What to Include in Buy-Sell Agreements

December 3, 2015

What are some typical things that go into a buy-sell agreement?

There are several components that will go into a written buy-sell agreement. Part of what goes into the agreement will be dependent on the type of agreement it is. Items such as whether it will be a cross-purchase or an entity agreement, how the company is set up in terms of company structure and tax implications will have an impact as to how the plan is written. Below are some components that will be included in every agreement.

One of the things that go into every buy-sell arrangement is a means of valuation. The valuation method will be what determines the value on which all terms and conditions for a buyout will depend. The valuation model takes care of any disagreements or debate about what one stakeholder or heir of a stakeholder believes the value of one’s stake in a company may be. There will be no debate, the value will be predetermined so that the mechanisms and terms under which the actual buy sell operates will move forward smoothly. Some common valuation models one would find in a buy-sell include an ‘agreed value’ model where the company ownership in conjunction with corporate accountants will come to an agreed upon price. This pricing model would be revisited at times, typically annually, to reset the valuation. An ‘appraisal method’ is a valuation method where an independent valuation specialist would provide a valuation. The written agreement can dictate who would do the work, if there would be more than one person doing the evaluation and set in motion parameters if there were to be disagreements or large discrepancies. Say you had two evaluators pricing the company and each set of numbers were way off from one another. The agreement could stipulate a third valuation be done and an average of the three be the agreed value. A third common model is a ‘formula model’ where the valuation is based on an agreed upon valuation formula such as simple book value or adjusted book value.

Triggers for a buyout are also a standard component that goes into a buy-sell agreement, common triggers include death, disability and retirement. Some secondary triggers that can and should be considered would be an owner quitting the company or a shareholder actually being fired. The triggers set forth will do exactly what it is stated to do, trigger the terms of the buy-sell should any of the stated events in the agreement come to pass.

Obligations on the parties part will be a mandatory component of the agreement. The obligations lay out each parties responsibilities once a trigger is triggered. One such example would be in the case of the death of an owner. Obligations on the part of ownership will typically dictate that a deceased owners share will be purchased back into the company and distributed evenly amongst surviving ownership. Based on valuation models, the value of the deceased owners stake in a company would be paid for and the proceeds distributed to the estate, next of kin, what have you.

Circumstances such as disability or retirement would trigger other contractual functions to occur. Such functions would dictate buyout terms for the exiting owner as well as financing triggers such as disability buy-sell insurance policies. These obligations would be laid out in the written agreement and ultimately redistribute the shares to ongoing ownership. If a shareholder quit the company, or worse yet is fired, this is really where the language of the agreement becomes important. If certain parameters are not discussed or alluded to, it can become a messy divorce.

It’s one thing if someone is leaving the company to go do something else entirely from what the existing company does, but what if the quitting owner is leaving to start their own company as a competitor or leaving for an existing competitors firm? You’d have some serious conflicting issues there. If there is a need to outright fire someone who is a stakeholder? Those are some real fireworks. Too often this can lead to the downfall of a company if processes are not set in place in order to get ahead of such things. Obligations on the part of existing and outgoing owners in these scenarios need to be agreed to in writing beforehand. No crossing the bridge when you get there, no handshake agreement. Do it in writing, do it early.

Tax Implications and Financing

A couple of very important aspects that will be part of the agreement or be part and parcel to making the agreement work properly will be the tax implications and financing. The tax issues will revolve around the structure of the company be it sole prop, S or C-Corp, or LLC. Make sure any agreement and financing method is reviewed by qualified tax consultants to see that no landmines go off should an agreement be triggered. The most common method of funding is through insurance. In cases of death and disability, life and disability insurance policies will tend to be the financing method. Such events will trigger the insurance so as to provide funds to the appropriate entities and complete the buy/sell process. In instances such as retirement or buyout of a stakeholder leaving the company where insurance doesn’t apply, terms are financed through other types of financing mechanisms such as bank loans or installment purchase agreements.

Contact BIBSMA

So here comes the shameless plug. If your company is in need of such an arrangement feel free to reach out.

