How to Protect Your Family-Owned Business from Environmental LiabilityEnvironmental liability can pose a significant danger to any business, with enforcement penalties and clean-up costs reaching into the hundreds of thousands, if not millions, of dollars, but family-owned businesses may be especially at risk if they are not well-equipped to comply with environmental regulations and assess potential environmental risks.

There are a few steps family-owned businesses can take to help avoid costly environmental liability:

1. Always perform a Phase 1 Environmental Site Assessment before purchasing property.

A Phase 1 Environmental Site Assessment (or “Phase 1”), following the ASTM standards, should be performed before your family business purchases a piece of property. This site assessment will help to determine if the site in question is potentially contaminated and assess other environmental risks associated with the property. Even if a Phase 1 has been conducted on the property in the past, it is good practice to request a new assessment, as the Phase 1 should be less than one year old at the time of acquisition of the property and certain sections of the Phase 1 may need to be updated if more than 180 days old.

Not only is a Phase 1 an important information-gathering exercise, it can also shield you from certain types of liability in the future. Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), otherwise known as “Superfund,” liability for environmental contamination can be imposed on any current owner or operator of a contaminated property, even if the contamination at issue was not attributable to their actions. However, an owner can avoid liability under CERCLA through the Innocent Landowner Defense or Bona Fide Prospective Purchaser Defense. Both of these defenses require that the owner, at the time of purchase, undertook “all appropriate inquiries” before taking title to the property.

A properly conducted Phase 1, demonstrating that there was no contamination found on the property at the time of acquisition, is sufficient evidence to prove that the owner took “all appropriate inquiries” before taking title. If a statutorily compliant Phase 1 was not completed before the owner took title to the contaminated property, these defenses cannot be utilized and business owners may find themselves facing steep clean-up costs.

2. Voluntarily disclose and promptly correct environmental violations.

Another tool at your disposal to avoid costly environmental liability is EPA’s eDisclosure process. Under EPA’s eDisclosure policy, regulated entities are encouraged to “voluntarily discover, promptly disclose, expeditiously correct, and take steps to prevent recurrence of environmental violations.” Using the online eDisclosure system, businesses can easily disclose and resolve civil violations. If all of EPA’s conditions under the self-disclosure policy are met, certain penalties will be waived by the EPA.

To fall within the scope of this policy, a family-owned business must: (1) Register in the eDisclosure system, (2) self-disclose within 21 days of discovering a violation, and (3) submit an online Compliance Certification, describing how noncompliance was corrected, within 60 days of submitting the initial online Audit Policy disclosure (or within 90 days if qualified to submit a Small Business Compliance Policy disclosure). While it might seem counter-intuitive to disclose your company’s own violations to EPA, the eDisclosure policy ensures that voluntary disclosure, accompanied by prompt correction of the violation, will result in little or no penalty—a boon to the regulated and the regulator alike.

3. Take advantage of free resources to ensure compliance with environmental regulations.

A number of excellent free resources are available to assist businesses in complying with complicated environmental laws. The Small Business Environmental Assistance Program provides an email and telephone hotline that certain businesses can use to get quick answers to their environmental questions. This program also provides information on industry trade associations that can provide businesses with information and assistance in complying with environmental regulations that affect their industry. Each state also has a Small Business Compliance Assistance Program and contact person to aid in compliance with state regulations. Finally, the EPA compiles information on Compliance Assistance Centers, categorized by industry, that helps businesses understand and comply with environmental laws. By utilizing these resources, family-owned businesses can lower the risk of noncompliance and environmental liability at little to no cost.

Please contact us if you have questions about or need more information on environmental compliance for your family business.

So You Think You Want to Retire – Now What?Are you getting to the point in your life where you are thinking about retiring (or is the next generation dropping not-so-subtle hints)? If so, I have a recommendation. Last year my friend and colleague Rob Couch published So You Think You Want to Retire – Now What? I recommend it to you. Rob has a wonderful sense of humor that shines throughout the book. His subject matter is serious but his delivery is anything but.

I believe Rob’s book should be read by all high-achieving, hard-working business builders who are moving into the “next phase of life.” That is the phase where you reap the fruits of your labor or, according to some of my friends, it is the pasture into which you are put by your children. In any event, most founders and business leaders do not intend to leave this life while sitting at their desk. So, the question is: Are you prepared for your next phase? In my experience an honest affirmative answer is rare.

In the online article “The big thing everyone should think about before retiring – but almost no one does,” reporter Catey Hill observes that we plan for building wealth to retire and do our best to maintain our physical health so we can enjoy retirement but we rarely consider the psychological impact of leaving our life’s work. Consider the emphasis placed on “work identity” and how we are defined (in our own minds, at least) by the business we have built or the work we do. Think about the impact that losing that “work identity” is likely to have on your mental health.

My friend Gary, who has blown past “retirement age” and now spends most of his weekdays counseling younger CEOs, reports on his peers who have retired and are struggling. They have lost their sense of purpose and identity. Golf every day has gotten old, and they are watching too much cable news. They are at risk of rapidly becoming “angry old men.”

