A Quick Reference – The Basics of Regulatory Compliance – IRS Concerns – Regulatory Compliance

The appraisal and valuation of promissory notes must be completed in accordance with the IRS rules and appraisal standards. Valuing notes might initially appear to be a simple exercise or function, but doing so has become more difficult recently because of the increased IRS scrutiny. The valuation definition typically used is “Fair Market Value”.When appraising or valuing a promissory note, either directly or indirectly, for the IRS specific rules govern. Examples of situations where the IRS is concerned are gift tax valuations, estate tax valuations, IRA account valuations at year-end, 401(k) account valuations, valuations when converting a traditional IRA account to a IRA ROTH account, valuations when an IRA account is inherited, and calculating the required minimum distributions for IRA account.When determining the Fair Market Value of a promissory note, consideration must be given too many different factors. Listed below are some of the factors that impact the Fair Market Value of private promissory notes.Each private promissory note is unique. Each note has been custom drafted to facilitate a specific business or financial transaction. Its interest rate, payment schedule, duration, and collateral is specific to it purpose within a transaction. There are key provisions contained within each note that impacts its fair market value.Examples of unique, key valuation factors:Interest rate and term of the note. A risk to promissory note investors is that the market interest rates will change during the holding period of the note. Therefore, the shorter the term of the note, the lower the risk. The interest rate earned on the promissory note must be compared to market interest rates. If the market rates are higher than the subject note’s rate, an adjustment in the value of the note (discount) should be made.Protective covenants. A key element that influences the value of a note is the presence or lack of protective covenants. These covenants are typically put in place to protect the lender. The more restrictive the covenants are, the greater the protection provided to the lender.Default provisions. A key element that influences the value of a note is the default provisions. The more stringent the default provisions are, the less risk to the lender.There is no public, active market place for private notes. Because of this, each note has to be individually described and evaluated by the parties to the buy-sell transaction. Additionally, because each transaction is done in private, the specific terms and conditions of the transaction are not publicized, or made openly available for comparison.Obtaining comparable market data is very difficult. This lack of comparable data has made the valuation of promissory notes most difficult.The disclosure of information relating to the borrower, and the borrower’s financial condition, is not publicized. The financial strength of the borrower is critical. The appraiser should evaluate the borrower’s financial ability to make the payments. But, no public information is available to evaluate and quantify the risk of default by the borrower.Based on the guidelines provided by the IRS, there are no “safe harbor” rules as to the appropriate required market rate of return, discounts amounts, or methods of valuing promissory notes. The position taken by the IRS is that the Fair Market Value of a promissory note, secured or unsecured, is presumed to be the amount of the unpaid principle, plus interest accrued to the date of value, unless it can be established that the value is lower.

Pharmaceutical Compliance – Regulatory Compliance

An understanding of pharmaceutical compliancePharmaceutical regulatory compliance, or just pharmaceutical compliance, is a critical area of pharmaceuticals. Why? This is because pharmaceutical science is very exact and extremely important for people’s health. If there is noncompliance in the pharmaceutical industry, the result can be disastrous. There have been many occasions when patients have died because of wrong medication or wrong dosage. In most cases, this can be attributed to lack of pharmaceutical compliance.What is it that makes pharmaceutical compliance so important? What is it in the first place, and what is needed to be in compliance?What is pharmaceutical compliance?Pharmaceutical compliance is the state of a product being in accordance with prescribed rules for specifications and standards. These standards are set out by various regulatory bodies, both national and international. These standards have been arrived at after years and years of thought. No regulation regarding pharmaceutical compliance is arbitrary or unscientific.These standards are arrived at after the best brains have come together to set standards that are universally acceptable. This compliance is enacted to ensure that products are effective and produce the desired effect. The setting of these standards takes several years of active and intense study to get implanted into a common international system which is put in place by regulatory bodies.How can pharmaceutical compliance be achieved?Regulatory bodies oversee the recommendation and implementation of pharmaceutical compliance. Obviously, there are bound to be different pharmacopeia (the science of measurement of medical products) for different countries, but the underlying standards are common. For instance, we could have United States pharmacopeia (USP), British Pharmacopeia (BP) or Japanese Pharmacopeia (JP), but the underlying principle behind the measurements is common. Each dosage could vary, but the proportion of the recommended medication for the dosage is universally agreed upon,and is part of compliance.Which are the international standards for pharmaceutical compliance?Some of the standards currently in place around the world are the variants of the ICH, such as series of standards set out by the International Conference on Harmonization (ICH), such as ICH-Q7A and the ICH Q10, the ISO, FDA-prescribed standards and the standards set out by individual countries.What happens if there is no pharmaceutical compliance?The consequences of not being in pharmaceutical training are obvious. As we have just seen; not being in compliance with regulations set out by regulatory authorities can have serious consequences. These are some of the problems that could arise if there is lack of compliance:o The medicine could be ineffective: This could mean that the medicine would not be serving its desired effect. As a result, all the trouble the medical fraternity and the patient takes would come to naught.o The patient could suffer: When it comes to high specialty drugs such as cardiologic or cancer or drugs that act on the autoimmune system or the central nervous system; drugs that don’t have the necessary regulatory compliance can cause ill-effects that can go up to the level of causing death to the patient.o It could result in loss of huge amounts of money: An organization that does not show compliance is at extremely high risk of incurring incalculable losses. First, it could end up losing money when consumers start distrusting its reputation and doubt its ability to deliver an effective product. Next; it could lose large amounts of money in expensive lawsuits that could pull its name down and cause it the kind of damage that it will possibly never recover from.

