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Nasir and Matt kick off 2014 discussing the new changes to Obamacare, a bookkeeper stealing from the business she works for, the consequences of raising minimum wage, and the backlash surrounding Uber's surge pricing.  They also answer questions about paying yourself in an LLC, copyright infringements in a t-shirt printing business, and working with international clients.  Nasir and Matt also discuss the expansion of Top Floor Legal.

Transcript:

NASIR: Welcome to Legally Sound Smart Business.
This is Nasir Pasha.
MATT: And this is Matt Staub.
NASIR: Happy New Year, everyone!
I don’t know what it is, but the “Happy New Year” thing seems to last too long in the sense that it’s been weeks now – well, actually, I guess it’s only been a week, but I’m already tired of it. I feel like it’s been weeks.
MATT: Yeah, I mean, you’ve got a couple of days. You’re the type of person that takes down the Christmas tree as you’re opening your gifts.
NASIR: I’d say maybe five minutes after midnight is probably the limit for me. After that, then it’s looking forward to January.
MATT: All right. Let’s get into the first story we have for this new year – not only this week, but this year.
So, we’re going to lead off with something that’s going to be pretty big, I think, throughout the year. A big story – Obamacare.
NASIR: In fact, I think we’re going to cover it the whole month. It’s a big topic, obviously. So, unless we devote an entire episode which might get a little boring, I think we’ll touch on it every week this January.
MATT: Yeah, I can only handle one story a week. So, we can’t do a full episode of it. Your wife and my wife are both in the healthcare industry. I rely on my wife a lot to just keep me up-to-date with everything for things that don’t have to do with business because it’s a pretty expansive act that was put into effect.
NASIR: Yeah, and everyone says it’s not even the legislators actually read the bill and it is pretty lengthy. But, not only that, it keeps changing, and we’ll talk about that in a second in the sense that there’s rules that are being rolled out in 2014, but that don’t necessarily apply because the administration has decided not to enforce some of those provisions.
MATT: Right. Okay. Well, let’s get into some of the changes or the things that are happening for 2014 in relation to Obamacare. So, just a couple of things here, and this is all how it relates to businesses, of course.
The Small Business Tax Credit Expand – previously, 35 percent now up to as much as 50 percent for I believe it’s businesses with fewer than 25 employees. So, this is a pretty beneficial thing for these smaller businesses. I guess we’ll see how this works out. I know this doesn’t apply to everyone. California is all right, but there’s a few states that it doesn’t work for.
NASIR: Yeah, because they haven’t even set up their business exchanges right. So, to get this tax credit, you actually have to have your employees on the new government-run small business exchange. And so, if you want to use your 2013 plan or not make any changes, then you might want to take a look at this because you won’t be eligible for the new tax credit.
MATT: Right, and that’s exactly why that is the way it is.
There’s some other things – health insurance tax, the tax part of that starts, that was a big thing when that came out. I believe that’s how it got all pushed through – it was labelling his attacks. I know peop had problems with that.
NASIR: Yeah. Technically, it’s not a tax on the small business, but it’s a tax on the insurance companies for these small business plans. Effectively, it’s going to drive up premiums. They say 2 to 2.5 percent, but we’ll have to see how that actually manifests itself.
MATT: Yeah, we’ll see, and it seems like a low number, but who knows?
This is a pretty good one, too. Insurers can no longer calculate prices based on past history of the employees or the industry itself. This will be a good thing for companies that have had issues with this in the past. Now, no longer can insurers base it on the past history. This is basically the pre-existing condition issue.
NASIR: Yeah, and there are certain industries, for whatever reason, had higher premiums in the past because of the type of workforce they may have. And so, that’s taken out, and I think that’s the general concept of a lot of these changes.
To summarize Obamacare in a few words – which I think is impossible – is let’s get as many people under these insurance policies as possible to spread out the risks so that those that are more susceptible to health insurance cost can be subsidized by others. For a lot of people, that is a good cause. Others may argue that it’s socialism in a certain form.
MATT: Right.
