations may be in your business’s best interest, as compliance may look different depending on your business or industry.

Review third-party vendor policies and pricing models. Many AI vendors have specific licensing terms that your business must follow when using the platform. Use of the tool may be subject to industry-specific or competitive restrictions. If your business is in a sector that uses confidential customer data, such as the medical or legal industry, you should take the time to examine and understand the applicable restrictions. Regardless of what industry your business is in, you should review any vendor’s terms of service to ensure that all training data is properly licensed. Some generative AI products also have tiered pricing models, which only offer certain functionalities at a premium. Consult with your attorney to review any agreements with a third-party vendor if you are unsure of what you are agreeing to when signing up for a platform.

Conduct regular testing of all generative AI tools. If you decide to use a platform that creates text, such as a customer service chatbot, you should regularly test the platform to ensure that the output seen by your customer is correct. Testing is also important to ensure that protected data is not incorporated into responses sent to your customers.

Generative AI can help small businesses boost profits and stay competitive. Creating an internal AI use policy, training your employees on when and how to use AI, conducting regular testing, and complying with data protection laws will allow you to use these innovative tools with ease of mind.

All images in this post are from https://www.unsplash.com. Other sources include:

• https://www.forbes.com/sites/bernardmarr/2023/05/19/a-short-history-of-chatgpt-how-we-got-to-where-we-are-today/?sh=69d7913d674f
• https://www.uschamber.com/small-business/smallbusinesstech
• https://www.reuters.com/legal/legalindustry/navigating-data-challenges-compliance-ai-initiatives-2024-01-19/
• https://hbr.org/2023/04/generative-ai-has-an-intellectual-property-problem
• https://support.zendesk.com/hc/en-us/articles/5524125586330-About-Zendesk-Advanced-AI
• https://asana.com/product/ai
• https://www.zoom.com/en/ai-assistant/
• https://www.ibm.com/products/watsonx-assistant
• https://www.usemotion.com/
• https://iapp.org/resources/topics/ccpa-and-cpra/

The rate of Americans with multiple jobs has been on the rise since 2010. 

Today, 16 million Americans – around 10% of the U.S. workforce – work at more than one job. Many employees in healthcare, food service, retail, and administrative positions work more than one job and still make less than $20,000 per year. Inflation, weak wages, and lack of pay transparency all contribute to the need for people to work multiple jobs. Many people in the U.S. workforce do not have the luxury to “shop around” for a better-paying position because the hiring process puts a serious financial strain on already dwindling savings. However, lack of pay transparency means that even those who are able to research new positions can be caught off guard when their new pay range is finally disclosed.

Pay transparency is gaining traction across the country because it provides many benefits to employees and employers. Proactively disclosing pay ranges allows prospective employees to make educated decisions on when and where to apply for their next position. Disclosure may also lead to an increase in pay equity, employee retention, and employee productivity. Pay transparency prevents companies from wasting resources on interviewing prospective employees who are unwilling to work for the offered salary. Additionally, pay transparency promotes a company’s reputation, which leads to stronger talent acquisition. 

Pay Transparency Laws in 2023

State or local pay transparency laws are currently in effect in ten states: California, Connecticut,  Maryland, Nevada, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, and Washington. Pay range disclosure requirements vary, but each law prohibits complete pay secrecy. Colorado has one of the strictest laws, which requires all employers to provide pay ranges and descriptions of benefits to all prospective employees. Rhode Island’s disclosure requirement is much more lenient, requiring employers to disclose pay ranges only upon the request of current or prospective employees. Some state laws only apply to companies with a certain number of employees or a certain number of employees in the state. For example, in Washington, California, and Ohio, disclosure is only required by companies with more than 15 employees.

Pay transparency laws are quickly becoming more popular. Hawaii, Illinois, Kentucky, Massachusetts, Montana, Oregon, South Dakota, Vermont, Virginia, and West Virginia have introduced legislation to increase pay transparency. The European Union also recently passed a directive on pay transparency.

Employers posting remote job opportunities are required to comply with the pay transparency laws of all states where potential employees reside. If a company posts a job opening online, the company should assume that the strictest disclosure requirements apply. This means that, for most remote opportunities, companies must disclose pay ranges to all prospective employees. The penalties for violating these laws can be severe. Companies may face hefty fines of up to $250,000 for non-compliance.