Nathan Therrien
Founder
Business Insurance & Benefits Services of MA
978-400-7014
[email protected]
https://bibsma.com

Life Insurance for Startup Founders

September 24, 2015

When should a startup buy life insurance for its founders?

Life insurance for founders in a startup is going to become an important factor for a company at some point of the lifecycle. If such a company is still considered a bootstrapping startup, it may be a little premature. The question here is when should a startup purchase such things. From a bootstrapping startup perspective, my answer would be ‘when your hand is forced’.

The most common ‘when’ will be when securing a VC round. Quite often there will be a couple of prerequisites to finishing off a deal and getting the cash. Two of these prerequisites often include taking on some form of insurance. One is procuring Directors and Officers coverage, the second is getting key-man coverage on certain people in the company.

A VC or private equity entity will want to see that the company they are investing in will be protected if something were to happen to a key person or people. In many cases this will involve the founders. Founders will typically have particular experience or knowledge that makes then invaluable to the future of a company. VC’s will want to mitigate the risk against the death of such a key person with this type of coverage.

From the standpoint of a company that is not a bootstrapping startup, I would suggest the time frame is ‘when you can afford it’. If your hand isn’t being forced, it will still be important to secure your company against losing a key person as explained. You will also want to secure the company against ownership issues that arise from the death of an owner. This is where a funded buy/sell agreement comes into play. Life insurance is the primary funding mechanism toward this end.

Buy/Sell agreements are a key component to protecting the company and its ownership in the event of a death of a founder, allowing for the seamless transition of ownership should such an event occur. That said, if yours is a startup company with little or no dollar value attached, you don’t really doesn’t need to spend the too many resources here immediately. Once a company gets out of bootstrapping mode, gets some traction and revenue and has the resources to pay for the funding that goes along with a buy/sell, go ahead and do it. This also goes for key-man coverage. If you’re not having your hand forced, wait until you’re ready and then implement such coverage when the company has the resources.

Insurance brokers will almost always tell you that both is a must. Frankly the buy/sell is more of a must in my mind but that doesn’t mean the key-man isn’t important. Just be sure the timing is on your side if you can control such aspects.

Networking events: Some pointers to help navigate and maximize your time and effort

January 1, 2015

Do your homework.

In Boston, there are so many networking events out there it can become a blur. If you wanted to you could literally go to a professional networking event, mixer, forum, fireside chat or any number of events every day of the week. You’ll never get to all of them, and you shouldn’t try. If networking is going to be a part of your marketing plan, then you need a roadmap. Are you looking to cast as large a net as possible or trying to focus in on a certain industry or segment? Does a large room full to the rafters make for a good environment for you or something a little more low key and intimate?

This speaks to two questions you need to answer, who are you trying to meet and what kind of environment is you best suited to?

For my purposes, I steer toward startup related tech events and I like a big room full of people. This speaks to the audience I want to meet and what makes me comfortable. I deal primarily with technology startups in my business. Over the course of time, I’ve been able to find the nicheier (I might have just made up a word there) events in town. It didn’t start that way. First it started with more generic chamber of commerce events, wide net stuff with a little bit of everything. Over time I was able to break down and target my audience and then find those events. If you can do the same thing quickly you can save yourself a lot of time.

The second question of environment plays a big role as well. I like a bigger room because it allows me to blend in a little more, especially if I don’t know anyone and I just hang back a bit. It’s easier to do that in a room with 150 people than in a room of 15, that’s just me. Some people may be intimidated by a big crowd full of strangers, especially a big crowd where a lot of folks already seem to know each other. In this case you may want to find smaller events with more structure than just an open networking session. The structure can keep the ‘it’s a zoo in here’ mentality at bay and simply be a less intimidating event environment.

Have a goal.

When you go into a networking event, don’t go in without having a goal in mind. If you go into an event with the goal of ‘I’m going to meet everyone there’, you can go that route. It better be a smaller event and it better be geared toward your favored audience.

A better way to go would be along the lines of ‘I want to meet 3 new people tonight’ or ‘I want to meet at least one person who would make a good strategic relationship’. The best events I see are those that  have a registration list. This is a huge tool and a leg up if you take the time to use it. Such a list will allow you to narrow down your focus more. Instead of ‘I want to meet 3 new people’ you can put together a list of 3 specific individuals.