Wireless Network Regulatory Compliance and Security – Questions I Have Asked When Wi-Fi Is in Use – Regulatory Compliance

A couple of weeks ago, my nephew had a seizure. He’s ok. We did all of the right things and got him the help that he needed. He eventually ended up at a local emergency room. While I was there waiting on the test results to get back, I started to take note of the technology the hospital was using. The biggest observation that I made is that they use Electronic Medical Records (EMR) — no paper charts. Each observation room had its own computer and there were wireless mobile stations a few feet down the hall. So that led me to ask, “How compliant are they with HIPAA Standards in this wireless environment?”Yesterday, I was at a local grocery store. I only picked up a handful of items, so I decided to use the self checkout aisle. Unfortunately, my terminal froze on one of the items I was trying to buy. I politely put my hand up to get the attention of the attendant, thinking that she was going to come over and do something to my terminal to get me going again. She didn’t come to me. What she did instead was to pull out the stylus on her hand-held wireless computer, made a few taps and voila… I was up and running again. So that led me to ask, “How compliant are they with PCI Standards in this wireless environment?”Now in two different scenarios, I’ve asked two questions. Both are the same question and focus on a single technology-wireless networks. The only difference is that I inserted a different standard. One primarily focuses on protecting Electronic Personal Health Information — HIPAA, and the other primarily focuses on protecting credit card information — PCI. The installation of a wireless network introduces a new set of issues that have to be addressed in order to be compliant with these standards.What are some of these issues?

There is no physical medium by which your data is passed. With the data passing through the air, how do you contain access to it?
Traditional means to secure a wired network won’t all work on a wireless network.
Attackers can attack a wireless network without having to go through an internet connection or firewall and remain anonymous.
So what are “some” security measures that could be put in place to address these issues and have a secure wireless network?

Make sure your data is encrypted if you handle sensitive information and/or that your wireless connection is encrypted. Even if someone is observing your signal, they won’t be able to understand what they’re viewing.
Make sure there is a method in place to authenticate each user as well as a method to authenticate the wireless network you’re using. This is called mutual authentication.
Use a Virtual Private Network or a VPN whenever possible. If you have a wireless network connected to your wired network, you should be using a VPN.
Implement a Location-Based Wireless Security System. A Location-Based Wireless LAN security system gives you the ability to precisely determine the physical location of all wireless devices, in and around your RF environment. It continues to monitor your environment 24/7 and implements security protection mechanisms in real-time to address issues such as policy violations, rogue devices, vulnerabilities and threats.
Wireless networks are here to stay and should at least have the 4 security measure mentioned above in place. Wireless networks offer mobility, convenience and a relentless connection to the network, and it’s something that every business (even those with a “No Wi-Fi Policy”) is going to have to address, especially those that are subjected to standards like HIPAA, PCI, SOX, DOD Directive 8100.2 and GLBA, just to name a few.

Facilitating Regulatory Compliance Through Managed Hosting Services – Regulatory Compliance

For medical or financial companies, keeping their operations properly updated according to industry standards is critical, not only to protect sensitive client data, but also to prevent them from facing the harsh penalties that follow any violations. By working with a managed hosting service provider that has extensive expertise in compliance-based hosting, a company can ensure that its IT infrastructure will comply with the guidelines imposed by standards such as HIPAA HITECH and PCI DSS.As more organizations transfer vital information electronically, they also have to comply with industry and federal regulations and security standards that cover their specific business sector. Companies that fail to meet these standards may be liable for harsh fines and legal action that can disrupt their operations or damage their reputation.For instance, a merchant that has experienced a security breach due to PCI non-compliance can be penalized with a fine of up to $500,000 per incident. Any systems involved in the breach cannot be used during follow-up investigations, potentially crippling a business’ operations.Medical companies found to be in violation of HIPAA standards, on the other hand, are liable for a maximum penalty of up to $1.5 million, as dictated by the Health Information Technology for Economic and Clinical Health (HITECH) Act.If a company lacks the necessary personnel or resources to effect changes to its infrastructure, a managed hosting provider can provide a cost-effective means to achieve industry compliance.For starters, a service provider’s security experts can offer critical support for a company being assessed either by a PCI DSS Qualified Security Assessor (QSA), or its potential clients. This support will include answering questionnaires, addressing interviews, and fulfilling the audit requirements of industry standards, including PCI DSS, HIPAA and ISO 17799/27002, for example.As part of its overall managed hosting solution, a service provider can also implement a Web Application Firewall (WAF) to protect a company’s networks being used for PCI transactions from threats such as SQL injection, buffer overflow attacks, and malware. A Network Intrusion Detection System (NIDS) will also be applied to detect threats within the network and to complement the WAF’s guard against external risks.Regular log analysis, audits, and host vulnerability scans will be implemented as part of a provider’s security and compliance solution to spot possible data breaches. Aside from providing comprehensive security and industry compliance, a service provider’s managed hosting solution can also help optimize the performance of a client’s IT infrastructure.

Regulatory Compliance – Understanding the HIPAA Omnibus Rule – Regulatory Compliance

The Health Information Technology for Economic and Clinical Health Act (HITECH Act) made some important changes to the privacy and security rules under the Health Insurance Portability and Accountability Act (HIPAA). HIPAA’s privacy rule enforces standards for the use and disclosure of protected health information (PHI), whereas security rule enforces standards for the protection of electronic PHI. The most noteworthy change to the Privacy and the Security Rule is the requirement that HIPAA covered entities, along with health care providers must notify individuals when their unsecured PHI has been breached.In 2013, the Department of Health and Human Services (HHS) published the HIPAA Omnibus Rule, which covered a set of final regulations modifying the HIPAA Privacy, Security, and Enforcement Rules to implement various provisions of the HITECH Act. The regulations require changes in several areas of operation, including HIPAA breach notification and security, health information management, marketing, and fundraising, to name a few. Many of the changes will require considerable effort to implement. The notable changes for medical offices have to do with changes to individual rights under HIPAA, which necessitate changes in policies and procedures and must be listed in an entity’s Notice of Privacy Practices (NPP).Penalties for Security BreachesHIPAA-covered providers need to update their policies and procedures, or face stiff penalties. HIPAA-covered entities that currently provide NPPs must update it to reflect the changes in individual rights-violations are subject to enforcement that can include fines up to $50,000 per day.

