A Tea Related Pain In the Foot Becomes a Headache for Wal-Mart: Amber McCarthy-Shreve and Mark Shreve vs. Wal-Mart Stores, Inc.

An injured foot became a headache for Wal-Mart in the case of Amber McCarthy-Shreve and Mark Shreve vs. Wal-Mart Stores, Inc.

The United States District Court, Southern District of Indiana, Evansville Division recently denied Wal-Mart’s motion to exclude the testimony of the Plaintiff’s expert, Dr. Leroy J. Grossman, who gave his opinion as to McCarthy-Shreve’s loss of earning capacity. Ms. McCarthy-Shreve alleges she sustained injuries to her left foot after a gallon of tea fell off the bag carousel at an Owensboro, Kentucky Wal-Mart. She claimed in her March 29, 2007 Complaint that the injury caused her to retire from her secretarial position for a circuit judge in Henderson, Kentucky.

Dr. Grossman, an economist, calculated her lost of earning capacity to be $233,970.00.
In denying Wal-Mart’s motion, the court held Dr. Grossman’s opinion was supported in “sound methodology and helpful to the jury.”

LegalTEAS Lesson: Most people are familiar with “slip and fall” cases and usually attribute those types of claims with grocery stores and the like. However these cases, known as premises liability cases, can involve anyone who is in possession of land, of a place of business, or of a “premise” – whether it be a home, building, spa, or tea shop. While the laws of most jurisdictions categorize an individual who enters a premise as an “invitee,” a “licensee,” or a “trespasser,” each having separate protections, it’s best to keep your premise in good working order regardless of how the guest is defined. Wiping up spills immediately, keeping doors and windows in working order, and ensuring that all equipment is secure are just some of the ways to guard against these types of lawsuits. Make a note to complete routine checks of your entire premise, outside and inside, on a regular basis to ensure the safety of your guests and employees. Knowledge of problems, without prompt attention to having them fixed, may be brought up in court, and become a detriment to your case and your company. Safety is an important part of success.

The Tea Trademark Line: When Placing Second is Not an Option

In the case Honest Tea Inc. v. Teavolution Pty Ltd., 72 IPR 431 (Australian Trade Marks Office March 9, 2007), the U.S. based Honest Tea company opposed Teavolution’s submission to register trademarks[1] containing the words “honest tea” for tea beverages sold in Australia. Honest Tea claimed that while it did not directly promote its products in Australia, it had been using the words “honest tea” as its company’s name on the World Wide Web and on advertisements in publications available in Australia; thus, Honest Tea argued the words should not be allowed to be part of Teavolution’s Australian trademark.

The Hearing Officer, while noting that the goods and services of both companies were substantially identical, concluded that Honest Tea could not claim ownership of the words “honest tea” in the Australian marketplace since Honest Tea could not produce substantial evidence of an intent to trade its products in Australia nor a measurable reputation in Australia. Accordingly, the Hearing Officer reasoned that Teavolution was the actual first party to use “honest tea” in association with its products in Australia.

LegalTEAS Lesson: This Australian case represents a common tenet of trademark law: the first one to use a term in the marketplace, be associated with the term, and apply for a trademark, is generally the company entitled to the protection and economic advantages a trademark affords.

While the web can provide a worldwide customer base for your product, do not overestimate the weight of your company’s message in the global marketplace. A trademark in one country does not entitle you to protection in all countries. If you have evidence that your product is engrained in a county’s economy to the extent that certain terms are associated with your product, be the first in line to protect this valuable commodity by filing a trademark application. In the competitive global economy, being second is not an option when it comes to trademarks.

[1] While Australia uses the term “trade mark,” the word trademark will be used in this article in accordance with traditional American grammar.

An “Advertising Injury” in the Tea Marketplace

How often do you take the time to read, and more importantly to understand, all of the terms of your liability insurance policy? Do you understand your obligations as well as the obligations of the insurance company who issued the policy? The case of R.C. Bigelow, Inc. v. Liberty Mutual Insurance Company, 287 F.3d 242 (2nd Cir. 2002) illustrates the importance of understanding all of the terms of a liability insurance policy in the tea industry.