Point being, have a game plan going into an event, have an idea as to what you want to accomplish and go execute.

Introduce yourself, then make an introduction.

Some people I know that are fantastic networkers do this. If they meet someone at an event, especially if it is someone that they have never met before, they will have a conversation. During that conversation these really good networkers will pull someone else into their conversation and introduce that new person.

It does a few things. It establishes credibility that you are not just there for yourself but are there to help other people. This extends not only to a person you have just met but also to the 3rd person who just got introduced to someone new. I know this works because I’ve been the guy having a conversation with such a networker and that someone introduces me to a 3rd person brought into the conversation. I’ve also been the 3rd person. There have been multiple instances in both situations where I have been able to establish worthwhile business relationships.

Take it upon yourself to introduce yourself and introduce others.

What can you do for others?  

A big mistake people make is to go into a networking event only looking for what they can get out of it for themselves. It’s the old ‘givers gain’ approach, and it works a whole lot better than most approaches. When you see posts similar to this giving advice on how to approach a networking event, one item that you will see again and again is don’t sell. Don’t go into an event looking to pitch everyone you see and try to sell them. If you are going to network, the likelihood is that most of the people you will meet will be people you have never met before. I don’t know anyone who likes to be sold, even less so by a stranger.

Networking is about establishing relationships, that means building some trust and that means not pitching every person you come across. The hopeless approach, and I’ve seen this, is to go in with your polished pitch, try to sell everyone in the joint, get nowhere, say it was a waste of time, stop networking entirely. Awful, just awful.

One of the better networkers I know says two things when he meets someone new at an event. After introducing himself he says ‘what can I do for you/how can I be of help to you’ and ‘who can I help you meet’? I run an event myself, and if you’ve been, you may know who I’m talking about (looking at you Stevie Z). It’s a great approach, it’s not salesy, it’s helpful. It’s an honest attempt at trying to help someone out that you haven’t met before. People remember that. It builds trust more quickly and effectively than another stale sales pitch.

I have been steered toward quite a few valuable resources by this gentleman because he doesn’t just do it once, he says the same thing to me every time I see him. And you know what? I leverage the heck out of him because his contacts are fantastic. Think I won’t try to help him out the next time I get an opportunity?

This last point is probably the best piece of advice I’d have for someone navigating networking events. See how you can help out others, and then go out of your way to do it. Your chance to pitch will come. You won’t even have to because others will be looking out for you so long as they know what you bring to the table. Let people know what you do and what your capabilities are, but leave the sales pitch at the door.

Get a buy-sell arrangement done (part two)

December 21, 2014

Avoid the horror show, get a buy-sell arrangement done (part two)

In part one of this two part post, I wrote about buy-sell arrangements and how that will protect business partners against the unexpected death of one of their own. Circumstances that come with the death of a partner can vary, but in the end, surviving owners need to be concerned with people and entities that will have competing interests if such folks wind up with the the decedents ownership stake in the company.

In this part of the blog we will tackle what happens if a partner in a company becomes disabled. In an instance such as this, the dynamics change. In the event of a partners passing, co-owners would need to deal with outside parties. In the event of a disability, you’re not dealing with outside parties, you’re dealing with your cofounder or partner. This is going to change the way things are treated.

A disability to a co-owner can create some uncomfortable problems if the event is severe enough. What if such an event is bad enough that a co-owner can no longer work at all? Maybe worse than that, what if you have to break the news that while a partner may feel he or she is good to go, they just can pull the weight anymore?

To start, we will discuss the worst case scenario, a permanent disability that simply will not allow one to work in the business anymore. Over the course of one’s working career, the chances of suffering a disability versus the chances of dying are about 3.5 to 1. In your younger days, that ratio is higher and as you age that ratio decreases. Given the chances of such an occurrence, the need for disability as part of a buy/sell arrangement becomes pretty clear.

