Ep 23: Bracket Busters

Full Podcast Transcript

NASIR: Welcome to Legally Sound Smart Business!
This is Nasir Pasha.

MATT: And this is Matt Staub.

NASIR: What do we have first up today?

MATT: The first story we have today deals with another company we’ve discussed a couple of times and another issue we’ve discussed a couple of times.
Basically, PayPal is coming on and saying they will no longer freeze accounts for crowdfunding. I’m assuming people know what crowdfunding is because we’ve talked about it on the podcast before. But someone does some crowdfunding idea, they get this example here, $700,000 all sent to their PayPal account and PayPal has been freezing these accounts because they’ve been worried about chargebacks. This is kind of a problem because, in this example, he’s saying, you know, “I need to pay my employees. I need this money and it’s all tied up.”
I guess I understand PayPal’s concern in the past because just the nature of crowdfunding, people give money, they don’t get anything out of it per se – at least not at the beginning – and they might say, “Hey! Well, I don’t like this idea, I’m just going to request a refund,” essentially.
This is good because it’s allowing people that are raising this money to actually use the money that they raised.

NASIR: Yeah, absolutely.
This reminds me of these credit limits that businesses – including ourselves, when we run credit cards or even ACH bank transfers and so forth – these guys always put limits on how much you can do per day and per week and per month, et cetera. Especially for a new business, it can be tough because, even if you have substantial growth, these companies are going to put limits on you and you’re going to be like, “Well, these guys want to pay me. It’s good for them. Why don’t they just let me exceed those limits?”
The thing is PayPal gets a lot of slack and the reason is because they’re one of the biggest credit card processors in the world – second to Authorize.net and so forth. But, as far as what people use and have a good name to.
They always put these limitations on because they’re worried about these chargebacks and these limitations.
Crowdsourcing – I think we were going to cover it. Just last week, there was this guy that raised $300,000 or $400,000 on Kickstarter to write a book. Instead, he burned all the books or something weird. We were going to cover it, right?

MATT: Yeah. Well, that was a really weird story. I didn’t understand it. He said the pressure got to him and he just couldn’t produce all the book. I guess it’s probably because people paid money to help him write this book or get it published or whatever it was and they were requesting the books and he just couldn’t. But it’s all money that they gave him for free. That’s what I don’t understand. It’s like there’s not really that much pressure because people are just giving you free. It’s essentially just donations.

NASIR: Yeah, he couldn’t keep up with the shipping. You’re right.

MATT: Have you ever done any of this? Have you ever contributed money?

NASIR: Not online yet. I had one. I was going to do it online but then I just ended up giving on the side because I knew the person. We’ll still see what happens with that. I don’t know. I’m not surprised that this stuff happens, if not more, because these ventures are frankly always high-risk in the first place. But it is kind of strange for PayPal to get in the middle of that. But, if they are paid by credit card and so forth, then I guess chargeback is a risk.

MATT: Yeah, and they talk about the reason they’re not going to freeze these accounts anymore and they talked about, for crowdfunding, things are going to confirm. They basically said they’re going to reach out to all the people that are going to be donating ahead of time. That just seems like so much more work. I don’t really know how they’re going to handle this. I don’t know. There’s a lot of questions that are left unanswered. But it’s a good thing that they’re unfreezing these accounts.
This is one of Bitcoin’s biggest arguments because there’s no chargebacks when you transfer Bitcoin. Once it’s gone, it’s gone. I’m sure they’d love to get this good news or they were probably promoting this before but PayPal is kind of fighting back a little bit.

NASIR: And Bitcoin’s a good point because one of the issues with chargebacks is that, because it’s very easy once someone has a credit card number – whether someone steals your credit card number to buy something or even the actual merchant uses your credit card number to charge something – then the only way for the consumer to get their money back sometimes is through a chargeback. But, Bitcoin, once it’s done, it’s done.
But, also, they try to have more security measures. Obviously, they’ve gone through some challenges recently with hacking and so forth. But, usually, it requires a little bit of two-factor authentication in order to log into your account and send some people some Bitcoin.

MATT: Was it you who told me that you used to just buy a bunch of things and then call your credit card company and tell them that wasn’t you and you would get free things and the money back? I can’t remember.