There is a new four-tier violation schedule with increased minimum and maximum fines that has replaced the previous enforcement rules, now mandatory fines for willful neglect of compliance start at $10,000.

Violations that are not promptly corrected carry mandatory minimum fines starting at $50,000 and can reach $1.5 million for any particular violation.

For a violation due to reasonable cause and not to willful neglect, a penalty of not less than $1,000 or more than $50,000 for each violation is mandatory.
How to Remain Compliant Under the New RuleHIPAA-covered entities and business associates need to update their business associate agreements and notices of privacy practices. BA needs to conform with the Security Rule with regard to electronic PHI, and they must also report breaches of unsecured PHI to covered entities. Business associates need to make sure that any subcontractors that create or receive PHI on behalf of the business associate must agree to the same conditions that apply to the business associate with respect to such information.In addition, the physicians also need to diligently review and update HIPAA policies and procedures, mainly those regarding privacy breaches and reporting. Business associates must meet the terms of the Security Rule with regard to electronic PHI. For Notice of Privacy Practices, the HIPAA Omnibus Rule requires that they include a statement indicating that authorization is required for uses and disclosures of PHI for marketing purposes and disclosures that constitute a sale of PHI. Since these changes represent material changes under the HIPAA regulations, the revised NPP need to be provided to all new patients and made available to existing patients upon request, and also to be displayed in office website and offices.

Enlisting Managed Hosting Services to Achieve Regulatory Compliance – Regulatory Compliance

Concerns over data security, particularly in the financial and medical services industries, have led to the development of new standards and regulations that govern how information is secured. As businesses move their data and applications to the cloud, managed hosting services can provide a cost-effective way to comply with heightened security requirements imposed by standards such as PCI DSS, HIPAA/HITECH and the Sarbanes-Oxley Act.Companies that store, process or transmit cardholder data, for instance, are governed by the Payment Card Industry Data Security Standard (PCI DSS). This is a worldwide security standard created to help businesses that handle cardholder data to enhance security measures and protect customers from credit card fraud. In order to achieve compliance, businesses must be able to meet 12 stringent requirements and more than 200 security controls. Compliance is essential, however, since failure to follow the standard can result in heavy financial penalties.Data security is also essential for the medical services industry. The Health Insurance Portability and Accountability Act (HIPAA) requires healthcare organizations to protect the privacy of individually identifiable health information. Organizations found in violation of HIPAA standards are liable for a maximum penalty of up to $1.5 million, as dictated by the Health Information Technology for Economic and Clinical Health (HITECH) Act.Achieving compliance, however, can be challenging even for established businesses, since it’s necessary to allocate a considerable amount of time and resources into building a secure, standards-compliant IT infrastructure. By utilizing the services of managed hosting providers with extensive experience in compliance management, companies can take advantage of the service providers’ secure infrastructure and the expertise of personnel who are well-versed in the intricacies of industry/regulatory standards.Preparing an organization’s IT infrastructure for compliance requires a number of essential steps, which covers everything from installing anti-virus software and firewalls, to implementing strong access control measures and maintaining an information systems security policy. Regular log analysis, audits and host vulnerability scans are also implemented as part of a provider’s compliance solution to spot potential security issues.By entrusting mission-critical and sensitive client data to a managed hosting service provider, companies can rest assured that their database is housed in a secure network with enhanced security protocols and the constant care of IT professionals.Considering the cost of running and maintaining a dedicated server, utilizing the services of a managed hosting service provider makes good business sense. By offloading server management and administration tasks to the experts, companies can focus on their core business competencies.

The Relevance of Document Storage Management to Modern Businesses – Regulatory Compliance