So what happens? In the event of total disability, the disability buy/sell arrangement will dictate a process, a valuation model and if done properly, a funding method using disability insurance to fund the buyout. Within a complete corporate buy/sell arrangement, there will be a component in the event that a disability that will not allow for a partner to continue in such a capacity. Should this occur, it would trigger the terms of a buyout per the terms of the arrangement. For funding purposes, disability buy/sell insurance coverage should be put in place in order to finance the arrangement. Without the insurance proceeds, one partner would have to either have cash on hand, or raise the funds independently to finance the buyout.

Short of that, what you have is one partner running a business with a second partner simply along for the ride. Not the scenario the partner running the show at that point would feel to be fair to him or her.

What if there is no total disability? What if it isn’t permanent and all parties feel that the owner will fully recover and be able to return to work? This is where Disability Key-Man coverage comes into play. This becomes the middle ground that will cover a company for the expenses incurred while a key person is out on disability. It should be tailored to sufficiently stabilize the company while determinations can be made regarding an employee return or ultimately replacing said key person. This issue is more complex than the brief description given here and will be explored more completely in a different blog post.

The disability recovery scenario is why most buyout triggers of a buy/sell agreement dictate that a partner be deemed totally disabled and that a long probationary, typically 12 months, be subject to the triggering of a buyout. A business owner will not be too quick to hand over a stake in a business if he or she were to believe that they will be able to recover from an incident. Quite frankly, a business owner may plain and simple never give up the stake regardless…unless there is a preset arrangement with parameters in place.

As a disabled owner, without a formal agreement there is nothing forcing the issue to trigger a buyout. A disabled owner could set their own price that a co-owner doesn’t agree with or is simply an unfair valuation. A disabled owner could go out in the open market and find another buyer to take over their stake if he were to find someone other than a co-owner to meet his price. Where does that leave the healthy partner? Without the arrangement set in stone, one could be looking at running the company essentially by himself, a new business partner, and if things come to a head, the disillusion of the company entirely.

It doesn’t need to happen and both parties owe it to themselves to get ahead of such things. When an instance such as a disability occurs and the potential impact of business becomes an issue, egos and feelings get involved, that helps no one. Take it out of the equation now.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]

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4 types of insurance your startup is going to need.

December 18, 2014

4 types of insurance your startup is going to need.

Workers Compensation Insurance. Ok, this one is easy. The state pretty much mandates that you have this type of insurance coverage in place once you hire your first employee. It is going to be fairly inexpensive if you consider that you would only be paying for coverage on one employee or perhaps the owners of a company based on how the company is set up to start with.

General Liability. Most people will think of this as the ‘slip and fall’ insurance. It’s true, it is slip and fall insurance, but there is quite a bit more in there which is why general liability would be better described as your ’bread and butter’ insurance. This kind of coverage represents the foundation of protection for your company.

Aspects of this type of coverage include advertising and personal injury. This will cover you if you screw up some of your advertising at someone’s expense. You may slander someone or violate intellectual property such as trademarks or copyrights. Products and Completed Operations coverage is also part of General Liability. If you sell an actual product, this is where your coverage lies if that product were to fail, or if it injured someone. There is of course the ‘slip and fall’ scenario where someone walks in your office and takes a spill because someone dropped a coffee on the floor.

Most of the time, the trigger for this type of coverage for a startup will be a move into a commercial space or the need to settle up with a vendor contract.

Professional Liability. This is where you get a little more specialized. If you work in some kind of services arena or in a technical space, you will likely need this. Professional Liability coverage covers a firm if there was any sort of claim that stemmed from the normal operations of one’s business. Pretty much this is the coverage that would protect your company from damages that stem from a mistake made by you for work done for another party. If an insurance brokers screws up someone’s insurance, that is a mistake that stems from the normal day to day operation of the broker. The act was done within the confines of his or her profession.

This type of coverage extends to all aspects of services, doctors, lawyers, on and on. Technology has its own subset called Tech E&O which specializes coverage around that industry and its specific needs such a cyber and breach protections.

General Liability goes hand in hand with professional. If you only have one, you may have a big gap in your exposure.

Directors and Officers. This is a bit next level, but in this day and age it is becoming more and more of a requirement rather than an ancillary coverage. Directors and Officers coverage covers officers of a firm for damages that stem from actions taken as a matter of management of that firm. A good example is stakeholders of a company taking issue with a strategic direction. If the CEO does X instead of Y and a stakeholder is caused damage, that stakeholder can sue the company officer. Not the company mind you, the officer. That can leave a big personal exposure of you are not protected.