The R.C. Bigelow, Inc. v. Liberty Mutual Insurance Company case addressed whether the “advertising injury” provision of a liability insurance policy obligates the issuing insurance company to defend its insured’s published advertisements. In 1995, Celestial Seasonings, Inc. filed a lawsuit against Bigelow for claims surrounding Bigelow’s tea advertisements. Celestial Seasonings claimed that Bigelow’s tea packaging was confusingly similar to Celestial Seasonings’ packaging and that Bigelow failed to indicate that its teas were “artificially flavored,” thus misappropriating the public’s trust. Bigelow, in compliance with its liability insurance, provided Liberty Mutual Insurance Company with all the pleadings and requested the insurance company defend Bigelow in the suit. Liberty Mutual, however, denied Bigelow coverage claiming Bigelow’s suit with Celestial Seasoning was outside the “advertising injury” as defined in the liability insurance policy.

Without the financial support of Liberty Mutual, Bigelow was forced carry the costs for defending itself in the lawsuit with Celestial Seasonings. While costly, Bigelow’s defense was ultimately successful when the District Court in Colorado entered judgment in favor of Bigelow on all counts.

While thankful for the victory, Bigelow was saddled with all of the costs and attorneys’ fees associated with the Celestial Seasonings suit. In turn, Bigelow filed a lawsuit against Liberty Mutual alleging that advertisements at issue in the Celestial Seasoning case were encompassed in the “advertising injury” provision of its liability policy; accordingly, Liberty Mutual should have indemnified and defended Bigelow.

In determining whether the “advertising injury” provision of the insurance policy was triggered by the Celestial Seasonings suit, the court looked to Connecticut law to determine the meaning of the “advertising injury” clause. Connecticut law, like most states, provides that the interpretation of an insurance policy involves the determination of: 1) the intent of the parties as expressed by the language used in the policy; 2) the coverage the insured (Bigelow) expected; and 3) the natural and ordinary meaning of the words used. Finally, the law advises that any ambiguity related to a term(s)’s meaning should be resolved in favor of the insured (Bigelow) since the insurance company is the party that drafted the policy. Finding that the advertisements in question materially contributed to the injuries claimed by Celestial Seasonings and that the advertisements at issue would qualify as an “advertising injury” if the words were ascribed their “natural and ordinary meaning,” the court held that Liberty Mutual was responsible for the costs in defending the Celestial Seasoning case.

LegalTEAS Lesson: This case should be a catalyst for you to review all of your insurance policies and understand the mutual responsibilities described. Your failure to execute the obligations assigned to you may relieve the insurance company from its obligations.

An “advertising injury” in the context of liability insurance is often defined as “coverage for legal liability arising out of your oral or written publication of material causing ‘economic damage’ or ‘personal injury’ to a third party.”

[1] Here is a short, and certainly not exhaustive, list of questions to consider in assessing your liability insurance policies as they relate to advertisements and/or promotions:

1) Does your liability insurance cover possible slander and libel suits?
2) Where permitted by your state’s laws, does the policy cover punitive damages?
3) Is your coverage for advertisements based on an occurrence basis (covering advertisements published during the policy period regardless of when a claim is filed) or a claims basis (covering advertisements made during the policy period)?
4) Is coverage for ancillary promotions, such as publicity materials, included?
5) Do you additional insurance for coverage in cyberspace (known as “Cyber Liability”) or for error and omissions related to advertisements?
6) Does the policy provide for cooperation between your company and the insurance company in determining when a retraction is necessary?

[1] As defined in “Facing the Risk – Liability Insurance Checklist” by Kenneth A. Hall of Robertson Hall Insurance.

A Tea Trademark in Europe: What Recent Changes Mean for You

When should a company, interested in doing business in Europe, apply for a Community Trademark (referred to as a “Community Trade Mark” or “CTM” in Europe) or a national trademark? Previously, weighing the options did not necessarily require extra funds as both a community and national search report was completed. However, a revision of the Community Trade Mark Regulation by European Council Regulation No 422/2004 made national trademark application search reports optional and performed only when explicitly requested and purchased for €192.

To understand when the extra cost and search is worth your company’s investment, it is important to evaluate the unique features of the CTM and the national trademark.

The Community Trademark

The CTM system provides a single registration process for granting its proprietor an exclusive right to use its unique mark to differentiate itself from similar products in the 27 member states of the European Union. While the CTM’s one registration procedure is convenient, if the trademark application is successfully opposed in any one state, the entire submission collapses.