NASIR: Yeah, that’s how I made my fortune in my early days. I just raked up my credit cards.
Actually, I just stole people’s identities. It’s really easy. I’ll show you how to do it one time and then just buy a bunch of stuff, sell it on eBay under a different name. it worked out pretty well. I’ll retire soon.

MATT: I would like to continue on with this but I don’t want to start giving bad legal advice.

NASIR: That’s true.
Also, some people don’t understand sarcasm so you never know.

MATT: Yeah, and I guess there’s probably a good amount of people that have never met either one of us that are listening so they don’t understand our background and how we normally joke around.

NASIR: That’s true.

MATT: All right. First question.
“I recently appointed a board of directors for my small corporation. Should I send out some sort of agenda on the issues I want to discuss before the meeting?”
This comes from New York City.

NASIR: Yeah, we started talking about this because there was an article on TechCrunch that talked about why you should not decide anything important at your board meeting. We’ll link it to the show notes. It’s actually an interesting concept and I didn’t realize this is what we do anyway. Because there are so many formalities in a meeting in a corporate governance, especially when you make major decisions – whether it’s an amendment to bylaws or authorizing shares and so forth – you need to make sure you put that in writing.
But, in a real meeting sense, maybe there’s someone taking notes but I don’t know how many times they’d go to a meeting and one of our clients doesn’t remember all the things that were decided there. And so, that’s why a lot of the discussions should happen before the meeting and I personally see the meeting itself as just a formality.
This person asked, “Should I send out an agenda?”
Well, first of all, depending upon what type of meeting it is and also what your bylaws say, almost always, you’re actually required to send an agenda, especially for any items that we’re going to be voting upon, especially any kind of changes to bylaws and big decisions like that.

MATT: Yeah, and the article you were talking about makes some good points basically saying, you know, if you have all these ideas and possibly big ideas on shifting the culture or the structure of the company, you don’t want to just drop those on everybody and I guess it’s better to allow everyone to think things through beforehand if you’re going to make these changes. Like you said, it’s more of a formality. Sometimes, people are worried about just adhering to these formalities and it’s almost like the actual things that are discussed are an afterthought.

NASIR: Yeah, and it depends how big your organization is, too. This says it’s a small corporation. I like to also develop the minutes beforehand and say, “Okay, this is what we’re going to approve,” and then maybe leave some leeway and then fill it in at the time of the meeting. “Okay, what do we decide on this issue?”
Sometimes, of course, if you’re talking about changing company culture or something like that, maybe it can’t be just summarized in one document either. It may take a little more effort.

MATT: Yeah, and a lot of times, especially for these smaller companies, they know what they’re going to be discussing, especially if it’s an annual meeting or if it’s a special meeting that’s called, you’re going to get noticed and you’re going to know why a special meeting is going to be called so most of these shouldn’t be too surprising to people.

NASIR: You wouldn’t want it to be surprising anyway because you want to make sure it’s a fruitful discussion and that’s just the nature of running a meeting anyway.

MATT: Yeah, and this person here, it sounds like they might just be concerned and that’s another reason that they could have chosen an LLC route as opposed to a corporation then they don’t have to worry about it at all.

NASIR: Yeah, less formalities.

MATT: I don’t think they were asking for that so I won’t give that as my answer but…

NASIR: Yeah.

MATT: All right, let’s jump into the next story we have for this week. This is a pretty interesting one. I guess this is the theme of the week – talking about companies that we’ve discussed a bunch of times. This is Starbucks. I guess they had their annual meet – oh, wow! This is a lot of connection – annual meeting this past week or recently, discussed a bunch of issues, things moving forward, and some new ideas. Before I get into the main one here, there are some others, I think I had read about this – that some of the stores serve alcohol. I didn’t know that. I think I’d heard about that but…

NASIR: Really? In the US, too? That’s surprising.

MATT: Yeah, it’s just weird. They had some other ideas but this main one here – at least what the article is about – is licensing its mobile payment system.
Now, I personally don’t like Starbucks. I don’t think the coffee is that good. I go to Starbucks if I’m in a different city and it’s all I can really find so I do go there some but I try to avoid it at all costs. I’m not very familiar with what their mobile technology is but, apparently, since 2011, they’ve had it in place and it’s been pretty successful, it looks like. This is a really interesting revenue model that they’re thinking about looking into – licensing this mobile technology.