We’ll touch on a couple more points here because, like you say, we can go on forever about all this stuff here. The last couple of things – employer mandate takes effect. I know this was big news towards the end of the year. I think it dropped about October – I can’t remember exactly – the automatic enrolment and waiting period rules are postponed. So, some action and some inaction for 2014.
NASIR: But that employer mandate is probably the most controversial, right/
After 50 or more employees, and there’s an actual real reason why 50 or more was chosen. It’s because a lot of the federal and state law when it comes to employment issues deals with this 50-employee landmark. After 50 employees, then all these other workforce and labor laws apply – both in state and federal law. And so, when you’re underneath that threshold, you’re not as accountable for a lot of what the other employers are. So, that’s something to think about, and this healthcare law, if you’re above 50 or more, you’re required to provide insurance to your employees.
There was a penalty. But, obviously, that may not start in 2015, but some of the controversy was that people were starting to reduce their workforce if they were on the cusp of that, and I found that pretty interesting. People were trying to get pretty creative by setting up separate entities. For example, if you’re in a restaurant business, by having each different restaurant as a separate entity. But, in actuality, you would think that’s a loophole, but it’s actually not. And so, people try to do that, but it’s kind of worthless for them anyway.
MATT: Right, and I was going to touch on that, too. Yeah, the 50-employee thing, that’s what employers were doing. They were letting go of people if they were right around that threshold. Or maybe they were just under. That prevents them from hiring new people because they don’t want to hit that 50-mark.
NASIR: Also, put them in part-time, too. I believe it’s 50 full-time employees, right? Maybe there’s a number of part-time employees as well.
MATT: Yeah, that sounds right. Someone can write in and tell us if we’re wrong. Hopefully not.
NASIR: Well, we’ll revisit this. I mean, this is just some of the new changes that are going on.
MATT: Yeah, exactly.
Since it’s the beginning of the year, I wanted to touch on just some of the things that were going into effect – some of the new changes. But we’re going to revisit this, touch on some other aspects of it on how it relates to small businesses.
NASIR: Great.
MATT: All right. So, here’s the first question. This is our longest question – ever.
NASIR: A new record.
By the way, that’s not a challenge to ask people to send in longer questions. They’re like, “Oh, I’m going to beat the record.”
MATT: All right, here we go.
“I am the sole managing member of a professional services Delaware LLC. The first few years of the operation saw little activity. Business expenses were covered by continuous infusions of capital for my personal accounts. While I did provide a decent tax write-off, that was not the intent of the business. This year, I’ve seen things turn around, and the LLC looks to make a profit. Currently, all the income from the business comes from the freelance work I perform. Now that the income is starting to exceed expenses, I would like to actually start getting some money for my hard work. What is the best way to do that? Should I take periodic withdrawals? Or should I go through the process as setting myself up as an employee? What are the advantages and disadvantages of each?
Signed,
Perplexed Proprietor Providing Profound Productions Primarily for Professional People in Popular Pacific Population Centers”
Oh, I can’t believe I got that.
NASIR: I think this listener really wanted to challenge your speaking skills with that last – what is it called? An alliteration?
MATT: Yeah. In the morning is when to trip me up on that stuff, but I nailed it. So, nice try!
NASIR: Nice try.
Well, I know the accountants and CPAs and tax preparers that are listening are anxious to hear what we have to say because they’re probably looking for us to make a mistake because this is totally a tax preparation question. But I think we can answer this, for sure.
MATT: Yeah, we can give enough advice here that will be pertinent. So, let’s look here.
It’s Delaware LLC and it’s a single-member LLC.
Just generally speaking, LLC is a pass-through entity, so there’s no tax on the entity itself. It all flows through to the owners. In this case, if it’s a single-member LLC, they’re going to be filing a schedule C – just like they were a sole proprietor – so it’ll all flow through to them individually. The years that they weren’t making money, that was a loss, but now they’re making money. One person is going to get taxed on the net income regardless of whether he or she leaves it an LLC or not.
