Tuesday, March 09, 2004
SPECIAL LAWS AFFECTING SMALL BUSINESS
The number of state and federal laws that can affect a business is so large that it is impossible to cover all of them within the covers of any one book. There are, however, certain federal and state laws that affect almost all small businesses. They include laws governing your duty to report product hazards, your right to obtain federal agency records, your duty to report environmental hazards, your duty to obtain medical certification of commercial drivers, updating your corporate records, commercial arbitration clauses, and immigration laws.
DUTY TO REPORT PRODUCT HAZARDS
Importers, manufacturers, and distributors of consumer products must notify the Consumer Products Safety Commission (CPSC) within 24 hours if a product fails to comply with a safety rule or has a defect that could create a substantial product hazard. A "substantial product hazard" is a product defect that, because of the pattern of the defect, the number of defective products distributed, and the severity of the risk, has a substantial risk of causing injury to the public.
Violation of this rule may result in civil penalties being imposed by the CPSC and lawsuits by an injured consumer for damages, court costs, and attorney fees.
OBTAINFEDERAL RECORDS
By exercising your rights under the Freedom of Information Act (FOIA), you can (1) learn if the Federal Bureau of Investigation has a file on you; (2) obtain information from the Department of Labor about a work-related accident at a nearby job site or manufacturing plant; (3) obtain information about an investigation of motor-vehicle defects from the Department of Transportation; (4) obtain details from the Consumer Products Safety Commission about a toy that is being investigated as a safety hazard; or (5) review the Social Security Administration's latest inspection report on conditions in a nursing home certified for Medicare.
Exemptions
The FOIA gives you the right of access to the official files of federal agencies except for (1) classified national defense and foreign relations information; (2) internal agency personnel rules and practices; (3) material prohibited from disclosure by another law; (4) trade secrets and other confidential business information; (5) certain interagency or intraagency communications; (6) personnel; medical and other files involving personal privacy; (7) certain investigatory records compiled for law enforcement purposes; (8) matters relating to the supervision of financial institutions; and (9) geological information on oil wells.
The FOIA does not apply to Congress, courts, and records of state or local governments. However, most state governments have FOIA-type laws. Information about state laws can be obtained from the attorney general of your home state.
DRUG TESTING OF DRIVERS
Federal regulations require drivers who operate a commercial motor vehicle to take a medical examination every two years and to obtain a doctor's certification stating that they are medically qualified to drive. Among the criteria for medical certification is a determination by the employer that a driver is not using a controlled substance without a prescription. Drug tests may be required as part of medical examinations if a doctor thinks it is necessary in order to make that determination.
The regulations also require the driver's employer to assure itself that the driver is medically qualified, and the employer must keep the driver off the road if he or she lacks a current medical certificate, is using controlled substances, or is otherwise not medically qualified to drive.
Commercial motor vehicles are defined as self-propelled or towed vehicles used on public highways to transport passengers or property in interstate commerce that (1) have a gross vehicle weight rating or gross combination weight rating of more than 10,000 pounds; (2) are designed to transport more than 15 passengers, including the driver; or (3) are used in transporting hazardous materials.
KEEP YOUR CORPORATEMINUTES UP-TO-DATE
Your corporate minutes should be reviewed on a regular basis by the corporate directors, officers, and advisers. It is extremely important that the minutes contain accurate and up-to- date information. Accurate, well-maintained corporate minutes can provide insulation from personal liability and can document executive compensation.
If your corporation is being sued, the minutes will protect the corporation's employees and officers from personal liability. If the minutes demonstrate that the employees acted in good faith and in their corporate capacity, the plaintiff will be prevented from "piercing the corporate veil." Also, employees and officers may be entitled to reimbursement by the corporation for legal fees incurred in their defense.
Corporate minutes can also protect executive compensation. Your corporation can deduct compensation paid to corporate officers (e.g., salary or bonuses) as a business expense if it is a reasonable amount for the services rendered. The deduction may be denied if the IRS determines that the compensation was unreasonable or a disguised dividend. To ensure the deductibility of compensation paid, the corporation's minutes should show that the board of directors took the following steps:
Specified the salaries of all officers and the procedures for salary adjustments and bonuses.