An important component that goes hand in hand with D&O coverage is EPLI (Employment Practices Liability Insurance). It’s become more and more common that lawsuits against company officers don’t come from the outside, they come internally from employees, or more to the point, former employees. Claims such as harassment, discrimination and retaliation are common causes of employment claims where an employee will file suit naming not only a company but also officers.

D&O coverage has become more and more necessary to insulate yourself as an officer of a company. Some feel they don’t need it or it will never happen to them or just don’t see the risk….they would be wrong. It’s a litigious word we live in. Don’t get hung out to dry.

If your a company that has reached any of these points and can use some guidance, feel free to reach out to us, we’re here to help. You can use the form below or contact Nathan Therrien directly at 978-400-7014 or by e-mail at [email protected]

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Get a buy-sell arrangement done (part one)

December 2, 2014

Avoid the horror show, get a buy-sell arrangement done (part one)

Small business owners have enough on their mind, but some things just need to get taken care of. If you are an owner of a company with at least one partner, a buy-sell arrangement is one of those things. Buy-sell arrangements are the legally binding framework and roadmap to the divesting on an owners stake in a business depending on a variety of factors. For the purposes of this blog post we will be focusing primarily on the death of an owner.

One of the most important reasons to get a buy-sell arrangement done is to protect owners against a worst case scenario, the untimely death of a partner. It’s a tragic consequence when this occurs, and something that becomes a life altering event when it happens on a lot of levels. When it includes an ownership stake in a company with other partners, that consequence involves that many more people. It is unfortunate that such an event can trigger the dissolution of a company unless steps and a process are in place.

When such an occurrence takes place there is going to be an issue with the estate and heirs of the deceased owner. What comes next without a plan in place can be ugly, especially if the company does not have a set valuation process and means to fund a buyout. Without an arrangement, the owner’s stake is going to pass to the owners heirs or estate. Without an arrangement in place, surviving owners have a couple of options, neither good nor practical.

On one hand, the surviving owners can establish their own means of funding in order to buyout the deceased owner’s heirs. There are two problems here, first is whether the surviving owners can line up that kind of financing. Surviving owners will likely need to approach a bank in order to set up the kind of financing needed to accomplish such a buyout, this may not be easy in and of itself, but what if the owners have a certain value in mind and a deceased owners heirs disagree. Maybe the heirs think the company is worth more than surviving owner say, maybe the heirs think they are being taken for a ride. It’ll be an emotional time and no place to start throwing large numbers around.

Which brings us to the second impractical option, say hello to your new partners. Now maybe the heirs of an owner are knowledgeable, reasonable people who simply want to keep the stake intact and retain ownership passed onto them as a silent partner, best of a bad situation. Worse than that is a new owner who wants to come in a turn things upside down. The husband or wife who wants to start making all the decisions or the idiot know-it-all son or daughter. This is where things go from bad to worse and makes for an untenable situation.

Either one can lead to a forced liquidation of the company in time.

Avoid it…. avoid it all. A simple buy/sell arrangement can set in stone a means to value the company, and the means to finance it. Find a good attorney with experience in drafting such a document to see to it that all the issues are covered and that any unique circumstances related to your company will be attended to. From there, purchase life insurance policies to finance a buyout in the case the death of an owner. Such an occurrence will trigger the buyout based on an agreed upon valuation in the arrangement and insurance proceeds will be used to pay for a surviving heirs company stake. The share of the deceased owner will come back into the company and distributed amongst the surviving owner per the agreement.

It doesn’t cost much to get things done and it beats having to deal with the alternative. It becomes more important the more stakeholders there are because face it… things happen, the unexpected occurs and companies need to be prepared.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]

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Deductibles, co-insurance and out-of-pocket maximums

October 26, 2014

Common question: How do deductibles, co-insurance and out-of-pocket maximums work on my insurance plan?

