Business people are often misled by their investments in their own companies. How much to invest in the company and how much to pay to themselves? These are constant questions of operating a business.

Business people who borrow money from their companies frequently face an I.R.S. challenge. To win the case they need to have a signed note with a repayment schedule and a stated interest rate. Otherwise, the tax people are likely to view the loan as a dividend, taxable to both the business and the owner. There are more and more cases where the I.R.S. has accused business owners of family-owned S corporations of underpaying themselves.  

So, how much to pay and how much is right? The amount depended on the business and on its industry. One of the creative things business people do to keep themselves from running afoul of the I.R.S. is to keep careful minutes of board meetings and record any bonuses paid, making clear that they are performance related, not paid because the owner wanted a new car or luxurious dwelling.

Another is to insure that compensation is based on service rendered, not on the percentage of stock held. The I.R.S. is likely to view payment for stock holdings as a dividend. The last one can’t be deducted as a business expense, but compensation can be, however. The third one is to convert to an S corporation, the entity which allows earnings flow through to the owners, rather than being retained at the corporate level. This type of corporation is not always preferable, because of the various restrictions on S corporations, where only one class of stock and the corporation is must have 35 or fewer shareholders, all United States residents.

In case you go on a regular C corporation, compensation should always reflect performance, not a current performance, however. Although it’s very easy for business people to identify themselves with the company and to feel the ownership, legally the company is a separate entity, and the legal standard of financial operations including owners’ compensation packages is reasonableness. 

“Home based business”. These magic words make business people search on the Internet for new business ideas. True enough, nobody likes to commute every day and to work in the office. What business people need to know about home based business is all about online business, technology changes and if they are doing any business offline how to bring it online. The video I posted today is a brief introduction to the project.

It should be noted if online business is your passion and it generates even some income, IRS will treat you as a regular business. In other words, you still need to pay taxes. 

However, according to “Silicon Molds Blog” there are several tax advantages of doing business online. Personal expenses, such as the use of your car, home or computer may become partially deductible, retirement savings plans can shelter part of your eBay income from taxes, and you may be able to hire your family to help shift income to members in a lower tax bracket. So even if you only earn a little money online, not only are you required to report your earnings, it may even help you reduce your income taxes by taking advantage of tax opportunities available only to small business owners.

Generally, any income you receive from all sources is subject to U.S. income tax unless it is specifically exempt by law (hint: online profits are not exempt by law). That means that a lot of activities that you might not think of as taxable, such as garage sale income, gambling winnings, and online businesses are taxable.

In a nutshell, an approach to the online vs. offline businesses should be comprehensive and tax issues need to be considered very well. Enjoy your weekend!

All potential clients, customers, people interviewing for jobs within a company, suppliers, product reviewers, potential investors, bankers, accountants, auditors, technical providers, and testers can qualify as “outsiders” who are potentially dangerous for software developer, to expose its trade secrets. Infringement can happen, for instance, when a software producer licenses its software to a client, which gets outsider technical support from third party which is not bound by any confidentiality agreement with his outsiders.

A person who got an access to trade secrets must promise in a nondisclosure agreement not to disclose secrets to others without permission from the trade secret owner and it should be signed by every outsider prior to revealing a trade secret. It is important to mention that nondisclosure agreements conclusively establish that both parties have confidential relationships and that the person who receives a trade secret should keep it in confidence. It absolutely and clearly defines the scope of responsibility and helps both parties not to make mistakes. This issue very important in the high-tech area, “because a little bit of information is worth a lot”.

A good example of the heart of nondisclosure agreement is when someone is licensing material from X, acknowledges that it contains trade secrets and other valuable proprietary material owned by X, and agrees to protect the confidentiality by not disclosing, and not allowing anyone else to disclose to any person, any of the material; and by not copying any portion of the material; and by not removing or altering the confidentiality notices included in the material.

Since not everybody has assets that can be used to cover possible damages caused by a breach of the agreement, in addition to those statements, would be added a statement of “Personal Liabilities” that all such material is a sole a exclusive property of X and in the event of actual or alleged breach of this agreement by this person, he agrees to be fully liable to X for all damages.

Nondisclosure agreements can also consist of the term that governs ownership of intellectual property upon termination of employment, when employee agrees that all memoranda, notes, records, drawings, or other documents made or compiled by him or made available to him while employed by X concerning any process, apparatus or products manufactured, used, developed, investigated or considered by X or concerning any other X activity shall be the property of X and shall be delivered to X upon termination of the employment or at any other time upon request.

Are all nondisclosure agreements enforceable? How to compel venture capitalists, for example, to keep signed agreements when they come up with ideas that may duplicate each other? It seems that there is no chance to legally prevent revealing secret business plans for consideration of possible investment by venture capitalist.

When personal trainers provide clients professional information they come up with information from different sources. The same about website developer-independent contractor as discussed above. What about confidentiality of that kind of people? It’s absolutely clear that practically there is no control of confidentiality. Will reporters and journalists sign nondisclosure agreements? It seems they will not because of newspaper policies. The answer to all those questions is based on one practical reason. This is a good reminder only, a good precautionary measure which expresses serious intent.

Bottom line is when your information is worth a lot of money make an agreement with your employees, contractors, developers and partners. Let them know that when you talk about confidential relationships you mean it!