Free Enterprise - The FindLaw Small Business Law Blog

July 2009 Archives

Mmmm... Food Safety

In the wake of recent food recalls, foodborne illnesses, and reports of unhygienic food processing conditions noted in some factories, the U.S. House of Representatives passed the Food Safety Enhancement Act this week in a vote of 283 to 142, significantly increasing resources for food inspection and quality control.

The bill updates a national food safety program that has been largely left untouched over the century after it was introduced. It allocates $3.5 billion enabling the Food and Drug Administration (FDA) to initiate new regulations, require more frequent inspections of processing plants, and increase record-keeping practices by companies.

Startup Survival in a Microsoft-Yahoo, Google World

On the heels of the ten-year web search and advertising partnership announced yesterday between Microsoft and Yahoo, in which Yahoo search will be powered by Microsoft Bing, many startups are looking for the take-away from this epic and seemingly one sided deal.  Small businesses, hoping to weather out the slowly-subsiding tides of the economy, and start-ups, eager to make a name and carve out a piece of market share, can look to what the deal says about the importance of search.

In a recent article in BusinessWeek, Silicon Valley Reporter founder Jason Calacanis looks at the Microsoft-Yahoo deal as a case study for startups.  He emphasizes Microsoft's move to invest heavily in revamping its search engine and to partner with the #2 in the search business is a telling sign that search is king. 

Obama Health Care Reform and Small Biz: Digital Weigh-In

The White House wants you, small business owner, to hop on to the Obama health care reform wagon.  The Council of Economic Advisors, from the Executive Office of the President, recently released a report titled "Economic Effects of Health Care Reform on Small Businesses and Their Employees." 

And in an Obama-esque, tech-forward move, Chair of the Council Dr. Christina Romer, has also initiated an online discussion on  There, she invites responses to the following question: "The White House wants to know: What are the most important issues for small businesses when it comes to health care?"  And if you weren't sure whether the small business community has opinions on the issue, the 1500+ posts over the four days since the question was posted, should leave you reassured it does.

Will Bokodes Give Barcodes the Boot?

Three millimeters is about the size of an @ sign, and it's also the size of the optical tagging technology developed by researchers at MIT---a technology that could replace the everyday barcode and much more.  Bokodes refers to the light blur produced from an out-of-focus image, such as in a photograph.  Turns out that heck of a lot of information can be programmed in that haze.

The bokode system can allow angle-encoded information to be read by an ordinary camera or even cell phone.  And the little gadgets pack in a punch, being able to record far more information than a regular barcode.

What can this mean for small business?

New Jersey Bill Seeks to Reinstate Ladies' Nights

A proposed New Jersey bill would authorize local businesses to offer ladies' night specials and promotions--which were ruled a violation of the New Jersey Law Against Discrimination in 2004 in a ruling by the state Division on Civil Rights.  The hoopla started over a cover charge that a man had to pay at a local bar on a night when women were being admitted in for free. 

The complaint made it's way to the state Division on Civil Rights--which ruled in 2004 that ladies' night promotions violated the state's Law Against Discrimination.  Though ladies' nights  are still illegal in New Jersey, there have been no reported ladies' night lawsuits from the Attorney General's office.

Small Business Innovation Clock Goes Tick Tock

Congress to Review and Reconcile House and Senate SBIR Bills before July 31st Deadline.

July 31st 2009 is the deadline for Congress to reauthorize the Small Business Innovation Research program (SBIR) and though the Senate and House have nodded bills through, the two bills, at this point, are fraternal versions of each other---not bearing enough similarity to be considered the same piece of legislation.

In Free Enterprise's on-going coverage of the SBIR (see posts published on April 21st, July 9th, and July 14th 2009), we have explored a variety of aspects of the  initiative and are as curious about the role venture-backed companies will ultimately play as much as the next small business innovation enthusiast.  And while we can't call what the results will be when final buzzer sounds, we can give you a few plays to keep a lookout for as the House and Senate begin deliberating the fate of SBIR.