These are three common items associated with most company insurance health plans. They are very important because these are the primary aspects that will determine the bulk of the cost employees and their families will incur when they go to their doctors and hospitals. Let’s take them one at a time.

Medical Deductible: This is the amount that a medical plan enrollee will have to pay for certain services first before the insurance begins to kick in. Usually a medical deductible will be a set amount between $500 and $2,000 per policy year for an individual. For families, the deductible will typically double. If a deductible is $500 for an individual, it will be $1,000 for a family and so on as deductibles increase. One thing companies ought to be wary of is what the deductible applies too. Some services will be subject to the medical deductible, others may not. Most often, medical deductibles will be associated with hospitalizations and surgeries. In some plans, the deductible may be extended to emergency room visits and doctors appointments.

Co-insurance: This is the thing that I always advise companies and individuals to look out for. This is the aspect of enrollee cost that can really ramp up those costs quickly. Co-insurance is a cost that will come into play after the medical deductible is satisfied. It is a percentage split that an enrollee will be responsible for after the medical deductible. Common co-insurance amounts on a plan will run at 10 or 20 percent, in some cases higher. In a nutshell, if a company has a $500 medical deductible and a 10% co-insurance model, the enrollee would first satisfy the medical deductible. From there, whatever is left on a medical bill after the first $500, the enrollee will be responsible for 10% of that number up to an out-of-pocket maximum.

Out Of Pocket Maximum: This will represent the most an enrollee will pay for any given policy year. As with the medical deductible, the out of pocket maximum will have one number for an individual out of pocket maximum and will typically double for a family. For example, a plan with a $2,000 out of pocket maximum for an individual will have a $4,000 out of pocket maximum for a family. Co-insurance features are the things that can bring the out-of-pocket maximums into play, when you have a percentage on a large medical bill, these limits have a habit of being reached.

My experience has taught me to advise avoiding plans with co-insurance when possible. With that said, different vendors in different states will have different plans. Sometimes cost simply won’t allow for a plan that doesn’t have it.

Make sure as both employers and employees, that everyone is aware of these three factors. These will determine the true costs of your plans in terms of monthly premiums and usage costs. The one thing no one likes is a surprise that hits them in the wallet.

Can your company afford 13 mil?

October 19, 2014

Red Bull does not give us wings….so they’ll give us 13 million dollars. Can your company afford 13 mil?

In another example of litigation run amok, I give you the court recent settlement by Red Bull. Recently, the company settled a class-action lawsuit claiming false advertising. Apparently the fact that Red Bull doesn’t ‘give you wings’, or enhance your physical or mental well being, aside from a caffeine rush and a case of the shakes, didn’t sit well with some of its customers.

Red Bull has set aside 13 million dollars in funds for those that purchased the product between 2002 and 2013 in order to settle the false advertising action. $10 for each person who bought the product until the funds are exhausted. But really, did anyone with half a brain think that the product was going to live up to the advertising? I wouldn’t expect to be able to climb a mountain after a can of Red Bull and neither would ant other reasonable person.

In my humble opinion, what we have here is another example of litigious America going after a quick money grab with another frivolous lawsuit. But here’s my point, this time it happened to Red Bull, don’t think it can’t happen to your company.

When I talk to companies about insurance, sometimes a company just doesn’t see a whole lot of risk in what they do. Sometimes I think they’re right…and I’m the insurance guy. But the thing is that in this day and age, someone out there may try to take you for a ride. Sometimes the best thing insurance can do for you is cover costs to defend against a frivolous claim.

Business owners will tell me quite often that they don’t see the risks and that insurance isn’t necessary. To that, I say that if someone sued you, who’s paying your legal bill even if you know it’s BS. You’re going to need to defend lawsuits, frivolous or otherwise. If you think you’re immune, it’s the same as defending yourself in court. You have a fool for a client.

As frivolous as a case may seem, sometimes things just don’t go your way in court, or in a case like this, a settlement makes more financial sense. Make sure you have your bases covered. If you think you aren’t, feel free to contact BIBSMA and be sure.

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]

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Intellectual Property and Copyright Coverage

September 3, 2014

Do you have Intellectual Property and Copyright coverage taken care of? If not, don’t mess with the Beastie Boys.