Document storage management is governed by existing data retention laws so organizations must comply at all times. Otherwise, they will face litigation and possible legal charges.There are Records management companies today that provide secure online document storage, as well as offsite data and digital media storage.Records are vital to the work and general operations of organized entities. They help sustain the overall flow of work throughout the organization. However, they can also drain the resources of the company to an extent.Oftentimes, records are not considered as a similarly intense resource feature of operations like employees, equipment and facilities.It is in fact estimated that approximately 90 percent of white collar activities center on information related actions like creating, distributing, storing and retrieving. Such activities require considerable expense and records management keeps them all as economical as it possibly can.Records management, also called recorded information management or RIM, is the systematic implementation of management principles that govern the essential recorded information and its use in the normal operations of the organization. Transactional records, regardless of type, must be kept for they may be required as a legal evidence for each transaction made.Recordkeeping systems must be reliable, comprehensive, compliant with governing laws, and possess integrity and permanence. Integrity means that the records must never be altered, destroyed or removed without proper authorization. Permanence refers to the records being tamper proof or unaltered, or properly deleted or destroyed.Benefits of a Systematic Records Management SystemRecords management controls the creation, growth, volume and redundancy of records. It helps to reduce operating costs by implementing active management as well as intelligent outsourcing decisions.It supports the enhanced efficiency and productivity of all business processes and enables better and quicker management decision making.It safeguards all of the vital information of the organization that includes historical records. It also guarantees legislative and regulatory compliance and assists in litigation and other risk management concerns.It offers various benefits involving asset management such as protection, monitoring, maintenance, and documenting. Protection refers to data ownership, privacy and intellectual property. With monitoring, it includes compliance, due diligence and auditing.Maintenance covers storage, retention and preservation according to policy. With documenting, it involves past decisions made and actions taken.Benefits of Online Data StorageToday, organizational data is inevitably lost online. Estimates show that 20 percent of tape based recoveries are a failure and 30 percent of all files are being corrupted every year. At least 1 in 20 to 25 notebooks have been stolen or destroyed annually. Despite all of these, only 25 percent of organizations that are overly concerned about critical data loss frequently backup their records.Online data storage has become increasingly important in protecting businesses from unnecessary risks. Online data storage companies offer a fully automated data backup process that is accessible online, with backups that are kept on a disk to rapidly restore files.Backup of all fully encrypted data is secured to an offsite data facility. This ensures that regular backups are safely and remotely stored.Online data storage represents a sound basis necessary for continuity planning that every business undertakes. Whatever happens, organizational data is completely safe.There are online backup services that are cost effective as they require minimum capital outlay. They also offer an all inclusive service charge on a monthly basis.Benefits of Data StorageEssential business records that have become unchanging are to be moved from their primary storage to another storage platform. It is done to ensure long term retention by preserving the records in their final format. If future needs require, they can be easily accessed, searched and used.One compelling reason for the creation of archiving facilities is data retention as obliged by government laws and industry regulations. Another reason for archiving is to maximize storage capacity.The archived records and other critical information are kept in a highly secure storage facility equipped with theft, natural disaster and fire protection systems. There is also easy access and instant retrieval of documents.Document storage management is now mandatory due to government and industry guidelines. Full compliance is therefore a must to avoid risks of litigation and penalties.Today, Records management companies offer archiving as well as secure online document storage to businesses

Starting a Homemade Pasta Making Business – Regulatory Compliance

Starting a Homemade Pasta Making BusinessThe first thing that you should know if you are starting a homemade pasta making business is the basic process of making fresh pasta. This kind of pasta is made from fresh ingredients and has a shorter shelf life compared to the commercially made or dry pasta.Manufacturing fresh pasta is better because the business owner can tailor fit it to the consumer’s needs and demands in terms of the shape, size, color and flavor of the finished product.Below are some suggested steps in starting a homemade pasta making business, categorized into: Initial Stage, Regulatory Compliance and Marketing.Initial Stage• Create and perfect your own recipe that you think will sell and will come out the same way every time you prepare it. Have your family and friends taste them and ask for feedback.• As in any business, when you are starting a homemade pasta making business, prepare a business plan which would contain the goals and business projections that you have set. This will guide you in the actual running of the business and to help you gauge if the business is doing good or not.• Purchase your ingredients and supplies like bags and packaging supplies. Decide on how you intend to package your homemade pasta. You could pack it in a freezer-safe bag where the consumers can freeze it, refrigerate it or eat it immediately. It could also come in cellophane bags. You could search online for bulk suppliers for these items. You will be able to save money and will help create a professional and consistent look. Design your own labels on your computer and print them out or you could ask a professional designer to create them for you and order your labels in bulk. Make sure to include the cooking and serving instructions in the labels.• Purchase equipments that you don’t already have to make the preparation of large batches of your recipes a lot faster and easier.• Determine a wholesale price list for all your products. Factor in all the cost that you will be incurring in producing you homemade pasta like the ingredients, facility cost, packaging and labor cost. This should be drawn up in a spreadsheet form which would include the retail as well as bulk prices for each of your product. This information will be useful to your future retailers because it will show the proof of the profit they will be making if they sell your homemade pasta in their stores.Regulatory Compliance• Since you will be starting a homemade pasta making business and producing a food product, you need to get in touch with your local and state health departments to inquire about permit and licensing requirements.• Make sure that you could sell the products that are produced from your home kitchen because different states have different laws regarding homemade food products. These information are available online from your state’s Department of Health website or you can ask for a copy. Try to check on local zoning laws if operating a business from your home is allowed. As of 2010, only 13 states allow the operation of home-based cooking business and they are: Alabama, Iowa, Indiana, Kentucky, Maine, New Hampshire, North Carolina, Ohio, Pennsylvania, Tennessee, Vermont, Virginia and Utah. So it is important that you check into these before starting your business.• Most states allow the sale of homemade food products at farmers’ markets and flea markets without the necessary state licensing and inspection. They allow the sale of these products at these places only. Before starting a homemade pasta making business and deciding to sell your products in these venues, make sure that your state does not have any label requirements, like this label for example, “Made in a home kitchen and not inspected by the (insert state) Department of Agriculture.” The label should indicate the product name and the ingredients that you used and check the cottage laws of your state about the requirements of home labeling.• Most of the home based cooking operations are either sole proprietorship or partnerships. If you plan to make your business as a source of livelihood, a DBA (Doing Business As) license would be the best route if you will name your business. As of 2011, the registration fee is between $25 and $35. The DBA registration is not required though if your business name contains your legal name. Your state may also have other food processing licensing regulations which are peculiar to your homemade pasta making business.Marketing• Your main competitor in the homemade pasta business is the commercial pasta. Therefore, it is not a good idea to compete with these manufacturers in the supermarkets and groceries because this is not the right avenue to sell your products. You must do the traditional and tried and tested marketing strategies to attract your customers like posters and handing out flyers. Make your business be known in your community by giving out samples of pasta dishes with your fresh pasta or give them for free at community gatherings or meetings. It is also good to custom-made your fresh pasta during these events in order to cater to the individual needs of the customers. If you are into making healthy pasta, you can try selling your products at your local health stores.• Other possible places to sell your products are the local farmers’ markets, craft fairs and flea markets. A lot of people like the taste of homemade goods like fresh pasta but just doesn’t have the time to prepare them themselves. You can give them that homemade taste that they are looking for. During holidays and special occasions, many people love give local and homemade food products as gifts.• You can also market your food products by creating your own brochures, catalogs and price lists and offering your products at retail outlets that sell local products. Draw up a list of your target retailers in your community with the name and contact information of the person who is in charge of purchasing.• Try to ask if your local Italian restaurants purchase pre-made pastas because this could be a possible joint venture between your business and their restaurants.• The internet is also a good venue to feature your products on a national scale. If possible, you could build your own website to help your business grow.Hope these steps will help you in starting a homemade pasta making business.