NASIR: Digital wallets and digital payment systems are definitely something that’s coming into the fold. But I think the problem is how are you going to get people to adopt it universally and I haven’t seen anyone using the Starbucks payments but the fact that people are, I mean, I can imagine it because some of these people go every day. It’s just a matter of convenience and there’s long lines in the mornings and so forth. It makes sense.
But, if those same customers are able to use the same payment system that they’re used to somewhere else then I can see it being much easier to adopt than each store coming up with their own. Bitcoin, I’m sure, has some of those payment systems but you have to make sure that those merchants are able to accept it and finding some standardization but this is a license, right?
So, just to familiarize with everyone, they are going to be basically licensing their technology, allowing other people to use it for their benefit, and it’s probably going to be for a small amount of money because it’s probably going to be transaction-based.

MATT: I just find it interesting because I don’t think Starbucks is struggling. They’ve probably lost some of their market share because so many coffee places, coffee has become so popular.

NASIR: I know they drew back some of their stores internationally and even domestically after 2008, 2009.

MATT: I’m just wondering whether it’s worth it for them to get into this whole new avenue. It’s probably not too much of a commitment but it’s just kind of weird how their whole business has been based on coffee and now, I mean, it’s just a very different revenue stream than they’ve been accustomed to in the past.

NASIR: No, that’s true, totally different area of industry.

MATT: Especially for a Starbucks, it makes sense because people need coffee every day. And then, if you have this mobile app or whatever it is, I mean, you’re probably going to go get coffee at a place where you have it already set up on your phone if that’s what you’re used to. So, it’s very good for repeat customers, I guess, as well.
Like I said, I’ve never used it. I didn’t even know it really existed. But I guess for a lot of people it’s pretty useful.

NASIR: I’ve heard of it. I think they make it pretty easy.

MATT: All right. We’ll get into the next question here.
“I am the only owner of my corporation. Are there any negative side effects personally to getting a credit card for my business?”
This person did not say where they’re from or what type of business they’re in. I’ not sure if that makes a huge difference.

NASIR: No, yeah, I don’t think it does. It’s a generic question. Very common question because, nowadays, the business credit is lightening up a little bit – or softening up as they say. I just had a client, they opened up a new business and they got a 40K business credit card that came with the company when they opened a new bank account which I think, for a new account and with a good credit report, that’s pretty good. But a lot of times these come with personal guarantees. It ends up being a credit hit on your personal account anyway. Are there any negative effects? I would say the same kind of negative effects there would be with any credit card. Sometimes, it goes on your personal credit report; sometimes, it doesn’t. I know Bank of America, the last time we had a card, it wasn’t on my personal credit report but then some other banks are different and they will come up so it also depends and they both had personal guarantees.
And then, of course, there is credit cards that don’t have personal guarantees which is something that is given to businesses that are more established.

MATT: Right, and I think that’s what the answer to this is – you know, if it has that personal guarantee, it’s essentially the same effect as you applying for or getting your own personal credit card.

NASIR: Yeah.

MATT: I guess that’d be the turning point to look into on what you have to decide how much it’s going to affect you.

NASIR: And, also, by the way, when you have a business card and you’re an employee, if you have employees and they’re given cards under their name, depending upon how it’s done, it can also affect their credit – both positively and negatively as well. Usually, these cards are backed up by the company. And so, in theory, they should be a positive thing for those employees.

MATT: Yeah, and that’s a whole other issue on giving your employees the company credit card. That’s always something you see on TV shows and movies with the young employee. “I got the company credit card,” and spends a bunch of money. But I’m sure that happens all the time in real life.

NASIR: Yeah. I mean, I haven’t experienced that with anyone but that does happen because, well, they track it, right? A lot of times, these have different credit card numbers. Somehow, they’re able to track it and they can see by employee what they’re spending.

MATT: All right, let’s get into the break.
We’re going to talk about something related a little bit later here but I have the number. People remember that you predicted that two people this year will get a perfect bracket. So, we’re 16 games in with I think it was 63 games total. So, we’re a little bit in here and there’s only 0.2 percent of people are still in play as perfect brackets and there’s one or two episodes today. There’s a decent chance that no one could be left after today.

NASIR: Well, I guarantee you, a good proportion of that 0.2 percent is in Dayton, Ohio – my hometown – with the big upset against Ohio State.