Copyright and Trademark infringement may be a couple of things that don’t pop up on a business owners radar screen that often. For the most part smaller companies usually aren’t going to go out and seek such materials for the purposes of advertising, that’s for big companies with the budget to go out and do that kind of thing right? Just make sure that if you do wind up using material that could be in the gray area, you cover your bases.

As an example of what can happen when a company doesn’t have permission to use certain media in advertisements, I give you the Beastie Boys versus Monster Beverage (makers of Monster energy drinks). In this case, Monster was accused of copyright infringement when they used a remix of some Beastie Boys music for a promotional video. Monster had used the footage of a live DJ set perofrmed at a Monster sponsored festival.

Apparently a Monster employee misinterpreted the meaning of the word ‘dope’ in an e-mail exchange with the DJ who created the mix, interpreting this as authorization to use said media in promotional material. Needless to say, it didn’t go over well in court. You wouldn’t think the interpretation of the word ‘dope’ would be too costly, until the verdict came down. Monster Beverage was hit with a $1.7 million dollar judgment that was handed down in June.

Monster new they were caught dead to rights and had tried to negotiate the damages down. That didn’t go any better than arguing the nuances of the word ‘dope’. While the judgment will certainly be appealed and a company the size of Monster has the coverage and legal resources to fight such a decision, it serves as a cautionary tale for other companies. Make sure that your employees aren’t clearing intellectual property on your behalf, and make sure your insurances are in place to protect your company against these types of mistakes.

Oh yeah, and don’t mess with the Beasties.

Need to make sure that your company’s coverage can handle such an incidents? Leave a comment, visit our website or drop a line. If I were cooler I would end this post with a ‘Sabotage’ reference, but…..

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]

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Does my company need D&O insurance?

February 13, 2014

How do I know if my company needs D&O Insurance in Massachusetts?

Directors and Officers coverage insures against claims stemming from alleged wrongful conduct of a company directors and officers. These types of claims typically won’t be covered by other insurances such as professional or general liability coverage as some may think. Management liability coverage, which includes D&O, is its own animal and without it a business’s directors and officers may find themselves exposed in the event of a lawsuit where they can be personally named as well as their companies.

Quite often company owners figure that they will need Director and Officers coverage if they are in control of a publicly held company, or if there are stakeholders such as venture capital funding. This is true, these are situations a company may come across that would act as a trigger for management to determine a need for D&O coverage. What some fail to recognize is that just because there may not be internal or external shareholders involved in a company, it would not shield management from risks involving creditors, customers, competitors, even its own employees.

One common source of claims will stem from a company’s employees, more specifically, ex-employees. Discrimination, harassment, wrongful termination and retaliation are all claims that can be made against an employer and by extension, the directors of a company. Employment Practices Liability Insurance or EPLI, is commonly part and parcel of a broad based policy and would provide coverage against such claims.

Clients or competitors may allege misconduct on the part of directors and officers, wasting of corporate assets, allegations of theft of intellectual property, false advertising claims, antitrust… these are all aspects that can be the basis for a claim against a company’s directors and officers. There are always cases of fraud, misrepresentation and breach of fiduciary duty that are most often associated with a D&O claim. Then there is of course issues that stem from having stakeholders in your company. Should such stakeholders take issue with the decisions of management in a private or public company, litigation may ensue.

The point in all this is that there are many instances for a small company where directors and officers would need the protections of a D&O policy.

Directors are increasingly being held personally responsible for a company’s management decisions.  Claims brought against individuals can threaten both the personal wealth of such individual directors & officers and the financial viability a company.

In some cases, companies are obligated to indemnify directors and officers in such events. Many companies’ articles of association stipulate that the directors and officers will be indemnified in certain situations. This does not necessarily provide directors and officers with complete protection, as their company may not be able to indemnify them, perhaps because it has insufficient funds. Many claims made against directors are from investors and creditors and arise when the company is insolvent, or it may not be permitted by its articles of association to do so in certain situations.

Looking for more information or have any questions as this may relate to your company?

For more information on the topic or guidance, use the form below or reach out directly to Nathan Therrien at 978-400-7014 or at [email protected]

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