Some of the benefits of the CTM include: 1) the use of the CTM in a single member state is generally sufficient to protect your trademark for the entire EU; 2) the option to assign a CTM becomes an asset to your business; and 3) as the EU expands, so does the coverage of your CTM.

The National Trademark

If your application for a CTM is successfully opposed or your company plans to only direct marketing efforts in a few EU countries, the choice to purchase the extra national search – and likewise register a trademark in individual Member States – should be considered. In some instances, it is a necessity. Such is the case in Greenland where a Danish trademark, not a CTM, affords your company protection.

LegalTEAS Lesson: If your company is considering obtaining trademark protection in Europe, an application should be filed expeditiously and any available priority rights should be implemented so that the execution of the trade mark registration can be backdated. In accordance with the WIPO Paris Convention for the Protection of Industrial Property, if you apply for a United States trademark and then submit for a CTM within a six month period, the submission date of your United States trademark will be assigned as the priority date of your CTM.

A Good Deed CAN Go Unpunished

The 1943 Glasgow Corporation v. Muir case presents a timeless lesson that good deeds are not always punished. In this case, a tea shop owner allowed a group of people into her tea room to escape bad weather. When two members of the party crossed the tea room, an urn of boiling tea spilled onto small children causing serious injuries. The court was asked to decide whether the tea shop owner was liable for the children’s injuries. The court, in applying the “reasonable man” standard, determined the owner could not have reasonably foreseen that allowing individuals to enter her shop would have caused the injuries sustained by the children.

LegalTEAS Lesson: Whether a person enters your shop as guest or escapee from a storm, ensure that all safety precautions are observed. If an individual begins to exhibit erratic or unsafe behavior on your premises, it is your responsibility to eliminate the risk. Your good deed, of protecting your guests and your establishment, should be rewarded by the court.

Minding Your Business

Quality is a goal, not a guarantee. The very taste of tea depends on this aspiration. How do you ensure that the tea you are providing your patrons is of the highest quality, and above all, safe? The answer is perseverance. Perseverance in employing business practices that safeguard these goals and in understanding the regulatory framework in place at the national and international level that monitors the safety of the tea you purchase, import, and/or serve.
The following article provides fundamental guidelines for protecting your business at home and abroad. While the tea industry is a global endeavor, the government safeguards examined in this piece are limited to those used by the United States (“US”) and the European Union (“EU”).
PROTECTING YOUR INVESTMENT
In order to ensure that the tea you sell meets the high standards for quality and consistency that you demand, it is crucial to establish sound business practices. By demanding that your vendors comply with your exacting standards at the outset, you ensure that guests will enjoy the indulgent experience you hope to create for them.
The Comprehensive Contract
The first step in establishing your expectations is a thorough contract that explicitly states the terms and conditions you require with respect to safety and quality. A hand shake or oral promise will not suffice in the highly sophisticated global tea industry. Whether the contract is with a tea plantation or equipment supplier, it should state in detail the quality, quantity, and price you expect. Clarity and specificity is imperative.
The cost of a product can fluctuate with the currency market. As the US dollar continues to lose value against many other currencies, it is wise to lock in a price for a specific period of time, regardless of currency fluctuations. Agreeing to split the difference if the price changes in either party’s favor is an additional option to buffer the impact of a volatile market. Whichever cost protection approach you choose, ensure it is detailed in the contract.
The right to inspect should be included and exercised. Ideally, a quality control inspection clause in the contract will describe your right to perform timely and appropriate inspections of the goods purchased. Whether a vendor has an opportunity to correct quality problems should be detailed along with the timeframe allowed for curing such defects.
A contingency plan should be detailed in the contract if a product recall occurs. A risk shifting provision in your contract, whereby a foreign manufacturer agrees to indemnify or buy back defective products, is one way to address this danger.
Obtaining a “recall insurance policy” will also offer protection. Since a commercial general liability policy does not generally cover the costs associated with a product recall, a separate “recall insurance policy” will cover the costs to inform your customers of a recall, to provide a suitable replacement, to resolve business interruptions related to the recall, and to provide a defense should litigation related to the recall ensue.
Promises, Promises…
Don’t make promises you can’t keep – not in your company’s written literature, not in your words, and not on your website. Earlier this year, the Federal Drug Administration (“FDA”) warned several tea companies regarding internet advertisements promoting their tea’s ability to prevent or cure cancer.
Even less obvious claims can result in fines and liability. In a recent case brought by the Federal Trade Commission (“FTC”), the U.S. District Court for the District of Connecticut held the defendants involved in advertisements of the “Chinese Diet Tea” were liable for publishing materially misleading advertisements that made “the alleged claims [of dramatic weight loss] expressly, or by such strong implication as to constitute the functional equivalent of express claims…” (Emphasis added). Thus, in order to avoid the threat of liability, it is important not to attest or suggest that your tea can provide miraculous results. Ignoring this lesson could result in potential liability and disappointed patrons; which, as any proprietor can attest, is the worst advertisement a business can have.

