The FTC Has Officially Banned Noncompetes Nationwide
This week, the Federal Trade Comission announced a new ruling banning noncompete agreements between employers and employees. In today’s blog, we look at the ruling and what it might mean for your business.
On Tuesday, April 23rd, 2024, The Federal Trade Commission announced they were issuing a final rule banning noncompetes nationwide. The ruling comes over a year after the FTC initially announced they were considering the ban.
Reasons Behind the Ruling
According to FTC chair, Lina M. Khan, “Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned.”
Essentially, the FTC determined that these sorts of clauses are generally exploitative and tend to only provide a benefit to employers while putting undo restrictions and burdens on employees. The FTC cited examples such as employees being required to relocate to a new area or take a position in a lower paying field as evidence of the types of issues employees subject to a noncompete face.
These agreements currently affect around 18% of the U.S workforce, and the FTC anticipates that removing these restrictions could lead to a 2.7% growth in new business formations, as well as estimated earnings increases of around $524 per year for workers. Additionally, they anticipate that there will be lower health care costs as a result.
What Does this Mean for Businesses?
Under this ruling, all existing noncompetes become “essentially unenforceable,” with companies being banned from entering new noncompetes. The exception to this rule is that existing noncompete agreements with senior executives can remain in effect.
Additionally, it’s important to note that the wording of this ruling only applies to agreements between workers and employers. This means that noncompete agreements between a buyer and seller of a business entity are exempt from this ruling as well.
One important thing to note is that businesses concerned about keeping information from competitors can still use trade secret laws and non-disclosure agreements to keep this information from competitors.
Given that many employees who are subject to a noncompete clause are typically also subject to an NDA there should be comparatively little impact on business operations or trade secrets despite the ruling.
The final thing to note is that the ruling will go into effect 120 days after publication in the federal registrar.
What You may Need to do
As mentioned above, the FTC is attempting to ensure that this ruling is easy to comply with. According to their announcement, employers merely have to notify their employees that they will no longer be enforcing noncompetes against them. If you are a business owner that needs to do this, their announcement provides model language that you can use.
There are no other required steps as far as the ruling goes, but you may want to ensure that any employees that are privy to sensitive proprietary information have an NDA in place, and that you remain up to date with all trade secret laws that may apply to ensure that your company’s assets are protected.
If you need assistance with any aspect of this ruling Seck & Associates can help with our 15+ years of helping entrepreneurs navigate changes such as these.* Have questions? Please do not hesitate to reach out today.
* The choice of a lawyer is an important decision and should not be based solely upon advertisements
* Correction: The original post was missing the link attribution to the original announcement.
Successor Corporations
A successor corporation is a new business that arises out of a prior existing one. It is important to keep in mind that taking over another business can leave the new business open to liabilities. It may be in your best interests to work with a business lawyer if you wish to create a successor corporation.
A successor corporation is a new business that arises out of a prior existing one. It is important to keep in mind that taking over another business can leave the new business open to liabilities. It may be in your best interests to work with a business lawyer if you wish to create a successor corporation.
How Successor Corporations Occur
In the majority of cases a successor corporation is created through an acquisition or merger. By taking over the existing corporation a new business entity is created. Your company may purchase another business, and in the process create a new name and identity. The terms of the agreement will mean that the property, financial assets, obligations and equipment become the property of the new company. Ideas, knowledge and contacts that were held by the former corporation also become the property of the new one.
Be Careful When You Acquire a Business
You need to be clear on the fact that by taking over an existing business you accept its assets, but also its liabilities. It is often the case that a company will try to escape liabilities such as tax obligations through a merger with another company. If you are not aware of the company’s liabilities prior to the acquisition you may be left with being obligated to repay these liabilities. You might have recourse through a lawsuit, but the court may decide that by accepting the merger you should have been aware of any liabilities, and therefore they are yours to repay.
When a business that is seeking to acquire another does become aware of existing liabilities, this can often disrupt negotiations. You should be aware also that if an individual or entity was seeking to sue the former corporation, your company may become the subject of the lawsuit and be liable for paying damages.
If You Are Seeking to Create a Successor Corporation
Acquiring a business can lead to unexpected liabilities if you are not careful. It is important that you hire a business lawyer who can help you unveil any information about the business that is the object of your acquisition. Call Seck & Associates today to arrange a consultation at (913) 815-8481.
The Series LLC: Is a Series LLC right for your business?
The series limited liability company ("LLC") is a relatively new way to organize business ownership. The series LLC has all of the benefits of a traditional LLC, such as flexibility and limited liability, with some added benefits that may appeal to your business such as the potential for a reduction in administrative costs and the further isolation of liabilities.
The series limited liability company ("LLC") is a relatively new way to organize business ownership. The series LLC has all of the benefits of a traditional LLC, such as flexibility and limited liability, with some added benefits that may appeal to your business such as the potential for a reduction in administrative costs and the further isolation of liabilities.
The series LLC is a group of mini LLCs all under one master LLC. This is a very similar concept to a parent corporation with many subsidiaries. Each mini LLC is independent from the other mini LLCs because each mini LLC has its own members, is only liable for its own debts and obligations, and can hold its own assets. The master LLC acts like an umbrella LLC or a holding company that controls all of the mini LLCs in the series. The series LLC started in Delaware and eventually became recognized as an entity type in Kansas and Missouri.
A series LLC is ideal for someone who wants to form multiple LLCs within one large conglomerate without changing the function or business operations of each individual LLC. This is common for real estate investors or property management companies with multiple properties. A series LLC could also be used for a business with several different divisions or product lines. Each division could be its own mini LLC, thereby separating or limiting the liability to each division. Because each mini LLC is its own legal entity, each mini LLC must maintain separate corporate formalities such as a separate corporate book and its own financial accounts.
Not all states recognize the series LLC and formation procedures vary among the states that do. To form a series LLC in Kansas, the members must file Articles of Organization for the master LLC and then obtain a Series Limited Liability Company Certificate of Designation for each of the mini LLCs. The master LLC’s operating agreement must be carefully drafted to ensure that (i) a series LLC is specifically permitted and (ii) each mini LLC has limited liability (i.e. only liable for liaiblities within the mini LLC).
To form a series LLC in Missouri, the members must file Articles of Organization for the master LLC and then file Form LLC 1A for each mini LLC. Similar to Kansas, the master LLC’s operating agreement must be carefully drafted to ensure that (i) a series LLC is specifically permitted; (ii) each mini LLC has limited liability (i.e. only liable for liaiblities within the mini LLC); (iii) each mini LLC must keep separate records, and (iv) the assets of each mini LLC must be accounted for separately.
Aside from isolating liabilities, a series LLC has other benefits such as potential reduced startup and administration costs. In Kansas, the filing fee for forming a stand-alone LLC is $160, whereas the filing fee for a master LLC is $250 and each mini LLC $100. Thus, filing for one master LLC and two mini LLCs in a series would be $450 compared to filing three separate stand-alone LLCs which would cost $480. Additionally, Kansas requires ongoing administrative filing requirements for each LLC. However, a series LLC only needs to file one annual report for the master LLC and mini LLC, rather than separate reports for each LLC.
Because Kansas only authorized the series LLC in July 2012 and Missouri only authorized the series LLC in August 2013, Missouri and Kansas have not clarified whether series LLC owners can file one consolidated tax return or whether each LLC must file a separate tax return. Anyone contemplating forming a series LLC should consult their tax advisor about the tax implications applicable to their business. For more information on the series LLC or to see if it is right for your business contact Sheila Seck at 913-815-8485 or sseck@seckassociates.com.