Hire Power – Learn the Rules of the Road When You’re Growing Your Staff – Regulatory Compliance

Did you know that the laws governing a business with 20 employees are vastly different from the ones that apply to a 30-employee venture? What you don’t know can do more than hurt you-it can bring a thriving company to its knees.As countless American companies tiptoe toward recovery in a treacherous economy, it pays to be cautious. Of course, if you’re considering adding employees to your team, then you’re doing something right. Safeguard that success with the strategic use of human resources. It’s your most valuable tool in navigating re-growth, one careful step at a time.READING THE SIGNSLike any key area of your business, human resources can work as a huge asset as long as you manage things properly and comply with the rules and regulations that apply. Laws vary based primarily on company size and location.Those rules and regulations fall into four broad categories: wage and hour, time off, benefits and training. Here’s a brief rundown of the kinds of things you must include in your plans for company growth.Wage and Hour
Anything and everything that relates to payroll-from how you pay to when you pay and how much you pay your employees-must comply with state and federal employment laws. There are laws that govern how quickly you must pay a terminated employee (whether voluntary or involuntary) and how to handle paycheck errors. Cutting corners in the payroll department can cost you a lot more than it saves. It’s absolutely vital that the management of these important aspects of your business is handled by someone who knows the laws in your industry and localeTime Off
Any time off that you grant employees, including leaves of absence, vacation and sick days (and whether and how much you pay them), can be affected by a number of regulations. A variety of statutes designed to protect employees’ rights apply differently based on how many employees you have.It should go without saying that sick days, vacation time, leaves of absence and other time off must comply with the law and should be granted fairly to all eligible employees, regardless of gender, race, age and the like.Benefits
Every perk you provide is governed by regulation. You can’t avoid the law by eliminating benefits altogether; some benefits are statutory. Things like disability coverage, workers’ compensation insurance, health insurance and company vehicles can open you up to serious liability if they’re managed carelessly. Ensure that every resource you allocate is handled thoughtfully (and legally).Training
Your company must meet applicable laws such as safety, sexual harassment, OSHA standards and other training required for your industry and in your state of operation. Requirements fluctuate with your employee count; more on this later.Downsizing
Just as there are compliance issues related to growth, there are regulations that go along with downsizing. Plant closures and layoffs require 60 days’ notice. If you have large layoffs on the horizon, be sure to review the regulations to ensure that your plans meet all related legal requirements.PLAYING THE NUMBERS GAMEMost employers know they must comply with the laws in their industries and locales. Many are surprised to learn that the laws are different based on the size of your company. So if you’ve been cruising along with 24 employees for several years and decide to hire an additional administrative assistant to support your sales team, you’d better know that the rules of the game have changed. Adding one more employee just bumped you out of the smallest category and into the next level of compliance.Very Small Business (Fewer than 25 employees)
When you have fewer than 25 employees, you work like crazy-but chances are, you’re not spending much of that time worrying about employer compliance issues. That’s because you have the bare minimum of rules to live by. But when you hire a 25th worker, you may notice a few changes.Moderately Small Business (25 to 49 employees)
When your company expands to this level, there are a few more issues to be concerned with. Employees with addictions are entitled to certain rehabilitation rights. Abused spouses are entitled to domestic violence leave to relocate, seek counseling and the like. Employees with children are entitled to 40 hours per school year to attend their children’s school activities. These are just a few examples; other family and military leave statutes and illiteracy programs also apply at this level.Small Business (50 to 74 employees)
Hiring your 50th employee is a big moment for any entrepreneur. The upside: You’ve achieved a level of success that few businesses realize. The downside: Steering clear of regulatory mishaps can become a full-time job. You must now maintain annual Equal Employment Opportunity (EEO) tracking and reporting compliance; provide mandatory sexual harassment training (SB1825); participate in affirmative action, grant Family Military Leave Act (FMLA), California Family Rights Act (CFRA) leaves; and provide voluntary firefighters’ leave.There’s more. You’re also subject to the Worker Adjustment and Retraining (WARN) Act, a schedule of rules and regulations that pertain to providing advance notice of plant closures and layoffs.But just remember, the grass is always greener on your side of the fence-at least it is to the folks with even more employees!Medium-Sized Business (75 to 99 employees)
California WARN compliance becomes more critical at this stage, and the numbers alone can sometimes make regulatory compliance a bit more difficult. Things step up again, of course, when you reach the triple digits.Large Business (100 or more employees)
When you hire your hundredth employee, you can certainly say you’ve made it. Everything is on a larger scale now, from sales to liability. Your numbers expose you to greater risk, as the workplace provides more opportunities for employees to become injured or disgruntled. It’s easier to make costly clerical errors relating to payroll, or management oversight that fails to notice a missed lunch break. Doing what you’ve always done may no longer be effective. Keeping your eyes on the big picture requires a watchful eye on detail and depth as it relates to sound business practices.YOUR GPS FOR SUCCESSThe larger your company grows, the more crucial it is that your human resources team focuses on strategic efforts rather than tactical administrative tasks. Getting caught up in policy rather than finding common-sense solutions is a common pitfall. Use these tips to craft your plans:• Prepare for your 25th new hire; start strategizing for the future before you’re under the gun.• The best handbook in the world can’t replace smart management. Use your manuals as guideposts, not bibles.• Avoid a cookie-cutter approach. Handle each employee and their circumstances uniquely, giving consideration to a win-win outcome.• Create policies that are more interactive than rigid. Refusal to bend can leave you vulnerable to breaking.Whether you go it alone or outsource human resources expertise, the stakes are too high to simply cross your fingers or to throw up your hands. Failure to comply with state or federal employment regulations puts all you’ve worked for at risk.If you have a human resources guru on staff, invite them to the strategy table. Provide human resources with technology tools to manage employee data so that HR can provide real time data to forecast business needs and drive results.But if you’re not so sure you have the bench strength in HR, not to worry. There are firms who specialize in navigating these waters for you or with you. They know the territory well, as they’ve helped many clients handle the precise concerns you’re grappling with. Trusted firms can share the benefit of their experience in areas where you’re just getting your feet wet.It’s a mistake to believe that human resources is another cog in the business wheel. Imbue your human resources team-whether that’s one person or a specialized company you’ve engaged-with a sincere vision of who you are and where you want to be.About CanopyHR Solutions: Based in Irvine, Calif., CanopyHR Solutions is a progressive payroll and human resources company dedicated to helping its customers maximize the power of their people, increase business efficiencies, lower costs and focus on what they do best. Canopy HR Solutions first disrupted the status quo of the payroll and human resources industry in 2008 with a customer-first business model that allows its customers to select only those service modules they need. Their innovative style and superior, consultative approach to service has allowed the agile company to thrive by arming customers with the tools and technology to support their payroll, benefits and HR administrative needs from recruitment to retirement at an unbeatable price point.