The U.S. Government won't stand to see the country's small businesses fall.  Well, at least that is the reasoning behind the Treasury Department's plan to give the Small Business Administration (SBA) a lending boost by buying outstanding SBA loans using federal bailout funds.  Making good on an initiative pushed forward by the Obama Administration in March, the U.S. Treasury is putting final touches on the plan before launching. 

Minimum Wage 101: What Small Businesses Need to Know

In just a few days, on July 24th 2009, the federal minimum wage rate will increase from $6.55 to $7.25.  What is minimum wage? What does this mean for your small business? How does federal law correspond to state laws? Does your small business have to pay minimum wage to independent contractors and summer interns?

This is a good time to get plugged in on the basics, welcome to Minimum Wage 101.

CIT: Out of the Red, But Not In the Green Yet

Thanks to a $3 billion rescue plan by private investors, this lender to small business may still have a fighting chance.

For over a century, CIT has built its name and brand to become one of the major players in lending in the U.S.  CIT achieved its prominent place among banks largely due to serving small-and-mid-size business.  CIT Chief Executive Officer, joined the company in 2003 and pushed the institution to take more risks and focus on asset-expansion.  The company achieved notable success with Peek at the helm, with CIT's net income surpassing the $1 billion mark in 2006, a staggering 39% increase over two years.  However, it was also in the name of risk that Peek expanded the company's presence in the now-infamous subprime loan lending scheme.

Keeping It Real: Avoid the Temptation to Astroturf

Fake reviews can give your company a quick short-lived boost, but steer clear from this sketchy and illegal practice that can ultimately leave your company bust.

Reading online reviews of a restaurant before going out to dinner, checking user comments for a new gadget before clicking to buy it online, scanning a company's website for testimonials before signing up for a service... online business reviews are a major way that consumers decide where to spend their green. 

And while most small business owners see positive comments, five gold stars, and glowing testimonials as goals to work towards, others have tried to short-circuit the online evaluation process by posting dummy reviews to draw in new customers.  In fact, the term "" has been coined to describe this practice of artificially creating a positive online buzz about products and services. 

Online Protection for Your Company's Confidential Information

What Small Business Can Learn from #twittergate...

As has been widely covered in tech news, Twitter executives were recently victims of a hack-and-send job in which confidential documents were not only accessed but distributed to media outlets and have begun to be posted online.

The ease and simplicity in which the hacker compromised Twitter's private docs can make any small business owner evaluate the safety of their online information.  What is an entrepreneur to do?

Wal-Mart's New Shade of Green: What It Means for Small Suppliers

First Wal-Mart endorsed President Obama's government-mandated health care plan and now it is taking 'going green' to unchartered territory---ok, we're listening.  In this new phase of the mega-retailer's shelf life, Wal-Mart is set to announce its creation of an electronic indexing system to rate the social and environmental impact of every product it carries.

In light of Wal-Mart's new recent eco-commitments, what do these changes mean for small business and how will they affect the mega-store's vast network of suppliers?

Universal Health Care Legislation and Small Business

The House health care legislation introduced earlier in the week notably sets forth a hefty penalty to small businesses who do not provide health insurance to employees.  The Senate's version of health care reform also contains a provision for small business to provide coverage, but gives small business a choice in the matter.

The House bill, which hopes to extend health coverage to the country's 46 million uninsured, comes with a price tag of over one trillion dollars over the next decade and aims to eventually cover 97% of legal residents.  In addition to higher taxes on the country's wealthiest population, the plan calls for more granular accounting of small business health insurance coverage of employees. 

5 Tips on Becoming a Wal-Mart Supplier

To be one of the 57,000 suppliers peddling their goods to the Wal-Mart franchise may be a small business owner's dream.  But even in the excitement of the moment, it is prudent to take a good look at the vendor agreement and understand what you and your business are contracting into.

Wal-Mart is known for its highly structured process of negotiating with suppliers and working to bring down the bottom line.  The following tips are compiled from articles written to share the inside track with would-be suppliers standing in line to service the world's largest retailer.