MATT: Oh, yeah, well, that’s what it was. I’m looking at this thing here that has a game-by-game, you know, it goes chronologically based on the finishing of the games. Since the first game was an upset, there was only 19 percent left after that first game when Dayton upset Ohio State.

NASIR: Actually, I read another stat. they adjusted it to, like, 90-something percent were out after the first game.

MATT: Oh, yeah?

NASIR: I don’t know if that’s true or not which makes sense because it’s such a big spread on the seeds, right?

MATT: Yeah. I mean, that was a pretty big upset. Like I said, you were definitely watching.

NASIR: Actually, I was getting messages on my phone during it but it was in the middle of the day. Unlike other people, I was working.

MATT: I was working, too. I don’t want to make it seem like I wasn’t.

NASIR: Yeah.

MATT: It’s hard to not have a TV around at least and be looking at it.

NASIR: I definitely got some slack for the prediction of two people winning. Well, I had no idea. I thought it would be, well, one thing that we did clear up, if there’s a stat that, if you just chose randomly and then there’s a higher probability that you’ll get it right if you do it with some knowledge beforehand, of course. But, even that probability is still pretty out there, apparently.

MATT: So, we’ll keep track of this. When we record the next one, I’m going to say there’s a pretty good chance that no one will be left.

NASIR: I won’t recant my prediction though because I’ve already made it and it doesn’t hurt me to just leave it as is.

MATT: Like I said, it’s 0.2 percent which is a very small number but there’s probably a lot of entry. It’s still a decent amount of people but we’ll see. No games are going to finish while we’re recording this. So, it’s not going to change but we’ll definitely keep updated and stay tuned next week, I guess.

NASIR: Very good. March madness.

MATT: All right, let’s get into the next story here. This deals with the manager of an LLC. I guess more specifically indemnification and advancement.
Basically, what it was, this took place in Delaware. There was a manager of this LLC. He wanted to quit and did quit. There was some lawsuit that was involved.

NASIR: This is a story with a Delaware Corp. Oh, it’s actually an LLC where quite a number of entities are filed for a number of reasons which I think we’ve discussed. Because of that, there is this Delaware Court of Chancery that deals with a lot of these corporate issues and they’re in the forefront of the corporate law and this is what everyone looks to as far as this and they have such a history of law in this that it becomes very predictable.
One of the major provisions in almost every operating agreement – both for an LLC and also for corporations for their officers – is that the company will indemnify them in the event of a lawsuit. I think there’s good reason why we’re covering this, too. The language in this particular operating agreement said the company shall indemnify, defend, and hold harmless.
So, let’s go from a basic perspective. Indemnify means that they’re going to reimburse that person for any damages that they may be liable for if it’s in the course of the indemnification clause. In this case, in the extent permitted by the act or applicable laws and so long as there’s no fraud or bad faith, et cetera. But then, it also includes a word “defend” so the company shall defend and hold harmless. So, the question was, does that mean that the company has to actually advance the cost to that manager in order to defend or is that afterwards or how does that work?

MATT: Yes, and this is particularly weird – at least I thought and I think they address this in the article too and it ended up being they had to advance all the costs for all the issues but the way it was worded was, in the event of fraud or bad faith claims are asserted against such manager or officer, the company shall nonetheless bear the aforesaid expenses. If there was a fraud or bad faith claim asserted against the manager, they had to advance the costs. But then, the company was arguing, if it was just a normal lawsuit, then they didn’t. It was just really weird how that was set up. You would think it would almost be the opposite – at least I thought so when I was reading it.

NASIR: Yeah, it’s very subtle and this is why we get kind of geeky with this language of these contracts because the subtlety in this verbiage can go either way and clear language is very important.

MATT: Yeah, and that’s what they ended up deciding, too. They looked at this clause. We’ll link it if anyone’s really interested in reading this indemnification provision which probably no one is but it basically said it doesn’t make sense for them to not include all costs or advance all costs and it kind of turned on the word defend as well.

NASIR: There’s a reason you want your managers and officers to be protected. They’re out there. You don’t wat them being held personally liable because it really affects how they’re able to do business and you’re not going to be able to recruit that good talent to become an officer or manager, especially for yourself too. If you are the owner of the company and you’re putting yourself as an officer, you don’t want to be held personally liable and so forth. So, having the company indemnify you for that is very important.