SAFEGUARDS PROVIDED BY THE US AND THE EU
You’re not the only one minding your business. Most countries have laws and inspection mechanisms to ensure the safety of locally grown or manufactured products. Similar principles exist to protect the citizens of various countries from imported goods. As the presence of European tea growers and manufacturers continues to grow on the global scale, it is important to understand the applicable regulatory framework employed by the US and the EU to monitor and protect the tea industry.
US Safety Measures
In the US, there are a number of federal agencies that monitor the food that is produced and imported by its citizens. The FDA is responsible for ensuring the safety of domestic foods such as tea, milk, and produce. The FTC ensures that the advertisements for such goods are truthful and that the advertisers can substantiate any claims. The Environmental Protection Agency (“EPA”) tests many foods produced in or imported to the US to ensure that they do not exceed the “Maximum Residue Limit” of pesticides. The Centers for Disease Control and Prevention (“CDC”) examines and detects food borne illnesses and evaluates studies such as the relationship between tea intake, the COMT genotype, and breast cancer in Asian-American women. Finally, the Department of Homeland Security, Office of Health Affairs, gauges the vulnerability of certain foods for contamination and inspects specified products at the US’s borders.
EU Safeguards
Just as the US provides a regulatory scheme to meet the needs of the citizens of various states, the EU provides a similar system to protect the member states of the EU as well as all citizens of Europe in certain instances. The EU created the Directorate General for Health and Consumer Affairs (“DG-SANCO”) to concentrate on food safety, public health, and consumer affairs. DG-SANCO is responsible for the advancement of EU safety legislation. Recognizing the separate but equally important needs of risk assessment and risk management, the European Food Safety Authority (“EFSA”) was formed to monitor risk assessment and the European Commission (“EC”) was created to address risk management.
Should a serious risk arise, the Rapid Alert System for Food and Feed (“RASFF”) electronically notifies the member states (and non-member states Iceland, Liechtenstein, and Norway) to allow each to verify whether the specific product is on the market and initiate a recall or withdrawal of the product if necessary.

CONCLUSION
Whether you purchase from the Charleston Tea Plantation or the Gorreana Tea Plantation in São Miguel, it is essential that you take some basic steps to protect your company from the damage that can result from tea that does not meet your, or your country’s, high standards. A comprehensive contract that provides explicit details as to price, quality, and safety will enable your local or international vendors to understand and to meet your expectations. By understanding the patchwork of regulatory agencies that monitor the quality of the tea you purchase and the safeguards in place in the event an unsafe ingredient is discovered in the marketplace, you will be armed with the recourse outlined in your contract and the knowledge of how the government is managing the problem. Taking such an active role in the business of your tea company allows your customers to enjoy the peace of mind they need to sink into the sublime sedation that ensues with each contemplative moment from sipping their favorite tea.
Sarah E. Carson, J.D. is an attorney and president of LegalTEAS, LLC. She is a national speaker on legal issues related to commercial transactions and has taught law courses at the undergraduate and graduate level. The information in this article is provided for informational purposes only and does not constitute legal advice. Additional information on this article and related links may be obtained at http://www.legalteas.com/

Is Hot Tea a Liability?

Do you need to warn a customer that hot tea is, well, hot? That is what one patron of McDonald’s claimed after hot tea spilled on her lap। In the case, Immormino v। J&M Powers, Inc. d/b/a McDonald’s, 698 N.E.2d 516 (Ohio App. 3rd 1994), Ms. Immormino purchased food and beverages at the drive-through of McDonald’s. After removing the lid to steep her tea, hot tea spilled onto her lap while she attempted to replace the lid onto the cup. In reaching its decision, the court examined Ms. Immormino’s claim that Mc Donald’s negligently failed to adequately warn her of the dangers associated with hot tea. The court stressed that “according to the uncontradicted evidence, the cup contained the following legend: ‘Caution – Contents May be Hot’ or ‘Caution – Contents Are Hot.’ In either event, the particular warning was printed in two locations on the cup.” Id. at 517. In finding for McDonald’s, the court held that the warnings on the cup were adequate as a matter of law to warn the consumer that the hot tea ordered is, indeed, hot.