Small Business Innovation Plans Extended by the Senate

Beating the Clock: Senate Passes Extension of Small-Business Innovation Plan

Two plans aimed at rewarding and encouraging small business innovation and research have been extended by the U.S.Senate past their 2009 deadlines. The Small Business Innovation Research (SBIR) plan which was scheduled to expire on July 31st 2009 was extended, as was the Small Business Technology Transfer (STTR) program, which was scheduled to sunset on September 30, 2009. The programs, created under the umbrella of the Small Business Administration, were unanimously approved by the Senate today for an eight-year extension.

TARP Funds Opening to Small Businesses?

The Obama administration is reportedly thinking about opening up some of the $700 billion in TARP funds to small businesses. With TARP money already having been given to automakers and insurance companies in addition to banks, many small businesses ask: why not us?

Troubled Asset Relief Program (TARP) funds were originally intended to help mend financial institutions.

Small business owners and workers watching the goverment use TARP funds to bail out automakers and insurers have since been wondering: where is the bailout for small businesses?

The Washington Post reports that small businesses could soon join GM, Chrysler and AIG as TARP recipients. Though no firm plan has been put forth, Treasury Secretary Geitner reportedly supports the idea of opening up TARP funds to small businesses.

As explained by the Post, if TARP funds were redirected to small businesses, it would likely come through a vastly expanded SBA 7(a) loan program. The 7(a) program is the largest SBA loan program. It allows eligible small businesses access to capital at a lower rate of interest though government backing of loans from private lenders. As previously discussed, the rate of guarantee was recently raised to 90%.

L.A. Cracks Down on Medical Marijuana Dispensaries

Regulatory blind spot sparked pot shop boom.

Los Angeles currently has a booming number of medical marijuana dispensaries. More than the city intended when it put a supposed moratorium in place in 2007. Now L.A. is seeking to close many of them down.

According to the Wall Street Journal, Los Angeles currently has about 800 dispensaries in operation. To put that number into perspective, San Francisco has a reported 30.

After California legalized the cultivation of marijuana for consumption with a valid prescription, medical marijuana dispensaries popped up in Los Angeles and other parts of the state.

In 2007, Los Angeles put registration requirements on those dispensaries which wanted to keep operating. It also put a moratorium on opening any new dispensaries until additional rules could be drafted regarding dispensary operations.

At that point, L.A. had 186 registered dispensaries. Now, there are around 600 more dispensaries.

How did the city get 600 more shops after the moratorium? An ill-defined hardship exemption.

SBIR & Venture Capital Debate Pits House against Senate

Congress is currently attempting to renew the Small Business Innovation Research (SBIR) program, which provides funding to small businesses engaging in specific research and development. At issue is the extent to which businesses backed by large venture capital outfits and institutional investors should be eligible to receive SBIR grants.

As previously discussed, SBIR grants are intended to match small businesses with funding for research and development in line with projects by various government agencies.

The current debate about renewal of the program primarily revolves around two issues:

  • To what extent should venture capital backed companies receive SBIR awards?; and
  • How much should the size of awards be increased (without an increase in total money to be awarded)?

Technically, venture backed small businesses are not excluded from SBIR awards right now. However, the venture company itself must employ fewer than 500 people, and currently this includes employees of the other businesses in which the venture company owns a majority stake.

This pushes many venture companies, particularly the larger ones, out of the SBIR mix, meaning the companies in which they own majority stakes cannot get SBIR awards.

As many small businesses in California know first hand, the state recently began paying some vendors with IOUs not payable until October. Some, however, need the cash sooner rather than later. Certain banks have agreed to accept them from customers for a short window of time. With fears that IOU sales would explode into a secondary market, the state has set out rules on selling them.