Established dividend and return on capital investment policies.
Prepared job descriptions for each officer.
Specified any additional responsibilities for officers over and above their usual duties.
Expansion plans that justify a retention of earnings
Extenuating business circumstances, such as a threat of a labor strike
The intention to retain earnings only to cover working capital for the year
Minutes should detail the board of directors' decisions as to the election of officers, acceptance of contracts, approval for mergers, compliance with governmental regulations, and authorization of loans.
ENVIRONMENTAL REPORTINGREQUIREMENTS
State and federal environmental statutes require companies to advise governmental agencies of past and present environmental problems.
The Clean Water Act requires persons in charge of vessels or facilities to notify the National Response Center as soon as they have knowledge of a discharge of oil or a hazardous substance in a reportable quantity. Criminal sanctions may be imposed upon employees and corporate officers who fail to make a required report.
The Comprehensive Environmental Response Compensation and Liability Act (CERCLA) imposes a reporting requirement on parties responsible for a vessel or a facility if there is a discharge of hazardous substances in quantities set by the Environmental Protection Agency (EPA). In addition, the owner or operator of a facility at which a release occurred must also notify potentially injured parties by publication in local newspapers in the affected area.
Under section 304 of the Emergency Planning and Community Right-to-Know Act of 1986, the release of a reportable quantity of any "extremely hazardous substance" or CERCLA hazardous substance must be reported to the local Emergency Planning Committee and the state Emergency Response Commission. Immediate telephonic notice and a follow-up written report are required.
In addition to federal legislation, most states have environmental laws. Typical of the state approach is New Jersey's, which requires reporting spills or releases that may be detected during audits. The New Jersey Spill Compensation and Control Act specifically requires any person who has discharged hazardous substances or who is in any fashion responsible for the hazardous substances that may have been discharged to notify the New Jersey Department of Environmental Protection (NJDEP). The Hazardous Substances Discharge Reports and Notices Act requires owners of industrial establishments or real property that may have housed an industrial establishment to report known or suspected discharges of hazardous substances occurring either above or below ground.
COMMERCIALARBITRATION CLAUSES
Arbitration is a method by which disputes can be resolved quickly and inexpensively. Little or no discovery is allowed, congested trial dockets are avoided, and grounds for challenge on appeal are limited. Inclusion of an arbitration clause in a commercial contract usually permits each side to a dispute to save time and money. However, if all parties do not agree that a particular dispute should be arbitrated, problems may arise.
The Federal Arbitration Act strongly favors arbitration by ensuring that an arbitration procedure will be speedy and will not be subjected to delay and obstruction in the courts. A well- drafted arbitration clause will cover the following issues:
The number and qualifications of the arbitrators
Issues the arbitrators are authorized to decide
The rules of evidence and procedure that will apply
Who will bear the cost of arbitration
The venue (where the arbitration will be held)
Time limits during which either party can seek arbitration
IMMIGRATION LAW
Although immigration law is beyond the scope of this guide, you should be aware of a few immigration laws that apply to your business, especially if you have employees. The Immigration and Nationality Act has employment- based preferences for permanent resident visas that significantly increase the number of aliens allowed to enter permanently to work.
The first preference is given to aliens with extraordinary ability in the sciences, arts, education, business, or athletics; outstanding professors and researchers; and multinational executives and managers. The second preference includes aliens who are members of the professions holding advanced degrees or the equivalent or who have exceptional ability in the sciences, arts, or business. There is another preference for aliens who invest either $1 million or $500,000 in a commercial U.S. enterprise, depending on the area where the enterprise is located (rural areas or areas with a high unemployment rate require less investment). The investment may be made in a new enterprise, a restructured existing business, or a distressed business. The enterprise must create full-time employment for at least ten U.S. citizens or lawfully admitted permanent residents, excluding the investing immigrant and his or her spouse and children. However, if the enterprise is distressed, the employment creation requirement is waived as long as the preinvestment level of employment is maintained.
