Busting the Top Ten Business Myths

Below are ten perceptions commonly held by Minnesota business owners.  Do you know whether these beliefs are true or false?


[Note:  The following answers are based on general concepts of Minnesota law.  These answers should not be construed as advice specific to your circumstances.  For advice regarding your specific situation, please contact ES Swanson Law.]


1)  Insurance provides the same level of liability protection as incorporating a business entity.

False.  All insurance policies have limits and exclusions.  (Note, however, that while liability protection may not apply in some situations, piercing the corporate veil usually requires evidence of egregious or fraudulent behavior.)

2)  Business contracts must be in writing to be enforceable.

False.  Certain contracts, such as real estate agreements and agreements for services that cannot be provided in less than a year, must be in writing.  However, most contracts do not necessarily have to be written to be enforceable.  That being said, it is a good idea to document all agreements in writing, because without written documentation, it can be extremely difficult to prove that an agreement existed or prove its terms.

3)  Noncompete agreements may be enforced in Minnesota.

True.  Noncompete agreements will be enforced in certain circumstances.  To be enforceable, the noncompete’s terms must be reasonable in length of time, geographic scope, and restricted activities.  The signor must also receive adequate consideration for signing the noncompete.

4)  Buyers have more control over their liability when they buy the assets of a company than when they buy the company’s stock.

True.  When buying the stock of a company, the buyers basically step into the shoes of the prior stockholders.  On the other hand, when buying the assets of a company, the buyers may be able to select which assets are purchased and which liabilities are assumed.  Of course, a buyer’s actual liability will depend on the terms of the purchase agreement governing the transaction.

5)  If the Secretary of State accepts your company’s Articles of Incorporation, your company has exclusive rights to its name.

False.  The Secretary of State only checks its own registers to make sure another company does not already exist in the state with the same name.  The Secretary of State will not search federal trademark records to determine whether your company’s name infringes on the rights of companies located in other states.  Therefore, the Secretary of State could accept your company’s Articles of Incorporation, and the company could later receive a letter claiming its name infringes on the trademark rights of another company elsewhere.  To alleviate this risk, perform a trademark search when selecting the name for your company.

6)  Trademarks and copyrights must be registered to be enforceable.

False.  Some copyright and trademark rights come simply from their use.  However, such rights come from common law rather than state or federal statute.  At most, common law copyright and trademark rights allow the owners of the intellectual property to receive a court order stopping infringement.  Completion of the state or federal registration process brings a trademark under statutory protection and therefore makes it eligible for additional statutory remedies.  State and federal statutes may allow for recovery of lost profits, attorneys’ fees, and additional monetary damages.

7)  Proprietary information put on the Internet is always considered part of the public domain and may be used or copied by anyone.

False.  Companies may post information on the Internet while continuing to claim intellectual property rights to it.  To maintain protection of the posted information, the company should clearly display copyright and trademark notices.  In addition, the website’s terms and conditions should include provisions claiming ownership and protection of the information.

8)  If your business partner becomes divorced, his/her ex-spouse may become your new business partner.

True.  Stock in a company is a personal asset that is divisible in a divorce proceeding like any other personal property.  Therefore, it is possible for a divorce court to assign the stock to your business partner’s ex-spouse.

9)  Real estate contracts must be in writing to be enforceable.

True.  Minnesota statute (and its equivalents in other states) requires that contracts involving real estate interests be put in writing.

10) Employers do not always have to pay employees accrued PTO upon termination.

True.  Paid time off (PTO) is not a statutorily provided benefit.  As a result, an employer can choose whether give the benefit of PTO to employees, and can choose the terms under which it is given.  This means that employers can place conditions on whether the PTO is paid out upon termination.  For example, an employer can require that an employee give two weeks’ notice of his/her intent to quit if the employee wants to receive payment of any accrued but unused PTO.  Any conditions placed on PTO should be clearly defined in employment agreements or the handbook (if the employer uses the handbook as an employment agreement).

Do you have a question not answered here?  Please click here to contact ES Swanson Law.