MATT: Yeah, exactly. I know we’ve touched on this before but these indemnification provisions are one of the most important things in any contracts.

NASIR: Yeah, no doubt.

MATT: Don’t shrug it off.

NASIR: In fact, the people that negotiate these down are the investors, of course, because they want to make sure. A lot of times, these investors aren’t necessarily managers or officers so they want to make sure that the officers and managers take responsibility. And so, they limit the indemnification clause as much as possible – like in this case with fraud or deceit.

MATT: All right, let’s just jump into the last question that we have for this week.
“I fired one of my employees for not wearing green on St. Patrick’s Day for a promotion we had. Should I be concerned with a lawsuit?”
This is California.

NASIR: It’s such an odd question, right?

MATT: There’s probably going to be a problem with this, I would think.
First of all, I want to know where they work – if it’s the Shamrock Restaurant or something.

NASIR: That’s true.

MATT: Or Starbucks. They’re green.

NASIR: I assume it’s not Starbucks. The CEO has emailing us whether they were going to get fired or not, or whether it’s going to be a problem.
It’s kind of a weird question because why are you firing your employee just because of what they wear? Because I think there’s something else more going on there, right?
They’re pretty much terminating the employee more for subordination because the assumption is that they told everyone to wear green on that day and they did not. This is a touchy question because I think, in general, there would be no problem with that, but I can see an attorney making a clever argument.
Basically, this is what it is. You can fire anyone for any reason so long as it’s not illegal. I know that I’ve said that before but it’s kind of a weird way to put it. But the point is, so long as you’re not doing it based upon their gender or some protected class like their religion and so forth, then it’s fine. But, in this case, what if the argument is that the employee doesn’t want to wear green because – I don’t know – they’re religious and they consider St. Patrick as a saint and therefore it’s a religious holiday or something to that effect. Then, maybe I can see an attorney arguing that. But, in general, we’ve even covered in the past, you can fire somebody for being fat. You can fire somebody for how they look or how they dress and so forth which just sometimes comes with the employment. We’ve talked about those many other Hooters Restaurants and things like that that have an exception because of the type of restaurant they are, but this is not bad because this has nothing to do with sexual discrimination or anything like that. They’re not talking about whether they should wear dresses or not but just a color.

MATT: You’re right. I just think maybe you probably shouldn’t tell them that’s the reason he’s firing him – because he didn’t wear green on St. Patrick’s Day.

NASIR: Yeah, it may just cause complication. Well, I think the real reason is insubordination.

MATT: Right, and you’re fine with that.

NASIR: This reminds me, a few years ago, there was this law firm and it got a lot of press that a big group of their paralegals and clerks and so forth, every payday, they would dress in orange and they would do that because then afterwards they would go to happy hour and they would all look alike and so forth. It was just something that they did.
And then, for whatever reason, the managing attorneys didn’t like that because they would wear orange and they thought that they were protesting or kind of ganging up or making a point about it. According to the employees, they weren’t. But it was this weird exchange where, literally, the attorneys asked one of the persons about the shirts and they’re like, “We’re not part of any protest or whatever.” They go back to the meeting room and then they come out and they just fired everyone that was wearing orange. Literally, ten people or something to that effect because of that.
Of course, they’re a law firm, you would assume that they’ve done their research. I don’t think there was any liability there.

MATT: I never heard of that. That’s pretty crazy.

NASIR: There was also an interesting question of whether or not they could file for unemployment because usually unemployment is not allowed for those that commit misconduct. Now, wearing an orange shirt is probably not misconduct. Sometimes, subordination to a certain extent can be considered that but I don’t think that’s the case and I don’t think this person here being fired for not wearing green which is an unfortunate work environment but…

MATT: Yeah, you need to learn.

NASIR: I can see if we have a promotion going on, “Okay, everyone, wear green tomorrow.” It doesn’t matter if it’s St. Patrick’s Day tomorrow. “Everyone, wear green tomorrow. We’re going to have this,” or whatever and someone shows up not wearing green, I’d be annoyed.

MATT: All right. Well, let’s get into the last story. I kind of teased it during the break. We do have more March madness.

NASIR: Nice.