The number of state and federal laws that can affect a business is so large that it is impossible to cover all of them within the covers of any one book. There are, however, certain federal and state laws that affect almost all small businesses. They include laws governing your duty to report product hazards, your right to obtain federal agency records, your duty to report environmental hazards, your duty to obtain medical certification of commercial drivers, updating your corporate records, commercial arbitration clauses, and immigration laws.
DUTY TO REPORT PRODUCT HAZARDS
Importers, manufacturers, and distributors of consumer products must notify the Consumer Products Safety Commission (CPSC) within 24 hours if a product fails to comply with a safety rule or has a defect that could create a substantial product hazard. A "substantial product hazard" is a product defect that, because of the pattern of the defect, the number of defective products distributed, and the severity of the risk, has a substantial risk of causing injury to the public.
Violation of this rule may result in civil penalties being imposed by the CPSC and lawsuits by an injured consumer for damages, court costs, and attorney fees.
OBTAINFEDERAL RECORDS
By exercising your rights under the Freedom of Information Act (FOIA), you can (1) learn if the Federal Bureau of Investigation has a file on you; (2) obtain information from the Department of Labor about a work-related accident at a nearby job site or manufacturing plant; (3) obtain information about an investigation of motor-vehicle defects from the Department of Transportation; (4) obtain details from the Consumer Products Safety Commission about a toy that is being investigated as a safety hazard; or (5) review the Social Security Administration's latest inspection report on conditions in a nursing home certified for Medicare.
Exemptions
The FOIA gives you the right of access to the official files of federal agencies except for (1) classified national defense and foreign relations information; (2) internal agency personnel rules and practices; (3) material prohibited from disclosure by another law; (4) trade secrets and other confidential business information; (5) certain interagency or intraagency communications; (6) personnel; medical and other files involving personal privacy; (7) certain investigatory records compiled for law enforcement purposes; (8) matters relating to the supervision of financial institutions; and (9) geological information on oil wells.
The FOIA does not apply to Congress, courts, and records of state or local governments. However, most state governments have FOIA-type laws. Information about state laws can be obtained from the attorney general of your home state.
DRUG TESTING OF DRIVERS
Federal regulations require drivers who operate a commercial motor vehicle to take a medical examination every two years and to obtain a doctor's certification stating that they are medically qualified to drive. Among the criteria for medical certification is a determination by the employer that a driver is not using a controlled substance without a prescription. Drug tests may be required as part of medical examinations if a doctor thinks it is necessary in order to make that determination.
The regulations also require the driver's employer to assure itself that the driver is medically qualified, and the employer must keep the driver off the road if he or she lacks a current medical certificate, is using controlled substances, or is otherwise not medically qualified to drive.
Commercial motor vehicles are defined as self-propelled or towed vehicles used on public highways to transport passengers or property in interstate commerce that (1) have a gross vehicle weight rating or gross combination weight rating of more than 10,000 pounds; (2) are designed to transport more than 15 passengers, including the driver; or (3) are used in transporting hazardous materials.
KEEP YOUR CORPORATEMINUTES UP-TO-DATE
Your corporate minutes should be reviewed on a regular basis by the corporate directors, officers, and advisers. It is extremely important that the minutes contain accurate and up-to- date information. Accurate, well-maintained corporate minutes can provide insulation from personal liability and can document executive compensation.
If your corporation is being sued, the minutes will protect the corporation's employees and officers from personal liability. If the minutes demonstrate that the employees acted in good faith and in their corporate capacity, the plaintiff will be prevented from "piercing the corporate veil." Also, employees and officers may be entitled to reimbursement by the corporation for legal fees incurred in their defense.
Corporate minutes can also protect executive compensation. Your corporation can deduct compensation paid to corporate officers (e.g., salary or bonuses) as a business expense if it is a reasonable amount for the services rendered. The deduction may be denied if the IRS determines that the compensation was unreasonable or a disguised dividend. To ensure the deductibility of compensation paid, the corporation's minutes should show that the board of directors took the following steps:
Specified the salaries of all officers and the procedures for salary adjustments and bonuses.