Now, they’re asking, “What’s the best way to take money out?” I think they offered two options – periodic withdrawals or setting themselves up as an employee. I think this is easier for one person because periodic withdrawals, you might have one person thinking it’s a good idea because they want to have some money to spend, and another owner might say, “No, we need this money to spend on other things.” A single member helps things out somewhat because they can just take money out when they want and it’s their call.
I think there’s a big thing here because, unless they’re being taxed as a corporation, they’re going to have to do the periodic withdrawals.
NASIR: Yeah, and it sounds like what he’s referring to is almost paying himself a salary, and that’s more appropriate if it’s taxed as an S-corp, right? Because I think what he’s trying to avoid is a self-employment tax and you really can’t avoid that if it’s taxed as an LLC, right?
MATT: Right.
NASIR: And so, that might be something to look into – maybe look into the advantages of an S-corp. But, if you’re making just a little bit amount of money, if you’re just hitting a profit now, then you would get all your salary anyway and you wouldn’t be able to take advantage of the reduced tax rate through corporate distributions or dividends.
MATT: One of the biggest differences for S-corp versus LLC is having to pay the self-employment tax. The LLC, you’re going to get stuck with both sides – employer-employee. But, if you were W2, you individually are only going to be responsible for half, but the corporation itself is still going to pay. It’s not going to be a huge difference looking at one person by itself, but if you have a bunch of people, you need salaries. It’ll be a difference – more of a difference, I guess.
NASIR: Well, I think the more important question is, “Why is this person in Delaware?”
I assume that they’re not living in Delaware and that they registered their LLC in Delaware. It goes back to those old questions we’ve covered many times – understanding why you register your entity in such and such a place and just because you register out of state doesn’t mean that you don’t have to register it in your state as well, especially if you’re operating in that state. So, that’s something to look into as well.
MATT: You do bring up a good point because a lot of people that are worried about tax issues are often people that are really looking into where to form the entity and everyone here is about Delaware and maybe a couple of other states, but that seems to be the most popular. If I talk to people in California and they say they want to start an entity and they don’t want it in California, Delaware has got to be the heavy favorite of where they want to start it. it’s just because they’ve heard things from other people.
NASIR: Yeah.
MATT: All right. Let’s get into another story here.
This one is based out of Montana and it’s a bookkeeper accused of stealing from a business partnership. Obviously, this has to be a multi-year scheme here because, if you want to steal money, you have to do it slowly and periodically – at least in my opinion. That’s why I don’t steal money from business.
So, it was a bookkeeper that stole money over time from this construction company. The bookkeeper is the one in-charge of all the numbers. That’s someone that’s going to be able to pull this off. I forget the exact numbers of how much he or she ended up walking away with. Is it $15,000?
NASIR: Yeah, I’m trying to look myself.
One of the reasons that we chose this story is because it is unusually common, for whatever reason, to find employees that, even after years of service, they’re found out to be doing one of these things – whether it’s embezzlement or misappropriation of funds or just frankly stealing. It’s so apparent that there’s just a few things that you can do from an employer’s perspective to create proper controls to prevent this kind of loss. I think it’s important to really focus on the prevention because, once it happens, the likelihood of getting your money back is low, and the likelihood of even that individual from recovering professionally on that in the sense that it’s almost a protection from them. If you have certain controls, you take away the incentive – or I should say, the “temptation” – to commit those kinds of acts and everything, especially in your cash business, you know, talk to your accountant on how you can create records to make sure that everything that you’re bringing in, it’s very easy for your accountant to say, “Wait a minute. I think we’re missing funds.” That’s also one of the disadvantages of having an in-house bookkeeper, by the way. If you don’t have somebody else outside that’s not handling the funds to also have a checks and balances, I think that’s important.
MATT: That’s good advice – unless it’s like in this instance where your bookkeeper is the one that’s embezzling funds. But what you can do to kind of combat that is you can always go with an external audit and that’s just a way to do a checks and balances to make sure the bookkeeper is doing the right things as well. It costs more money but, if you’re concerned about it, then that’s probably the best route to take.