Regulatory & Legal Framework – Do We Need a Franchising Law in India? – Regulatory Compliance

Mater Franchising arrangements are the flavor of the day as it provides the franchisor the benefit of the franchisee’s knowledge of the local environment; provides access to local sales and marketing expertise and channels; reduces investment; requires negligible government approvals; provides freedom from recruitment of local workforce and consequently lowers the financial risk of the franchisor. The current regulatory restrictions on retail trading by foreign companies coupled with sustained economic growth; ever expanding market with a thriving class of urban consumers; quality consciousness amongst India consumers are some of the factors contribution to franchising being increasingly used as a model by foreign companies for entering India for the first time. A typical master franchise arrangement enables the master franchisee to develop the business in a given territory under the franchisor’s brand name and trademark with or without the right to manufacture the products in accordance with the franchisors’ operating guidelines coupled with assured financial returns to the franchisor.There is a lot of discussion on the requirement of enacting a specialized law to regulate this growing sector in India. Before I proceed with my thoughts on the subject, I would like to quote a few lines from a report presented by the International Institute for the Unification of Private Law (UNIDROIT, an independent intergovernmental organization of which India is a member) which states that “the foundation of a successful franchising industry in any country lies in the existence of a “healthy commercial law environment” which has been defined as one with a ‘general legislation on commercial contracts, with an adequate company law, where there are sufficient notions of joint ventures, where intellectual property rights are in place and enforced and where companies can rely on ownership of trademarks and know-how as well as on confidentiality agreements’. The Indian legal environment is characterized by all these key attributes, a fact established by ever expanding international franchise relationships with India.To evaluate the need for a new legislation, let us first understand some of the keys issues/concerns involving a franchising arrangement that generally leads to potential disputes or disconnects between the parties and how they are protected or can be protected within the realm of current Indian legislation:(1) Licensing and Use of Intellectual Property Rights: IP rights are an integral part of all franchising arrangements and every franchising agreement involves transfer of some form of IP right, either as a license of a trademark/service mark/trade name, or a copyright, or a patent, invention, design or a trade secrets. The manner of use of the IP rights and their protection against misuse is one of the most important concerns of the Franchisor. Some of the disputes that arise during implementation of the franchise agreement relate to the scope and purpose of the trademark license, exclusivity of use and geographical scope, protection of confidentiality, extent of transfer of the know-how, misuse and damage caused to the brand and goodwill of the franchisor, etc. Similarly, post termination related issues include unauthorized use of the trademarks post termination, limited right to use the trademarks for the purposes of disposal of pending inventory (in the absence of which the inventory may go waste), destruction of stationary containing trademarks/trade names, return and ceassation of use of IP rights. India already has a host of IPR related laws including the Trademark Act of 1940, Copyright Act, 1957, the Patent Act, etc that provide for extensive protection and enforcement mechanism for the intellectual property rights including permanent and mandatory injunctions against infringement and passing off. India is also a signatory to the international conventions on intellectual property rights including the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), thereby offering protection to trademarks or brand names, as well as copyright and designs of the foreign franchisor. Recognition and protection is also extended to service marks in India enabling the foreign franchisor to license its mark to a franchisee to provide the services synonymous with him to the consumers in India. IPR laws have also been recently amended to make them compliant with exclusive right obligations under TRIPS and accordingly, the laws meet international standards for IPR protection. Even the Indian courts are quite sensitive and proactive with regard to enforcement of infringement actions. It is therefore evident it is not the absence of IPR laws or its enforcement that lead to potential disputes but lack of carefully drafted and negotiated agreements between the franchisor and the franchisee related to IPR issues that lead to potential IP related litigations.(2) Obligations of Franchisor and Franchisee: Another crucial issue that lead to potential disputes amongst the parties relate to implementation of the obligations of a franchisee such as the duties and services to be rendered by the franchisee, the investment and infrastructure of the franchise, adherence to specific operating guidelines or manual to maintain uniformity, reporting requirements, quality maintenance of the product or services delivered; creation of an agency between franchisor and franchisee, appointment of sub-contractors to manufacture and sub-franchisee to sell the products and franchisor and franchisee’s liability owing to their acts/omissions; meeting of annual market penetration targets; minimum stock purchase/import obligations; financial returns to the franchisor, including royalty and fee. Similarly, obligations of the franchisor related to periodic training as to the conduct of business, upgrading the franchisee with new methods and technologies, ongoing support, recommendations on general operational, management, accounting and administrative practices, joint marketing and advertising campaigns, sharing of advertising costs generally cause heart burns to the franchisee.The Indian Contract Act, 1872 is applicable to all the franchise arrangements and provides for specific parameters for legally enforceable agreements, lawful object and purpose of an agreement, lawful consideration for an agreement, performance of an agreement, statutory interventions in unfair or unconscionable transactions, consequences of fraud, misrepresentation and undue influence, voidability and rescission/repudiation of agreement, contracts in restraint of trade, contingent and conditional contracts, performance of reciprocal promises, discharge and frustration of contracts, consequences of breach and rights related to liquidated damages, enforcement of indemnification rights, agents and principal relationship and obligations thereto. It is not the lack of commercial law but lack of carefully drafted agreements that generally fail the parties. It is therefore important that a franchisee tries to bridge all potential gaps by identifying and analyzing “what if?” situations keeping in perspective the franchisee’s financial, technical, manufacturing, marketing, human resource, sales and business planning capabilities.All of this does not require a specialized law which is already in existence in the form of the Indian Contract Act but a fairly detailed and well negotiated contract. In any case even a specialized law can only provide a broad frame work, the details and the nitty-gritty of the relationship has to be always contractually agreed.