Consider Voluntary Disclosure

Many employers who are unaffected by pay transparency laws are beginning to disclose pay ranges. Even when it is not required, there are several benefits to voluntary disclosure. First, as more states enact similar laws, it is increasingly likely that compliance will eventually be required. Companies have the opportunity to fully audit their wage policies and eliminate inequity before the requirement kicks in. Second, companies can avoid potential fines by getting ahead of pending legislation. Finally, by proactively disclosing pay ranges, companies show prospective employees that they are committed to transparency. As mentioned above, this can lead to greater talent acquisition, pay equity, and higher rates of employee productivity and retention. 

After the Interview… Employee Discussions on Wages

www.nlrb.gov

Pay transparency does not (and should not) end after the hiring process. Regardless of whether or not an employee is aware of their pay range before joining the company, Section 7 of the NLRA gives employees the right to communicate with their fellow employees about their wages. A recent decision by the NLRB confirmed that an agreement between an employer and an employee “is unlawful if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.” Employees can easily discover inequities and pay gaps by communicating with each other about their wages. By providing pay transparency throughout the hiring process, companies can avoid employee dissatisfaction and resentment. 

How do Pay Transparency Laws Affect Your Business?

Do you own a business? You can retain top talent and avoid potential fines by embracing pay transparency. Proactively complying, even if your state doesn’t yet have a law in place, will benefit your business and make future compliance a non-issue. You should consider creating and maintaining a wage policy to clearly communicate pay ranges to prospective and current employees. Your wage policy should provide the answers to the following questions:

• How are pay ranges determined?
• Is there a difference in wage ranges for in-person and remote work?
• Is there a difference in wage ranges geographically?
• How are bonuses, raises, and promotions determined?

If you are unsure of where your business stands regarding pay equity, you can hire an outside consultant to conduct a pay equity audit. An audit of your current pay ranges will uncover any pay gaps and help you to better provide pay equity to your employees.

It is also important to remember that you must comply with all pay transparency laws if you are posting a job opportunity online for a remote position. This means that your posting must contain a pay range for the position. If you are unsure of how to comply with the current pay transparency laws, reach out to an attorney. It’s better to be confident in your understanding of the law before you publish a potentially non-compliant job posting online.

Complete pay secrecy is quickly becoming extinct. Now is the time to adapt your business and embrace pay transparency!

Sources:

https://www.census.gov/library/stories/2021/02/new-way-to-measure-how-many-americans-work-more-than-one-job.html

https://www.insidehook.com/daily_brief/health-and-fitness/americans-have-more-than-one-job

https://www.adp.com/spark/articles/2023/03/pay-transparency-what-it-is-and-laws-by-state.aspx#:~:text=Pay%20range%20disclosure%20laws,candidates%20and%2For%20current%20employees.

https://www.beamjobs.com/career-blog/pay-transparency-by-state

https://www.americanprogress.org/article/quick-facts-about-state-salary-range-transparency-laws/

https://news.bloomberglaw.com/us-law-week/pay-attention-to-state-pay-transparency-laws-when-posting-jobs

https://nwlc.org/resource/salary-range-transparency-reduces-gender-wage-gaps/

https://www.nlrb.gov/about-nlrb/rights-we-protect/your-rights/your-rights-to-discuss-wages#:~:text=Under%20the%20National%20Labor%20Relations,for%20mutual%20aid%20or%20protection.

https://www.nlrb.gov/about–nlrb/rights-we-protect/the-law/interfering-with-employee-rights-section-7-8a1

https://hbr.org/2023/02/research-the-complicated-effects-of-pay-transparency#:~:text=Our%20Nature%20Human%20Behavior%20study,equal%2C%20and%20less%20performance%20based.

https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7739

https://www.skadden.com/-/media/files/publications/2019/09/conducting_a_pay_equity_audit.pdf

https://www.mapchart.net/usa.html

You’ve had your eureka moment and it’s time to make a plan for how to share your idea with the world! Before taking the leap to start your own business, it’s essential to take a moment to decide how to move forward.

Every business and business owner is unique. While it may seem tempting to fill out the first do-it-yourself LLC form you see online, it may not be the best solution for your business. Your plan should suit your personal needs and goals, so take some time to assess what you will contribute to your business and what you would like to achieve. Remember to keep an open mind – you may be surprised by where your business idea takes you!