Last week, we discussed the California IOUs being issued to businesses, individuals and county agencies. Those receiving IOUs from the state have identified three primary options for how to handle them:

  • Hold on to them until October as intended and eventually collect the 3.75% annualized interest that goes with the IOUs;
  • Deposit the IOUs in a bank or credit union (if they bank with an institution that has agreed to accept the IOUs and the window for doing so has not expired); or
  • Try to sell them.

This week, California's Treasurer made a new rule for those opting to sell them. Come October, the state will not pay anyone for IOUs issued to someone else, unless they have a notarized bill of sale from the original recipient.

The IRS has formally agreed to stop collecting penalties against some small businesses for participating in forbidden transactions. These penalties, designed to punish abusers of tax shelters, have erroneously placed enormous fines on some small businesses -- many of whom had no intention to skirt taxes and gained little if any benefit.

Here is a rundown of the problems listed transaction penalties have become for some small businesses. As discussed, the heavy so-called Section 6707A penalties seek to punish businesses and individuals who participate in forbidden tax shelters. The draconian fines (which can't be appealed) also caught some small businesses who purchased benefits plans or other packages from financial advisors with no knowledge that the plans were (or would later be identified as) forbidden transactions.

After calls from Congressional leaders, the IRS has reportedly agreed to suspend its collection of the fines for businesses that gained less that $200,000 per year through using listed transactions. According to the AP, the suspension will last until September.

The 'Amazon Tax' and Affiliate Marketing

Recently, cash-strapped states have been eying juicy internet sales as a potential source of much needed revenue. Some states have passed a so-called "Amazon Tax." The response of big online retailers including Amazon and Cut their affiliate program in those states.

Many online retailers offer affiliate programs. These allow website owners to make money by advertising products sold on other sites such as Amazon or Overstock. The affiliates typically get paid when a customer they send makes a purchase from the online seller.

In most states that collect income tax, an affiliate already owes taxes on the referral fee they receive.

States that pass an Amazon Tax are mandating that if an online seller has affiliates in the state, then all the retailer's sales in the state should be taxed.

These taxes need to be watched by two main groups of businesses:

  • Businesses that earn referral fees or commissions by sending traffic that results in sales by out-of-state online sellers; and
  • Online sellers large and small that pay out-of-state websites for traffic leading to sales.

Affiliates will largely have any decision made for them -- as learned the hard way by Amazon and Overstock affiliates in states where the companies have ceased affiliate programs.

Online sellers who engage out-of-state affiliates in states with an Amazon Tax may find themselves obligated to collect sales tax on all sales in those states.

Today, California is set to start issuing IOUs for bills it can't pay. With Governor Schwarzenegger and the legislature at an impasse, the state is preparing to issue IOUs to cover billions of dollars it owes small businesses, large vendors, county agencies and California taxpayers.

According to CNN Money, unless a last minute agreement is reached on the budget, the state will begin issuing IOUs to cover approximately $3 billion in budget shortfall. California Controller John Chiang stated that the delayed payments would include:

  • $424 million for state operations (mostly to vendors)
  • $141 million in payments due to small businesses;
  • almost $200 million in personal income and corporate tax refunds;
  • $363 million due to regional centers providing services to people with developmental disabilities; and
  • $495 for the CalWorks welfare program wouldn't get million right away.

Needless to say, not getting paid represents an added burden to small businesses already fighting to survive tough times. Businesses who contract primarily with state agencies will be hardest hit.

So, how will these IOUs work?

Two years ago the SBA began its Patriot Express Pilot Loan Program. The goal was to assist military veterans and their spouses start or expand small businesses. The program recently surpassed the milestone of $300 million in money lent. Here are some basics about how the Patriot Express loan program works.

According to an SBA press release, in less than 2 years, more than $315 million in Patriot Express loans has been lent to more than 3,750 veterans and their spouses.

First of all, who is eligible? Patriot Express loans are available to:

  • Veterans;
  • Active-duty service members eligible for the military's Transition Assistance Program;
  • Reservists and National Guard members;
  • Current spouses of any of the above; and
  • The widowed spouse of a service member or veteran who died during service or of a service-connected disability.