MATT: This deals specifically with the brackets themselves. A lot of people do brackets and a lot of money gets tossed around, too. This is basically saying how – and it’s no surprise – free-to-enter contests – like Warren Buffet’s, for example – are legal but pay-to-enter contests are not. This makes sense, right?

NASIR: Yeah, one’s gambling and one’s not.

MATT: Yeah, it’s no surprise. I don’t know what to think. I would think that most people that are involved in these pay-to-play contests…

NASIR: Office pools.

MATT: Yeah, the office ones, too. If they sat back and thought about it, I would think they would have to know that that’s probably not legal, but maybe they don’t think about it. I don’t really know.

NASIR: Yeah, but we all know it’s not legal but have you heard of one person being fined or arrested because of it? Probably not.

MATT: Yeah, and that’s kind of the thing. I read a bunch of articles about this just because I was interested in it. Is it legal? No. Are you going to get caught? Probably not. Who’s going to find out? What’s going to happen? Someone’s going to get upset that they didn’t win and go report you?

NASIR: Exactly.

MATT: And then, you get in trouble? Even then, I’m not condoning doing illegal things.

NASIR: What would also be interesting is what if the person that’s holding the money for the pool doesn’t give it to the winner?

MATT: That’s true. That’s a good point.

NASIR: Now, if they keep the funds, then there’s an issue there because that’s stealing. But what if we’re in a pool and I win but then the person doesn’t give me the money? They just return all the money to them? If I try to sue – like, “Look, this is my money, I won” – I don’t think I’d be able to enforce the contract or that agreement because it’s an illegal agreement.

MATT: Yeah, I agree with you, that would be the case. But this is more of a logic thing or reasonableness thing. It makes sense that gambling is illegal unless you’re in Nevada. It’s just common sense.

NASIR: Also, know that, if you’re having as a company any kind of contest or sweepstakes, it’s not enough to just not have people pay to enter. Every state has regulations and laws regarding these types of contests and sweepstakes.
And so, if you notice, even with the Warren Buffet – obviously, there’s a lot of money at stake but – they have quite a bit of legalese that’s going with that and every single advertisement is going to be compliant with every state. I don’t even think that contest is actually eligible in all states and even have other restrictions too. You have to be over the age of 18. I think there was some rule in there that you have to have a cellphone contract or phone contract and the reason is because they want to be able to call you during to let you know about the winner and also trying to get some information regarding selling mortgage loans and stuff like that. All these things come into play before you do so, especially if you do a national campaign. It’s actually pretty tough to get compliant.

MATT: But, if you want to do it, Nevada, Delaware, Oregon, and Montana are going to be your best shots. Everyone knows about Nevada, obviously. It’s pretty common. But Delaware, Oregon, and Montana are the good states.

NASIR: Or international waters, too. Just take a boat out there. That’s pretty good.

MATT: Yeah, that’s true.

NASIR: Okay. Well, that’s our episode.
Thanks for all your questions! We got some interesting ones this week, I think.
You can always send them in at info@legallysoundsmartbusiness.com and, of course, at our website as well.

MATT: Or ask@legallysoundsmartbusiness.com

NASIR: Oh. I’m sorry. I’m new here. That’s right – ask@legallysoundsmartbusiness.com.
I think “info” will go nowhere so don’t do that.

MATT: Yeah. All right, well, yeah, like I said, we’ll keep everyone, I’m curious to see how many people have perfect brackets when we do this next week.

NASIR: At least two.

MATT: So, you’re not going to go back on your prediction? I’m going to go out and predict that, by the time, we record next week, next Friday, there will be less than two people with perfect brackets left.

NASIR: Really? Wow! How many teams will be left at that time?

MATT: Friday morning, 12. There will be 16 after this weekend. And then, half of the games will be played by Friday morning. So, yeah, 12, I believe.

NASIR: All right. well, we’ll see. My alma mater won at San Diego State last night.

MATT: Dayton San Diego State. It’s been a good tournament for you.

NASIR: By the way, did I tell you I have a perfect bracket right now? Did I tell you that? I forgot. I’m one of those 0.2 percent.

MATT: I don’t believe that.

NASIR: Well, I filled it in this morning but it’s perfect.

MATT: Yeah? I fill it in after every game until it’s completed so I always get a perfect bracket.

NASIR: Exactly. All right, guys, have a good week and thanks for listening!

MATT: Keep it sound and keep it smart.