(3) Payment Terms: Delay in payment or non-payment of license and/or royalty payments could be another area of concern for the franchisor. Therefore the manner in which and the times at which such payments are to be made must be carefully addressed. In the event the franchisor is a foreign entity, applicability of prior approvals and terms and conditions for foreign remittance should be informed to the foreign party. The Foreign Exchange Management Act, 1999 and the Regulations made there under specifically address the outbound payment related issues. For instance, an Indian franchisee can remit royalty towards license of trademark upto the amount of 1% of domestic sales and 2% of exports without prior government approval. If the licensor also provides technical know how to the Indian licensee, the Indian company can remit royalty upto 5% of domestic sales and 8% of exports and lump sum payment of upto US$ 2 million without prior government approval. Payment of royalty above the percentages specified above would need prior government approval. Detailed tax laws are already in place to deal with the withholding tax liability on such payments which may get reduced depending upon the provisions in the applicable double taxation avoidance agreement. The key issue is that both the franchisor and franchisee should be made aware before hand on the payment and taxation related regulations.(4) Duration, Renewal and Termination and its Consequences: Another serious concern of a franchisee is the extendibility of the term of the franchising and licensing agreement. Typically, extension of the term is within the sole discretion of the franchisor based on annual sales turnovers and performance of the franchisee. Quite often a franchisee struggles with the franchisor for renewal of the term especially when the franchisor is lined up with many other franchisees offering higher royalties. The other possible scenario is when a franchisee is suddenly informed of an abrupt termination of the franchise agreement leaving the franchisee with costs of salaries, infrastructure and interest on working capital and other debts. Now do we need a law to tackle with this abrupt termination or non-renewal situations. First of all, it should be clearly understood that all agreements entered into between private parties (whether under franchise domain or any other commercial arrangements) are terminable in nature. This is regardless of the terms in the franchise agreement that the contract is interminable. The Indian Contract Act 1872 and the Specific Relief Act, 1963 supported by various Supreme Court judgments are clear that even in the absence of specific clause authorizing and enabling either party to terminate the agreement, from the very nature of the agreement, which is private commercial transaction, the same could be terminated even without assigning any reason by serving a reasonable notice.Keeping this in perspective, it is advisable to negotiate for an open ended term (i.e., no fixed term) agreement with suitable termination clauses on breach with adequate notice period for rectification of breach/default. Though non-provision of the agreed notice will render the franchisor liable for damages under the Indian Contract Act, it is advisable to stipulate liquidated damages or substantial termination fees payable by the franchisor on breach of express termination provisions. Suitable exit options should also be provided if both parties are not willing to continue. Some of the key post termination issues that lead to potential dispute and are adequately protected by the existing Indian laws include:(i) Misuse of IPR rights and Confidential Information post termination is generally a mater of concern for the franchisor. While there are adequate IPR protection laws against misuse and consequent infringement/passing off actions coupled with rights for permanent and mandatory injunctions under the Specific Relief Act, it is important to provide provisions constraining the franchisee from using the IP rights of the franchisor and return of all confidential information obtained during the term of the agreement.(ii) Protection of franchisees against negative covenants particularly relating to non-competition post termination. It should be understood that a negative covenant restraining the franchisee from directly or indirectly undertaking business competing with the business of the franchisor during the subsistence of the agreement may not be violative of section 27 of the Contract Act, but post termination negative covenants may not be enforceable under Indian laws. This in turn protects the franchisee against unreasonable negative covenants imposed by the franchisor post termination.(iii) Inventory handling: Inventory handling is a definite pain area issue post termination. Provisions related to re-purchase of the unsold inventory/raw material post termination, destruction of sub-standard products or extension of the trade mark license to enable the franchisee sell the products with in an agreed time period are essential. Vague clauses such as inventory shall be disposed as per mutually agreed terms and conditions should be strictly avoided.