NASIR: We’re not talking about something crazy here. It could be just as simple as maybe quarterly or at least twice a year going to an external CPA or an accountant to review your books and kind of saying, “I just want to make sure everything is in order and these are the risks that I’m trying to avoid.”
MATT: Right.
You hit on quality control with your employees themselves. Another tactic I know that’s good is to not have the same person do two different jobs when it comes to handling the money.
Let’s say you have a store and you have cash registers, you have one person take the money out – they’re the cashier; then, you have another person count it or maybe another person put it in the vault or whatever you have – if you’re able to pull that off, if you have enough people, and you can afford that. That’s just another way to enhance quality control of your staff.
NASIR: One thing I just thought of is reconciling your accounts and reviewing those reports often. I don’t know how many times I’ve either heard a story and I’ve had clients in this experience, too, where it’s like, you know, I just found out for the last six months, one of my employees has been pocketing money, and I‘m just wondering, “It took you six months to figure that out? How did you figure that out?” You know, there’s always usually a paper trail, but it’s because they don’t review those reports in accounting. Just from a non-legal perspective and just from a business perspective, that’s something that I know I do quite often just to see where we’re at and just to make sure because, you know, the numbers don’t lie.
MATT: Yeah, there’s always those bad apples out there, too. You can do as much screening as you want when you hire someone but, if they’re a liar and a thief, then they’re probably going to lie during the interview, too. But we offered up some good ideas on how to handle that issue or just prevent them from happening altogether. Just constant checking and quality control.
NASIR: I’m always surprised to find some of these people not having any kind of warning signs or background from the beginning.
Now, during the course of employment, things develop and so forth, but some of these things, you don’t tell. A lot of times, these people haven’t stolen before or have a police record or have been sued for embezzlement, so these kinds of things are not easy. Frankly, they’ve happened to the best of people. I can definitely attest to that.
MATT: Right. I guess we’re onto our next question here – much shorter. I appreciate that.
NASIR: What’s the shortest question we’ve ever had? Is there a record for that?
MATT: I think it just said, “Help!” it wasn’t even a question. We just offered general advice on life.
NASIR: Very good.
MATT: Here’s the question.
“I own a T-shirt printing business. Should I be worried about copyrights with the images people bring in?”
This is in Los Angeles.
NASIR: Los Angeles. So, copyright infringement, there’s this Kinkos case that I think applies. I’m trying to remember how long ago, but it was a milestone case in the sense that Kinkos was being sued by a publisher because a lot of students – it was in a college area – they were bringing their manuals and books and course material to Kinkos to get printed. And so, of course, the publishers that were selling these in the school bookstores were losing money. And so, they filed a lawsuit against Kinkos instead of the students themselves. It was a milestone case in the sense that they found Kinkos liable and it really gives some direction on how these copy printing works.
This is a T-shirt business. I would make the comparison that it’s not dissimilar.
MATT: Yeah, and it would be much harder. Someone comes in and they say, “Hey, I want this logo printed on a shirt.” That’s much harder if you’re the company itself to do the legwork and look into whether that’s copyrighted work and whether it’s their copyright.
The way to get around that is to just have them sign an agreement stating that, “We’re not infringing on anyone else’s copyright. This is our original work.”
NASIR: Yeah. In fact, I don’t know how long this person has owned the T-shirt business. I’m sure you have other colleagues in your same industry that have experienced this. They must be new, but I’m sure there’s standard practice. I’ve never had a T-shirt printed, so I don’t know what kind of procedures people were to go through, but I would imagine that, in any kind of purchase order, there’s some kind of disclaimer from the customer’s perspective saying that they have complete ownership of all the artwork material that’s being submitted and, if for some reason there is some kind of infringement, that the customer will indemnify the T-shirt business.
But, I think, besides that, the more important thing to do is to have the requisite insurance, too, as well – some kind of professional E&O policy to protect you from copyright infringement.
MATT: This has got to be huge in college towns. There are so many T-shirts that are printed out for every single club and group and fraternity and sorority in college that they better have something in place. They better have an agreement and, like you said, insurance as well because – guaranteed – college kids aren’t coming in with any sort of copyright.