DISCLAIMER

The information contained in this document is provided by LegalTEAS, LLC and may be used for informational purposes only and DOES NOT constitute legal advice. All materials on this site are subject to the terms and conditions stated in the Disclaimer Page. This material is intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. This information is offered only for general informational and educational purposes. The information contained herein is not offered as and does not constitute legal advice or legal opinions. You should not act or rely on any information contained herein without first seeking the advice of an attorney. By viewing any materials from or associated with http://legalteas.blogspot.com/, http://www.legalteas.com/, or any site owned or related to LegalTEAS, LLC (described herein as “the Sites”), you agree with these aformentioned terms. If you do not agree to them, do not use the Sites or download/print any materials from them.

Protecting Your Company's Secrets

Protecting your Company’s Secrets
Whether your secret involves the ingredients to your famous tea blend or the exporter from whom you purchase your prized leaves, a key to the success of many involved in the tea industry is the development and use of “trade secrets.” Trade secrets involve information that is known only by the company’s owner(s) and its agent(s), and gives the employer a commercial advantage over its competitors.
Trade secrets are protected by the Uniform Trade Secrets Act, which has been adopted by a majority of the states (with slight modification in some states). Assuming your tea business has information that qualifies for protection as a trade secret, whether the information was “kept secret” is generally regarded as the most significant factor, since courts have been more willing to protect information when it is not known in the trade or is discoverable only through extraordinary efforts.
Some of the more common examples of potential trade secrets include customer lists, customer pricing and preference information, marketing strategies, revenue projections, and product and pricing strategies as well as corporate and business marketing plans.
The following checklist provides tips on maintaining the confidential status of protected documents:
1) Are third parties and personnel with access to restricted information required to sign confidentiality agreements?
2) Are these individuals informed of the proprietary nature of the information through employee manuals, memoranda reminding employees of the confidential nature, etc.?
3) Is the confidential data maintained with restrictive access, such as in a locked cabinet?
4) Is access to the private information limited to only those with a specific need for it?
5) Are desks locked and access limited only to those with need?
6) Is the number of copies of the confidential documents kept to a minimum?
7) Is the data marketed as “Confidential” or “Restricted Access” clearly and boldly?
8) Are visitors and nonessential personnel restricted from areas in which these confidential materials are housed?
9) Are the doors to where the confidential documents are stored locked at all times?
10) Are employees instructed not to discuss confidential information in the presence of visitors or vendors who may intentionally or unintentionally overhear the conversation?

In deciding whether the company went through the necessary precautions to protect the information, courts will look at the totality of the measures taken. The more documented measures you can show the court, the more seriously the court will hold your efforts to maintain confidential information.

DISCLAIMER
The information contained in this document is provided by LegalTEAS, LLC and may be used for informational purposes only and DOES NOT constitute legal advice. All materials on this site are subject to the terms and conditions stated in the Disclaimer Page. This material is intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. This information is offered only for general informational and educational purposes. The information contained herein is not offered as and does not constitute legal advice or legal opinions. You should not act or rely on any information contained herein without first seeking the advice of an attorney. By viewing any materials from or associated with http://legalteas.blogspot.com/, http://www.legalteas.com/, or any site owned or related to LegalTEAS, LLC (described herein as “the Sites”), you agree with these aformentioned terms. If you do not agree to them, do not use the Sites or download/print any materials from them.

