THE WAVEHOOKS STORY

To illustrate the extreme importance of NDAs and restrictive covenants, a client of mine has consented for me to share in this blog, his company’s amazing growth experience, due in great part to his ability to confidently bring his product to market without risk that his success would be stolen from him.

 

Michael Aylesworth is the owner of ImagiGadget, Inc. and the inventor of a very marketable product called WaveHooks. The concept is simple. WaveHooks are small, portable shelves with suction cups that you can stick to the side of your tub or shower. So if you want to take a bath and relax with some wine, you have a sturdy area on which to put your glass.

 

Now originally, Mr. Aylesworth was able to make each WaveHook in his own home. But everything changed once he used social media to market his gadget. Then the popularity of Wavehooks exploded and his website video went viral. Almost overnight, he was hired to make hundreds of WaveHooks and fill massive orders within a very short period of time.

 

Major vendors, including Nordstrom and Amazon.com, were contacting him for bulk purchases and promotion, while national media programs like “The Today Show” and “Shark Tank” started inviting him to talk about his invention. Needless to say, he called me in a panic because he wasn’t equipped to keep up with the volume of business he’d generated.

 

At this point, he knew he had to find a manufacturing company to produce the WaveHooks for him. But how could he be sure the company he hired wouldn’t steal his idea? And how could he know the people he chose to market WaveHooks wouldn’t take advantage of his trade secrets?

 

This is where NDAs and restrictive covenants came into the picture and made a huge difference. I quickly helped him put these agreements in place so he wouldn’t have to worry about his concept getting stolen by those he trusted. As a result, ImagiGadget was able to successfully secure an international company to mass-produce Wavehooks and he was able to engage a Seattle-based marketing firm to successfully launch a national promotional campaign. Today, his company is continuing to enjoy its growth but with the confidence that its intellectual property is well-protected.

 

If you’re interested in learning more about WaveHooks, I highly recommend that you visitwww.wavehooks.com . His idea is ingenious and he’s getting a lot of well-deserved attention for creating such a great product.

 

Next time, I will delve more deeply into the various kinds of NDAs and restrictive covenants. You’ll understand in even greater detail how they’re applied and why they’re so valuable to your small business.

Trust, But Restrict: Protecting Intellectual Property

When you form relationships with people to broaden your business’ presence in the marketplace, you must bring certain individuals into a highly sensitive domain. There’s really no way around it. In order to get these potential investors, employees, vendors or whomever else up to speed, it’s necessary to share confidential information.

While you have to explain how your business works for these new relationships to benefit your company, the fact is if this information were ever to get into the wrong hands, it could be disastrous. You might wind up with new competitors across the street or you could discover all of your employees have been lured away, leaving your business unable to function.

For these reasons, you need security so that your confidential information, also known as intellectual property, stays private. So in this post, I want to focus on why it’s incredibly important to protect your intellectual property, and to prevent it from ever being stolen by people you thought you could trust.

What Is Intellectual Property?
Now intellectual property isn’t a physical object such as a car or a machine. It’s intangible, not something you can hold in your hand or touch.  But without it, you don’t have a business. Think of intellectual property as the unique ideas and secrets that make your business marketable and are the basis for its future success.

Intellectual property can come in a number of different forms, including:

• Copyrights;
• Trademarks;
• Patents; and
• Trade secrets.

Other aspects of intellectual property can include highly sensitive information, such as annual revenues, profit margins and potential new product designs or services. These are all things you definitely don’t want your competitors to know.

Protecting Your Intellectual Property
Intellectual property is basically the lifeblood of your business. It is what makes your company unique from all the others in your industry. So it’s essential to ensure this information isn’t stolen out from under you. The survival of your business is at stake.

To protect your intellectual property, there are two paths you can take:

• Make any prospective individual who may do business with your company (for example, vendors or investors) sign a non-disclosure agreement (NDA).
• Make any individuals who will be doing business with your company (for example, employees or independent contractors) sign restrictive covenant agreements.

The same guiding principle is at work in both non-disclosure agreements and restrictive covenants. Basically, these are contracts that say in no uncertain terms that if someone privy to your intellectual property violates the trust between you, then you can go to court to get a restraining order against this person to stop their use and/or disclosure of your company’s confidential information. In addition, you will be able to have the court make the violating party pay all of your legal fees incurred in enforcing your rights. 

Needless to say, NDAs and restrictive covenants are designed to be enormously intimidating. That’s because it’s crucial for anyone in whom you confide to know the serious consequences of their disloyalty, if sensitive information about your business is ever distributed.

Need More Help?
For over 20 years, our experienced attorneys at DregerLaw have assisted hundreds of business owners throughout Chicago and Northern Illinois. We can help you as well. Call us at 312-322-0955. Or use our online form so that we can guide you on your legal rights as a small business owner.

Protecting Your Small Business: Key Man Insurance

When a co-owner dies unexpectedly, it can cause a business to go into a tailspin. Depending on the role of this deceased party, the company’s operations may even stop, drastically reducing its revenue. In short, the unfortunate effect could be total chaos. To complicate matters even further, the owner’s surviving spouse might try to take on this leadership position, which may create additional tension between the other owners.