NASIR: They’re like, “Yeah, I spoke to the owner of this artwork and he’s given me a release and here’s the paperwork here.” I just don’t see that happening.
MATT: Well, you see logos and things on shirts all the time that you know aren’t from the actual company, but they use, like the Nike swoosh. It’s not a Nike shirt, but they use it and do something else with it. I guess it’s whether Nike finds out about it and whether they want to do anything about it.
NASIR: That could fall under the fair use. Like, if it’s some kind of parody or so forth. Again, it’s two owners for a T-shirt business owner to determine whether this falls into a copyright exception or not.
MATT: Right.
NASIR: And so, it’s better just to pass on the liability. If there’s anything that’s obvious – like, if they bring in a college text book and they start copying everything or they want to reproduce an artwork on a T-shirt or even a photo that’s been taken – those are some things that I think I wouldn’t take the risk, even with those indemnification and releases from the customer.
MATT: You have a good memory. This case was from 1991. So, it was a long time ago.
NASIR: Oh, you looked it up? Nice.
MATT: All right. Let’s get into the break here. We’ve got some exciting break news that’s not related to The Office.
NASIR: So, somehow, if we were expanding in Pennsylvania, I could somehow get that in. But, yeah, we’re expanding!
For those that know us personally – and, also, professionally – we’ve been talking about this for quite a while. But, in the beginning of the new year, it’s finally official that we’ll be operating in Texas and New York and we’re very excited about both. I personally have been spending a lot of time in Texas to get that set up and things have been going pretty well. So, we’re pretty excited to have our services being eligible for businesses outside of California.
A lot of our clients in California already do business across the country, and New York and Texas seem to be a center point for a lot of them, so it works out well.
MATT: Yeah, it’s really exciting news. I’ve told some people, and pretty much all their reactions are people are pretty happy with where the firm’s going and how it’s expanding.
NASIR: Yeah, you’re right.
We have had a lot of positive feedback and we’re also expanding the number of attorneys we have on our staff. If you’re listening, we are going to start covering non-California-specific law. And so, we’re going to start touching on Texas and New York and kind of talking about the differences.
I think, generally, if you’re listening, it’s very easy to determine the differences between each state. You just take one law. It’s always going to be more strict in California than it is going to be in Texas and New York was going to do something different or in-between. Texas is always more business-friendly, especially with the employment law issues. And so, it’s going to be fun talking about the differences there.
MATT: Yeah, it’ll be cool. I’m looking forward to it because, now, we can just answer any question. We can just pick which of the states are easiest and answer in that – unless they tell us where they’re located. If they don’t, it’ll be a lot easier.
NASIR: I like that idea.
MATT: Let’s get into another. Like I said, at the beginning of every year, there’s always new laws that go into effect or new things that go into effect and one is a lot of times, at least in some states, minimum wage.
I know, in California, it went up from $8.00 an hour to $9.00 and I think it’s slated to go up to $10.00 in 2016.
NASIR: I think, at that time, we’re set to be the highest in the nation. It’s probably the most controversial topic in the last quarter in politics about raising the minimum wage and the effect that it has. There’s about 16 states now that are increasing this year. I think California doesn’t go into effect until July 1st.
There’s that, and then, also, there’s a lot of controversy because I think there was some report or story or research done where they showed that a lot of McDonald’s or Walmart employees – the ones that are being paid minimum wage – tend to have some kind of public assistance. And so, the argument is that, because the minimum wage is so low, so-called, that somehow the government is subsidizing McDonald’s and Walmart employees. There may be an argument there – or not – and I think minimum wage is a very controversial subject in general. But, also, for small businesses that do depend upon minimum wage workers, any kind of increase is definitely going to have a huge effect and, obviously, I’m sure our listeners that have minimum wage workers are already aware of these changes because it definitely affects their bottom line directly.