Employment Discrimination

EMPLOYMENT DISCRIMINATION

There are numerous laws that are applicable to small business employers that prohibit discrimination against certain classifications. The key federal antidiscrimination statutes that pertain to small businesses are described below. Employers must be familiar with these provisions in order to comply with the law and avoid potential liability. Many states and local governments have enacted laws that are similar in scope to the following federal statutes. In fact, some of the state and local legislation may protect additional classifications that are not protected at the federal level (e.g., sexual orientation and marital status). Accordingly, business owners should survey the employment-related laws in each location where they have employees or anticipate competing for work.
EQUAL EMPLOYMENT OPPORTUNITY COMMISSION
The Equal Employment Opportunity Commission (EEOC) is the agency responsible for enforcement of various federal laws that prohibit employment discrimination, including Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with disabilities Act, and the Equal Pay Act. The EEOC’s responsibilities entail acceptance and investigation of complaints, known as charges of discrimination, filed by employees and other affected persons. The EEOC also has the authority to file lawsuits in cases where it determines that there is cause to believe discrimination has occurred. Prior to filing a lawsuit, however, many state and federal civil rights laws require individuals to file a Charge of Discrimination with the EEOC or state agency, and to observe other technical requirements prior to initiating litigation.
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964
Title VII of the Civil Rights Act of 1964, as amended by the Civil Rights Act of 1991, prohibits employers from discriminating against employees or applicants on the basis of race, color, religion, sex, or national origin, unless the employer can establish that discrimination based on one of the foregoing factors is a bona fide occupational qualification. Title VII also prohibits employers from retaliating against an employee based upon activity that is protected under the Act, such as making complaints regarding discrimination or participating in an investigation involving allegations of discrimination.
THE AMERICANS WITH DISABILITY ACT
The Americans with Disability Act (ADA) was enacted by Congress in order to ensure that qualified individuals with disabilities are given the same employment opportunities as those provided for individuals without disabilities. The ADA covers employers with 15 or more employees who engage in an industry affecting commerce. An employee includes any agent who acts on behalf of the employer, including those individuals used to conduct background checks.
Under the ADA, the term “disability” has three alternative meanings: 1) a physical or mental impairment that substantially limits one or more of the major life activities of the individual; 2) a record of such impairment; or 3) being regarded as having such impairment. It is important to note that an employer can be held liable for a violation of the Act if it acts in a manner that it regards an employee as having a disability, even if the employee, in fact, does not suffer from a disability within the meaning of the Act.
In order to be protected under the provisions of the ADA, an employee must be an individual with a disability and qualified to perform the responsibilities of the job he holds or desires, with or without reasonable accommodation. An undue hardship for the employer may result if the nature and cost of reasonable accommodation is too great for the size and structure of the company, and/or its financial resources. If such undue hardship can be demonstrated, an employer may be excused from accommodating the disability.
AGE DISCRIMINATION IN EMPLOYMENT ACT
The Age Discrimination in Employment Act (ADEA) protects employees and applicants who are over age 40 from discrimination on the basis of age. In 1990, Congress amended the ADEA by enacting the Older Workers Benefit Protection Act of 1990 (OWBPA), providing guidelines for settlement or waiver of ADEA claims. Among other guidelines, the OWBPA requires employers to justify any decrease in benefits offered to employees within the protected age classification in comparison with employees who are not protected by the Act. Employers can defend allegations of age discrimination if it can demonstrate that the individual’s age is simply incidental to other factors that are reasonably necessary to the normal operation of the business.
EQUAL PAY ACT
The Equal Pay Act (EPA) prohibits employers from differentiating between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which the employer pays wages to employees of the opposite sex. The EPA provides for limiting exceptions under circumstances where such disparate payments are made pursuant to 1) a seniority system; 2) a merit system; 3) a system that measures earnings by quantity or quality of production; or 4) a differential based on any factor other than sex.

DISCLAIMER
The information contained in this document is provided by LegalTEAS, LLC and may be used for informational purposes only and DOES NOT constitute legal advice. All materials on this site are subject to the terms and conditions stated in the Disclaimer Page. This material is intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. This information is offered only for general informational and educational purposes. The information contained herein is not offered as and does not constitute legal advice or legal opinions. You should not act or rely on any information contained herein without first seeking the advice of an attorney. By viewing any materials from or associated with http://legalteas.blogspot.com, http://www.legalteas.com, or any site owned or related to LegalTEAS, LLC (described herein as “the Sites”), you agree with these aformentioned terms. If you do not agree to them, do not use the Sites or download/print any materials from them.

Can Friendship Survive Partnership?

Can Friendship Survive Partnership?