Established dividend and return on capital investment policies.
Prepared job descriptions for each officer.
Specified any additional responsibilities for officers over and above their usual duties.
Expansion plans that justify a retention of earnings
Extenuating business circumstances, such as a threat of a labor strike
The intention to retain earnings only to cover working capital for the year
Minutes should detail the board of directors' decisions as to the election of officers, acceptance of contracts, approval for mergers, compliance with governmental regulations, and authorization of loans.
ENVIRONMENTAL REPORTINGREQUIREMENTS
State and federal environmental statutes require companies to advise governmental agencies of past and present environmental problems.
The Clean Water Act requires persons in charge of vessels or facilities to notify the National Response Center as soon as they have knowledge of a discharge of oil or a hazardous substance in a reportable quantity. Criminal sanctions may be imposed upon employees and corporate officers who fail to make a required report.
The Comprehensive Environmental Response Compensation and Liability Act (CERCLA) imposes a reporting requirement on parties responsible for a vessel or a facility if there is a discharge of hazardous substances in quantities set by the Environmental Protection Agency (EPA). In addition, the owner or operator of a facility at which a release occurred must also notify potentially injured parties by publication in local newspapers in the affected area.
Under section 304 of the Emergency Planning and Community Right-to-Know Act of 1986, the release of a reportable quantity of any "extremely hazardous substance" or CERCLA hazardous substance must be reported to the local Emergency Planning Committee and the state Emergency Response Commission. Immediate telephonic notice and a follow-up written report are required.
In addition to federal legislation, most states have environmental laws. Typical of the state approach is New Jersey's, which requires reporting spills or releases that may be detected during audits. The New Jersey Spill Compensation and Control Act specifically requires any person who has discharged hazardous substances or who is in any fashion responsible for the hazardous substances that may have been discharged to notify the New Jersey Department of Environmental Protection (NJDEP). The Hazardous Substances Discharge Reports and Notices Act requires owners of industrial establishments or real property that may have housed an industrial establishment to report known or suspected discharges of hazardous substances occurring either above or below ground.
COMMERCIALARBITRATION CLAUSES
Arbitration is a method by which disputes can be resolved quickly and inexpensively. Little or no discovery is allowed, congested trial dockets are avoided, and grounds for challenge on appeal are limited. Inclusion of an arbitration clause in a commercial contract usually permits each side to a dispute to save time and money. However, if all parties do not agree that a particular dispute should be arbitrated, problems may arise.
The Federal Arbitration Act strongly favors arbitration by ensuring that an arbitration procedure will be speedy and will not be subjected to delay and obstruction in the courts. A well- drafted arbitration clause will cover the following issues:
The number and qualifications of the arbitrators
Issues the arbitrators are authorized to decide
The rules of evidence and procedure that will apply
Who will bear the cost of arbitration
The venue (where the arbitration will be held)
Time limits during which either party can seek arbitration
IMMIGRATION LAW
Although immigration law is beyond the scope of this guide, you should be aware of a few immigration laws that apply to your business, especially if you have employees. The Immigration and Nationality Act has employment- based preferences for permanent resident visas that significantly increase the number of aliens allowed to enter permanently to work.
The first preference is given to aliens with extraordinary ability in the sciences, arts, education, business, or athletics; outstanding professors and researchers; and multinational executives and managers. The second preference includes aliens who are members of the professions holding advanced degrees or the equivalent or who have exceptional ability in the sciences, arts, or business. There is another preference for aliens who invest either $1 million or $500,000 in a commercial U.S. enterprise, depending on the area where the enterprise is located (rural areas or areas with a high unemployment rate require less investment). The investment may be made in a new enterprise, a restructured existing business, or a distressed business. The enterprise must create full-time employment for at least ten U.S. citizens or lawfully admitted permanent residents, excluding the investing immigrant and his or her spouse and children. However, if the enterprise is distressed, the employment creation requirement is waived as long as the preinvestment level of employment is maintained.