MATT: Yeah, that’s kind of what I wanted to get into – some of these consequences of raising the minimum wage. There’d be some things that you would think about. Some of these smaller businesses they rely on this cheaper labor, hire minimum wage. Maybe you need to hire another employee and you can’t because it’s too much of a labor expense or now you’ve taken on too much and you have to let someone go which is even worse. Those are just some of the hiring and firing consequences of a higher minimum wage. Hopefully, raising the minimum wage correlates to making more money as well, but you never know.
NASIR: The biggest proponents of minimum wage increases argue that, not only will it increase the standard of living, but those employees that are now making more money will spend it. And so, therefore will be used to stimulate the economy whereas maybe those that are more wealthy are less likely to use that same money to stimulate the economy. That’s an argument to be made.
It’s hard to pick a side here because, obviously, we have clients that depend upon this issue. For them, it can be hard to accept that all of a sudden there are labor costs – which is usually the biggest expense of their business – is going to be increasing by almost 10 percent with a dollar more.
MATT: I guess I’m in favor of raising it. In California, raising it from $8.00 to $9.00 – I guess overtime can be a pretty big expense, but it’s not a crazy amount. I guess why I’m in favor of it is I worked minimum wage before. I had minimum wage jobs. It’s just not making that much money. Mine was much less than $9.00.
NASIR: And I think that’s the biggest issue. If you get paid minimum wage, then I think the federal minimum wage is about $7.00 and that’s below the poverty line – assuming you work 40 hours a week. That’s unfortunate for those that have to depend upon that rate.
MATT: Yeah, and I guess I’m thinking about it more, you know, obviously, the older you are, the more important this is. At least my idea, when I was younger, you know, as a teenager – I’m not a teenager anymore, for those that don’t know me personally – when I was a teenager, I was making minimum wage, but I was fine with it. I mean, I guess I wasn’t fine, but I was okay with it. I thought that was just kind of what you had to do. You had to work your way up. I wasn’t expecting to make a lot of money. I was working a cash register. I was flipping pizzas. It’s not like this is work that requires a ton of skill or knowledge other than math and pizza-making.
NASIR: Exactly.
But then, of course, now that you’re a grownup outside of the teenage years, if you were being paid minimum wage, it’d be very difficult.
MATT: Huge deal. Like you said, if you worked 40 hours a week at the minimum wage – I think this is the federal, I think it’s $7.25 – you’d be $50.00 below the national poverty line which is crazy.
Just to let you know, that in 2016 Washington DC is going to be $11.50 an hour. It will be higher than California.
NASIR: Oh! I didn’t even realize that. I knew when California passed the minimum wage increase, we were scheduled to be the highest, but $11.50 is, and that’s specific to DC. Also, by the way, there’s also cities – for example, even in California, San Francisco, and is it Fresno? Maybe another city that had their own specific minimum wages that is higher than the states.
MATT: Right, and I think there’s another thing in Seattle where it got approved for $15.00 minimum wage.
NASIR: Really? Wow! But that obviously has to do with the standard of living in the area because, if you got paid $7.25 in San Francisco, I don’t think you could afford any place to live in a pretty wide vicinity.
MATT: I know some people that make good money there and they struggle to find a place.
NASIR: I just saw that $7.25 is $15,000 annually. Just keep that in mind when you pay your taxes this year coming up in April and you put your gross revenue on compared to $15,000. That’s a big difference for a lot of people.
MATT: Right.
NASIR: I wonder if we’re going to get some feedback from our listeners because, obviously, our listeners are business owners and I’m sure they’re going to have their own opinion or maybe some disagreements from our perspective on that minimum wage issue.
MATT: Well, they’re free to email us and let us know what they think. We can assess those arguments when they come in.
NASIR: Well, only the ones that agree with us, and then we’ll just filter out the other ones.
Freedom of speech!
MATT: Real quick on freedom of speech, I just want to hit on that, I don’t know if you saw the Facebook
“Like” button now falls under freedom of speech. Did you see that?
NASIR: Yeah, there was a case this year. I remember when it came out, it got a little bit of coverage, but not that much, and the idea was – was the person being fired because he liked something?