(5) Governing laws and implementation of laws: Choice of governing law and place of jurisdiction is another crucial issue that should be carefully thought upon before being documented. Often jurisdictional hardships deter the parties from taking corrective actions against breach of the franchisee agreement. Indian Code of Civil Procedure confers authority to a court to adjudicate upon a dispute either based on territorial jurisdiction; personal jurisdiction; subject-matter jurisdiction, etc. Detailed provisions supported by judicial precedents are already available to correctly guide the parties to deal with the jurisdiction issues and it is pointless to consolidate all the available laws under a specialized law.In nutshell, most of the crucial issues that are matter of concern to the franchisee and franchisor can be dealt under a carefully drafted and negotiated franchise agreement.I am aware that there would be certain concerns with regard to the bargaining power of the franchisee to firmly negotiate the agreement against an established franchisor. In this regard, associations such as Franchising Association of India can play an important role. For example, FAI can prepare and introduce a code of conduct for franchise arrangement wherein the franchisors should provide comprehensive disclosures to each prospective franchisee, so that each prospective franchise can make a well informed decision. For e.g., the Uniform Franchise Offering Circular (UFOC) format in the USA, approved by the Federal Trade Commission includes 23 categories of information that must be provided by the franchisor to a prospective franchisee at least 10 business days before it makes any payment to the franchisor or signs the contract. As stated above, this does not require legislation of a new law but implementation of a code of conduct by Franchising Association of India. The Association can prepare and require Franchisors to mandatory provide information such as corporate history and financial statements of the franchisor, the litigation it faces, intellectual property and proprietary information, etc. Similarly, members of FAI should be able to guide the small franchisees about the potential exposure in the given franchise arrangement and if required negotiate on behalf of the franchisee.If you are looking from the consumer stand point, we have consumer protection laws that enable a consumer to file complaints with the consumer forums for unfair or restrictive trade practices adopted by franchisee in supply of goods or services by the franchisee. Similarly, antitrust or restrictive trade practices promoted by the franchise arrangement can be addressed through Monopolies and Restrictive Trade Practices Act, 1969 and to be implemented proposed Competition Act. The franchisor and the franchisee would need to ensure that their practices do not classify as monopolistic or restrictive or else the Commission under the MRTP Act can grant injunction to prevent such trade practices and may award compensation for any losses or damage suffered thereby. Tortious liability could also arise out a franchise relationship in the event of negligence leading to loss or damages to third parties or in the event of principal-agent relationship between the franchisor and the franchisee. In such cases the franchisor could be held liable for any torts committed by the franchisee during the course of his business.Cons of a New Law: Having a host of laws, I personally feel that introduction of specialized law at this stage will rather have a negative impact on the growth on the franchise industry:- Most developed countries do not have franchise specific law or was introduced much later: The United States of America which is the inventor of all types of franchise arrangements did not have any franchise specific law for good 50 years. Since the time of development of the concept during 1938 till 1993, there was no attempt made to regulate franchising in the U.S. It was only in 1993 that the Uniform Franchising Offering Circular (“UFOC”) Guidelines were adopted in USA as the recommended format for franchise disclosure documents at the State level. By 1995, the new UFOC Guidelines were adopted by each of the state franchise regulatory authorities that required registration of franchise offerings.United Kingdom does not have any specific legislation or regulation, which regulates franchising or foreign franchising companies. The European Franchise Federation has however prescribed “European Code of Ethics for Franchising” that facilitates prospective franchisee to enter into any binding franchise relationship with full prior knowledge. Similarly, UNIDROIT has in September 2002 adopted a Model Franchise Disclosure Law requiring the franchisors to provide extensive written disclosures to prospective franchisees at a pre-contractual stage.Even Singapore which is home to many franchises from around the world, there does not exist any specific legislation on franchising in Singapore.Even in the countries where there are franchise specific laws, the purpose is to require extensive disclosures to the prospective franchisees which in my opinion can be introduced through an association like Franchising Association of India, whereby the franchisor and franchisee adhere to the code of conduct specified by the Association.- Will hamper the growth of the industry: Given the fact that the franchising sector is still in the nascent stage of evolution and development, we are still not ceased with most of the practical issues involved in implementing and managing a franchise relationship. Therefore, introduction of a specific law may not only fail to address all the issues but may even have an adverse effect by unnecessarily burdening the franchisor and franchises with regulatory and reporting compliance/requirements and may also deter the prospective international franchisor to come to India. It may prove a very theoretical legislation without any practical implementation background of the situations and may need frequent modifications and amendments.- Most issues can be contractually negotiated and taken care off by contractual arrangement: As already discussed, most of the concerns of the parties can be mutually discussed and agreed upon a negotiated contract. Even otherwise, no single law can deal with the complex nature of issues involved in a franchise arrangement which ranges from protection of IP rights to product liability, exchange control issues, labour laws, enforcement of contractual rights, etc. Further, enforcement issues between the parties to the agreement i.e. the franchisor and the franchisee would be governed by the substantive law of the territory and dispute resolution mechanism agreed between the parties, would take care of the enforcement of such rights. Compulsory resolution of dispute through a self imposed regulator may not be healthy for rapid growth of this sector. I feel that the day and time for a specialized franchise law is yet to come and it may even be pre-mature to enact such a law.o ConclusionIn view of the foregoing, the time has as yet not arrived to have a franchise specific legislation. It would be in the interest of the franchise industry, which is still evolving and is miles away from reaching its highest potential, that instead of advocating a need for a new legislation to regulate the franchise industry, it would be advisable to let the industry breath, feel, learn, grow and develop in an environment of freedom and competitiveness (though regulated by the present legislation).