There is a good strategy to help you avoid the possibility of financial devastation. It’s called key man insurance and its use can ensure that you maintain more control over your company in case of an owner’s sudden death.

Surviving Spouse

Simply stated, your company purchases a life insurance policy on an owner that names the company as the beneficiary when the insured owner passes away. Simultaneously, the owners all sign a Shareholder Agreement that contains language requiring the company to “buy-out” the surviving spouse for the death benefit amount of the insurance policy. In this way, when the insured owner dies, the money goes straight to the business which then passes this amount to the surviving spouse, effectively buying out that individual. This arrangement eliminates any legal responsibilities the former owner’s spouse had in the future of the business, while providing the surviving spouse with much needed income at their time of need. This arrangement also allows the other owners to freely make decisions without having to include this surviving spouse, who may not understand aspects of the company’s particular industry.

Other Uses

If all of your company’s owners are single, you may question whether key man insurance is relevant to your business. Is it worth the money? My answer is a resounding yes. Key man insurance can be used for a number of different functions that go well beyond buying out an owner’s spouse.

Think about the critical roles each of the owners play in the organization of your business. What would happen if one of these individuals had a fatal accident? Besides the natural grief that would grip your company as a result, who would be able to jump in and take on all of this person’s responsibilities? And what if there isn’t an individual available with the skills to step into such a role? How do you proceed with your business operations then?

Key man insurance can help your business overcome such a crushing blow. It provides the money necessary to get through this uncertainty until you find a competent replacement.

Determining the Amount

The amount of key man insurance that is necessary will usually be dictated by the insurance company. It will evaluate the health, medical history and functions of the proposed owner to be insured and it will calculate the reasonable value of said owner’s life. In this way, the insurance company prevents “over-insuring” the individual and the annual premiums for this key man insurance remain equally reasonable.

Once the insurance company advises you of the amount of key man insurance that your company can purchase, be sure to add the cost of the insurance premium into your annual budget. It may seem like an added expense, but having key man insurance is a practical way to cover your revenue needs and avoid management chaos in the event of a co- owner’s death.

Need More Help?

For over 20 years, our experienced attorneys at DregerLaw have assisted hundreds of business owners throughout Chicago and Northern Illinois. We can help you as well. Call us at 312-322-0955. Or use our online form so that we can guide you on your legal rights as a small business owner.

Business Ownership - Avoiding a Leadership Disaster

Ownership and How to Allocate Your Business

Sharing ownership of a business is a great way to pool financial resources and talent. It may occur at the beginning of the life of your business, in the form of a partnership or it may occur later, in the form of an investor who is seeking equity in a solely owned business.

But while the concept of share ownership is easy to understand, it can result in a paralyzing business disaster, if the ownership is allocated unwisely. So in this blog, I will focus on the ideal way to divide up ownership and decision-making responsibilities for your business.

The 50/50 Myth

Many people who go into business with other parties believe that ownership should be divided on a 50/50 enterprise. But nothing could be further from the truth. That’s because a 50/50 ownership structure gives each owner 100% veto power. This means  that every decision must be unanimous. That’s just not realistic. Furthermore, such a set-up will literally paralyze your business from moving forward when there is a major disagreement between owners. For these reasons, splitting up decision-making power on an equal basis doesn’t work in the real world.

But there is an objective and easy way to resolve this dilemma. In my experience, the most successful tactic is to designate one person with 51 percent ownership and the other with 49 percent ownership. In this way, you have an arrangement where someone has the final say.

Of course, this plan leads to obvious questions: Who should have the additional 2 percent ownership? Why does this person get more power? Can such a 51/49 structure be changed? These are all valid concerns, which be fairly and effectively addressed by the owners at the outset, by using the following simple techniques and strategies.

Choosing the 51 Percent Owner

Choosing the individual who gets 51 percent of the control may put a lot of stress on the relationship between owners. But this is not necessary. The decision can be very clear and straightforward. You might consider factors such as:

• Ethnicity and/or Gender – If an owner is a minority and/or a woman, giving this party the larger ownership may qualify your business for valuable “minority-owned” status, which may entitle you to certain benefits depending on the industry of your business (e.g. construction, public sector vendor contracts).
• Investment – If one person has invested more money in the start-up, it may make sense to give this individual 51 percent ownership, so as to strengthen the financial appearance of the business when dealing with banks, vendor or potential customers.

Changing the Ownership Allocation

However, it’s important to keep in mind that choosing the person to receive 51 percent ownership doesn’t mean the arrangement is permanent. Each owner may experience having the final word in critical decisions concerning your business. No one is left behind and the business can continue to evolve without any political hold-ups from year to year.

Obviously, such a regular “changing of the guard” may be limited or not permissible if your business is benefiting from “minority-owned” ownership status. But even in such circumstances, owners may use the same alternating technique, but simply apply it to the offices of “President” and “Vice President.”

Need More Help?

For over 20 years, our experienced attorneys at DregerLaw have assisted hundreds of business owners throughout Chicago and Northern Illinois. We can help you as well. Call us at 312-322-0955. Or use our online form so that we can guide you on your legal rights as a small business owner.