The shared love for a great cup of tea can be the start of a lasting friendship. Spending countless hours savoring your favorite brew with your friend may bring thoughts of starting your own business together – a tea business. You have a taste for tea and your friend has a head for business. Starting a tea business would be a great idea – right? Maybe. The answer depends on finding a business model that meets your personal and professional needs. Taking the time to select the right legal framework can protect both the interests of the business as well as the friendship.
To avoid relying solely on reading the tea leaves to guide your new venture, this article provides a brief summary of several types of business structures to consider as you take the first steps towards entrepreneurship. As state laws vary, it is best to consult a local attorney to finalize the details.
GENERAL PARTNERSHIP/ SOLE PROPRIETORSHIP
If you have little capital to start your business, have enormous trust in your partner, and have adequate liability insurance, a sole proprietorship (for a single individual) or a general partnership (for two or more individuals) may be a business model to consider.
The cost of setting up either entity is comparatively small as there are few formalities. In fact, this model may be formed with as little as a verbal agreement; however, such a laissez-faire approach is not advisable. Owners of these business entities also enjoy “pass through” tax benefits, meaning the business profits/ losses bypass traditional corporate taxes and pass through for the owners to report on their personal income tax returns.
The potential liability associated with the sole proprietorship/general partnership causes most business owners to avoid this model. Partners are jointly (together) and severally (individually) liable for all debts resulting from any one partner’s conduct. Worse, your liability for another partner’s bad acts is not limited to the debts of the business. A creditor may also pursue your personal assets to pay this debt.
LIMITED LIABILITY PARTNERSHIP
If one individual has more risk tolerance than others involved in the business and is qualified to make the management decisions, a Limited Liability Partnership (“LLP”) may be an advisable choice.
An LLP involves one or more general partners who manage the business, and limited partners whose liability is limited to the amount of their own investment in the LLP. The general partner, however, does not enjoy such asset protection and is required to pay self-employment taxes on any of the business’s earned income, in addition to customary federal and state taxes.
These hardships may cause many to decline the role of general partner. One way to resolve this issue is through the designation of an S corporation or C corporation as the general partner.
S CORPORATIONS/C CORPORATIONS
S corporations are limited to 100 individuals and have the advantages of being a “pass-through” business entity, being taxed in most states only at the shareholder level, and being limited in liability only up to the amount of the individual’s investment in the S corporation.
While the C corporation is not restrained by the S corporation’s numeric limitations, some of the business implications are not as favorable. Since a C corporation is a separate taxable entity, there is a possibility for double taxation. A C corporation must report any profits or losses in its corporate tax return. If your C corporation has the good fortune of being profitable, the C corporation’s profits are taxed at the corporate level and any profits you receive as dividends from the C corporation must be reported on your personal income tax return and likewise taxed at the individual level.
LIMITED LIABILITY CORPORATIONS
If you have more capital for start up costs, one of your members has significant personal debt, and/or you desire what some regard as the best asset protection available, the Limited Liability Company (“LLC”) may be a favorable choice.
While the cost of creating and maintaining an LLC may be comparatively greater, the advantages generally far outweigh this burden. Unlike an S Corporation, an LLC is not limited to 75 members and also enjoys the “pass through” tax benefits of other models. In addition, if one or more of the members of the LLC has a large amount of personal debt, the LLC provides protection to all members as creditors may not generally attach the LLC to personal bankruptcy proceedings.
If you are going into business by yourself, however, an LLC may not necessarily offer the best asset protection. Recently, courts in Colorado, Idaho, and Minnesota held that the interests of a single member LLC may be attached to that individual’s personal bankruptcy proceedings.
DISSOLVING A BUSINESS DOES NOT HAVE TO MEAN ENDING A FRIENDSHIP
Each state’s laws govern the dissolution of a business differently. Regardless of the approach, there should be shared expectations among the business owners as to the responsibilities of each without any one owner forced to shoulder all the tasks.
Even after a business ends its day to day operations, it continues to exist for the limited purpose of resolving debts and distributing assets. Fulfilling these obligations may include publishing a note of dissolution for the benefit of unknown claimants and filing the Articles of Dissolution with the Secretary of State.
CONCLUSION
A successful business takes planning and diligence. Familiarizing yourself with the different business models available is the first step. Once you select a model, however, do not assume it will remain the best fit for your needs. The legislature continues to change the laws and the courts of each state can interpret these laws differently. Make sure your business, whatever the legal framework, includes the support of accountants and/or lawyers who can continue to guide you on this journey. Happy trails.

CORPORATION LINKS
To learn more about the specific incorporation laws and fees for a specific state, a link to each state’s respective office responsible for corporations is provided below.:

Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
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