MATT: Liked the competitor.
NASIR: Yeah, and some people say, “Well, is clicking on a like button an expression of freedom of speech?” and I think it was pretty obvious that it is because freedom of speech is not just saying something. It could also be an expression that’s demonstrated in other ways, too.
MATT: Right. Okay.
We’ll get into the last question.
“I am in an HR software business and I want to expand internationally. What specific provisions – if any – should I include in my contracts for international clients that I don’t have for US clients?”
NASIR: Hmm. I know a lot of companies that may have an international product or a product that is able to be consumed by anyone in the world. They may be anxious to expand to other countries, but it’s not as easy as it seems. Of course, you could put your own provisions in there, but I think, no matter what, there’s going to be difficulties in some countries and it’s on a case-by-case basis.
For example, we could put in a venue clause. If there’s any kind of controversy between you and your customers and so forth that the laws of the United States or a specific state in the United States is applied. But just because you have that in there doesn’t mean that a country overseas is going to enforce that provision.
MATT: Right. Choice of law is an issue there. They didn’t tell us where they were going to be doing business internationally, but there’s going to be things specific to the countries that they’re working with, too. Or there can be.
If you’re dealing with countries that are in the EU, there’s certain laws that have to be followed. I know there’s the 1995 EU Directive on Data Protection which prohibits transfer of personal data to a non-EU country which is something you wouldn’t know possibly if you didn’t look into it beforehand.
NASIR: All the privacy laws.
A lot of international companies – specifically Facebook and Google – have had a lot of problems operating in EU countries because of privacy issues but also their intellectual property in a sense that what’s definitely a protected intellectual property in the United States is not in the EU. And so, this has been something to consider. But, also, keep in mind that a lot of these big companies operate and have entities that are actually operating in these countries.
So, this person asking the question, they have an HR software business, and I assume it’s just more of an accounting or back office operation software, not necessarily advising them on the law. But, if that’s the case, when they’re working with international clients, if you’re having a US base and doing contracts overseas, keep in mind, the fact that you’re not there and in presence in the country – whether it’s by entity or not – you’ll have limitations on how much you can enforce your provisions and you have to be willing, if you want to operate in another country, to move substantial operations to that country. You know, have some boots on the ground, so to speak.
MATT: Yeah, and you’ve got to be careful, too. If you’re a US company working with countries that don’t speak English necessarily, that’s a whole other issue that I guess could be touched on as its own subject, but that’s a huge hurdle that needs to be overcome sometimes because you still have to have that mutual meeting of the minds with the contract. If it’s in one language and maybe the terms aren’t translated in the correct way, then there might be an issue with that.
NASIR: Yeah. And, if there’s an issue, they’ll go to their home court and probably have an advantage over you for that.
For example, we have some clients doing some business in Brazil and the contract was both in Portuguese and English – not Spanish because they don’t speak Spanish in Brazil. They speak Portuguese.
So, when we did that, there was also provisions in there that California law would apply. But we knew very well that there’s a big risk that, if there is some kind of controversy, that they could easily bring their case to Brazilian court and our clients would have to, in order to properly defend in there. And so, just to get a little specific, we ended up creating a separate entity in Brazil to make sure that we can appear and represent ourselves and have the contract through the Brazilian company and that was owned wholly by a California entity as well.
MATT: There’s just a lot of things that you need to consider than just drafting the normal contract here between two US clients.
NASIR: But it’s doable. I would just go country by country. I wouldn’t say, “Okay, now we’re worldwide.” Take it step by step.
MATT: Yeah, right. That’s definitely the way to go.
Last thing here for this show. I don’t know if you saw this. There’s a lot of backlash against Uber. I know we’ve definitely talked about Uber on this podcast before. I’m an Uber user myself at times. But I guess they have this thing they call surge pricing. For those of you that don’t know Uber, it’s basically a taxicab service, but you request a car from where you’re at and the car comes and picks you up. You can track to see how close it is to you and it just does it all automatically through your credit card. It’s very easy and simple.