1. License Your Idea to Others

Many people picture opening a brick-and-mortar location when they think about starting a business. However, if you’ve created a new and innovative product, this option will allow you to profit from your idea without having to quit your day job. Licensing your product to others is a practical option if you aren’t thrilled about changing your current lifestyle to start a new business. Licensing is also a great choice if you are worried about conquering the logistics of bringing a product to market. Obtaining intellectual property protection for your idea is crucial if you plan on licensing it to others. One potential downside of this option is that the process of obtaining intellectual property protection may be costly. Here are two common methods for protecting your product:

Patent

Before filing any type of patent application, you should first search the United States Patent and Trademark Office (USPTO) database to ensure that your product is not covered by an existing patent. If your product is not already covered, you can file a provisional or non-provisional patent application. A provisional application holds your place in line so that you will have priority over anyone who applies for the same patent. You can look for investors, begin marketing, and continue to test and improve your product while your product is patent pending. A non-provisional application starts the formal patent examination process. Keep in mind that you must file a non-provisional application within one year of filing the provisional application. The USPTO offers resources for filing a patent on your own, including a searchable directory of patent attorneys who can help you through the patent application process.

Trade Secret

If your product is made with a secret recipe, formula, or algorithm, your product may qualify for intellectual property protection as a trade secret. Trade secrets are information that is protected without having to go through a formal registration process. However, this protection only lasts as long as you take reasonable steps to keep the trade secret…secret. Nondisclosure or confidentiality agreements are helpful tools for maintaining secrecy and may be used alongside a licensing agreement.

The American Bar Association offers this helpful resource on deciding whether patent or trade secret protection (or both) is appropriate for your product.

2. Turn Your Idea Into a (Lucrative) Hobby

Are you worried about not having enough free time or funding to get your new business off the ground? It may make sense to continue to grow your business as a side project while you keep a steady flow of capital coming in from your day job. Many successful companies, including Spanx, Craiglist, and Yankee Candle, started off as hobbies. Deciding to keep your business idea as a hobby for now doesn’t mean that it has to stay a hobby forever. You can always start a business later on when you feel more comfortable doing so.

It’s important to note the tax implications of turning your business idea into a hobby. Even if you are making a profit from your hobby, you can only deduct your hobby expenses to a net of zero. This differs from business expenses in that business deductions can be carried over into later tax years. However, if you are not spending large amounts of capital on your hobby, this may not be of concern.

3. Form a Business Entity

If you decide to create your own company, the first step is to form a business entity. The most common forms of business entities include sole proprietorships, partnerships, LLCs, and corporations.

Whether you intended to do it or not, you may have already formed a business entity. Partnerships and sole proprietorships are the default forms of business entities. This means that if you are operating a business for profit on your own, you’ve already formed a sole proprietorship. Sole proprietorships operate as if the owner and the business are one entity, so you don’t have to worry about filing any paperwork to create your one-man company. However, as with all other types of business entities, you need to register and trademark your business name to ensure that no one else starts another business under the same name.

If you’re operating a business for profit with at least one other person, you’ve formed a partnership. Your state provides default rules for partnerships that govern the rights and obligations of owners. If you want to change one of the default rules, you can modify it by creating a Partnership Agreement. You should note that not all default rules can be modified. Also, be aware that you are subject to personal liability as the owner of a sole proprietorship or partnership.

If you prefer to create a company that protects you from personal liability, consider forming a corporation or an LLC. To form a limited-liability business entity, you will need to refer to your Secretary of State’s website to determine the filing and operational requirements.

If you’re unsure of what path to take or confused about how to proceed, you may want to consult with an attorney. No matter how you decide to take the leap, bringing a business idea to life is an exciting and rewarding experience. Congratulations!

Sources:

https://ppubs.uspto.gov/pubwebapp/static/pages/landing.html

https://www.uspto.gov/patents/basics/using-legal-services/pro-se-assistance-program

https://oedci.uspto.gov/OEDCI/practitionerSearchEntry

https://www.americanbar.org/groups/intellectual_property_law/publications/landslide/2018-19/july-august/so-you-want-take-trade-secret-patent-fight/

https://www.therichest.com/hobbies/24-hobbies-that-turned-into-a-million-dollar-businesses/

https://www.sba.gov/business-guide/launch-your-business/choose-your-business-name#section-header-0