But, I guess, on New Year’s Eve, they had all this surge pricing and people were just getting price-gouged like crazy for way more than what they should have paid. I know people who were paying, one example, $350 for just a few miles because there was just multiples of what it normally would have to pay.
It’s an economics issue. It’s supply and demand. I guess that’s what Uber’s argument is.
NASIR: Does the driver get that money? I assume they get some of that money, right?
If it’s a more expensive fare, then the driver gets paid more, right?
MATT: Right. I would assume the driver gets a percent of whatever they do and then Uber gets a percent and that’s how they make money.
NASIR: You know what? Uber’s in trouble on New Year’s Eve for other reasons, too. This was going to be inevitable, right?
There was a car accident. I can’t remember where. I don’t know if you read this story.
MATT: Oh, yeah, San Francisco, I think.
NASIR: San Francisco? Okay.
One of the drivers got into an accident and I don’t know if the person died. There was definitely a serious injury. The news story picked up that they reported that the driver who was the cause of the accident was an Uber driver. Uber, I think, gave a statement saying that that person is in our system as an Uber driver. However, they weren’t on a fare at the time. I’m not sure if there is legal liability there, but that’s definitely I’m sure something they have considered as a consideration to a legal risk.
MATT: That was going to happen at some point. There was going to be some sort of big issue like that. I was approaching this more from a relations standpoint. It just seemed like there’s such a backlash of the amount of money that some people are paying for these rides that were typically a fraction of what they would normally pay if they took the same route right now.
NASIR: Hold on. They know how much they’re going to pay though, right?
MATT: Yeah.
NASIR: It’s not like it was a secret.
MATT: That was a thing, and that’s why Uber is getting around. They had to check. You request a ride and it says, for example, this is surge pricing or this is a high-requested time, so you must agree to 2.75 times more than the typical price, and people were just doing it, and then they’re complaining about it later.
How Uber works as well is you don’t know how much you’re paying. There’s no meter inside the cars. You get out of the car and then it sends a receipt to your email and that’s it.
NASIR: Okay. So, it gives you a general idea. Same with a taxicab. When you get into a taxicab, usually, they don’t give you a flat rate. I assume it’s based upon distance, right?
MATT: Yeah, it’s based upon distance, but at least you can see if your rate is going up like crazy and you could get out and maybe wait a little bit until the pricing died down. With Uber, you just get in and you have no idea how much you’re going to pay until later.
NASIR: I see. Okay. Well, I can understand, I guess, how people would be upset about that, and I’m sure there’s a way to fix that from a technological point of view. It would be nice to know exactly what my total bill is. But, at the same time, they disclosed it. it’s just, I assume, when you’re out late on New Year’s Eve, I don’t think people are really good at math and to estimating how much things cost either. So, that might be part of the frustration.
MATT: That’s what some of the people write. Like, “I woke up to this bill.” It’s like, “Well, that pretty much tells me all I need to know right there, I think.”
NASIR: Exactly, because you get it right away. It’s not as if you have to wait that long.
MATT: In the times I’ve done it, maybe it’s been delayed a little bit, but it’s usually a couple of minutes after you get out of the car.
NASIR: All right. Well, that’s our show, right? 2014, 2013’s over. Welcome to the new year!
Are you going to try out a new closing for the year? What’s it going to be?
MATT: Yeah, I don’t know. I listened to the last episode and I didn’t like it. It’s very difficult for me to come up with something. I put more thought into it, but everything I come up with still sounds cheesy. So, I’m going to keep the same one I have until I come up with a better one.
NASIR: What was the other one? Be smart?
MATT: “Keep it sound and keep it smart.”
NASIR: Maybe something like, “Keep it legal and keep it business”?
MATT: You’re just taking the other words from the title of the podcast.
NASIR: I’m not that creative, so I’m just going based upon you. So, I don’t know.
Well, I’ll make that my closing.
“Keep it business and keep it legal.”
“Keep it legal and keep it business.”
And we’ll see you next week!
MATT: Yeah, keep it sound and keep it smart!
NASIR: Have a good one!

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