The good news is that there is an answer to Rob’s question, “Now what?” The answer begins with vision and planning. Successful business leaders know how to envision the future and develop a strategic plan.  Why not be as intentional in your planning for the next phase as you have been in building a successful business? Rob is an excellent guide through that thought process. If that isn’t enough to pique your interest, Rob includes a joke at the end of each chapter that is worth the read in its own right.

My next post will be an interview with Rob that touches on a few of the lessons from So You Think You Want to Retire – Now What? Stay tuned.

Aircraft Purchase, Ownership and Operation: Protecting the Interests of a Family Business Owner – Part 4As noted in Part 1 of this series, owners of private aircraft will often want to share ownership and/or use of their aircraft with others. In most cases the motivation for sharing ownership and/or use of an aircraft is to defray the significant costs and expenses associated with the purchase and maintenance of the aircraft, purchasing or leasing a hanger for storage of the aircraft, employing a pilot or pilots and other crew to operate the aircraft, insuring the aircraft, and other similar costs and expenses. For these and other reasons, it is common for owners of private aircraft to enter in various types of arrangements to share ownership and/or use of their aircraft with others. However, any such arrangements must comply with the Federal Aviation Administration rules for the operation of private aircraft, namely, Part 91 of the Federal Aviation Regulations (FARs), which were discussed in greater detail in Part 3 of this series. The following are the more typical arrangements for sharing ownership and/or use of a private aircraft permitted under the FARs:

Aircraft Dry Lease Agreement

It is common for a small business or individual owner of a private aircraft to make the aircraft available for use by others at times when the owner is not using the aircraft. This is often accomplished by what is referred to as an “aircraft dry lease.” An aircraft dry lease is an arrangement whereby the owner leases the aircraft to another party (lessee) and the lessee is required to provide its own pilot or pilots and pay the costs of fuel and other expenses incidental to the lessee’s operation of the aircraft. The FARs require that the owner and the lessee enter into an aircraft dry lease agreement, which provides, among other things, that the lessee is to have “operational control” of the aircraft at all times that it is operated by the lessee. This means that the lessee, rather than the owner of the aircraft, is deemed to be responsible for the operation and control of the aircraft while it is being used by the lessee, thereby placing primary liability upon the lessee for any accidents or incidents that occur during the lessee’s use of the aircraft. The financial arrangements under an aircraft dry lease vary from one lease to another but generally include an hourly charge for the operation of the aircraft, a flat fee (daily, weekly or monthly) for the lessee’s possession of the aircraft during the lease term, and reimbursement or sharing of certain costs related to maintenance, repairs and/or insurance.

Time Sharing Agreement

In situations where the owner of a private aircraft would like to make the aircraft available for use by others under a lease arrangement, but the owner prefers that the owner’s pilot(s) operate and control the aircraft while it is being used by the lessee, the owner and lessee may enter into a time sharing agreement. A time sharing arrangement differs from an aircraft dry lease arrangement in that the owner is deemed to retain “operational control” of the aircraft even though it is being leased to and used by the lessee. The two arrangements also differ on account of strict limitations imposed by the FARs on the amount that the owner of the aircraft may charge the lessee for its use of the aircraft. The lease charges under a time sharing arrangement are limited to twice the cost of fuel used in the operation of the aircraft plus the following incidental expenses associated with the operation of the aircraft: (i) travel expenses of the crew, including food, lodging and ground transportation; (ii) hangar tie-downs costs; (iii) insurance obtained for the specific flight(s); (iv) landing fees, airport taxes and similar charges; (v) flight food and beverages; and (vi) other limited incidental costs associated with the flight(s). In contrast, there are no limitations on the amount of rental fees and other charges that an owner may charge a lessee under an aircraft dry lease arrangement. Payments by a lessee to an owner under a time sharing agreement are generally subject to a 7.5 percent federal excise tax.

Aircraft Charter Agreement

Another opportunity for the owner of a private aircraft to generate revenue to defray the expenses associated with ownership and maintenance of an aircraft is to make the aircraft available for charter by others. Because most owners of private aircraft are not authorized to provide charter flights under Part 135 of the FARS (see Part 3 of this series for a discussion of Part 135), an owner will typically contract with an aircraft charter services company (charter operator) to place the aircraft on the charter operator’s Part 135 certificate. This makes it possible for the charter operator to provide charter flights using the owner’s aircraft when the owner is not using the aircraft. The charter operator will typically retain between 15 and 20 percent of the net charter flight revenues and remit the balance to the owner. The charter operator is responsible for all aspects of the operation of the aircraft during any charter flights, including providing the pilot(s) and other crew for the flights.

Joint Ownership Agreement

A joint ownership agreement provides for the ownership of a private aircraft by multiple individuals and/or companies who enter into an agreement regarding their respective ownership of the aircraft, the rights of each owner to use the aircraft, and the manner in which the owners will share the costs and expenses of owning, maintaining, insuring and operating the aircraft. In a joint ownership arrangement, a single owner assumes responsibility for employing and providing the pilot(s) and other flight crew to operate the aircraft for the benefit of all of the owners. The salary, benefits and other costs and expenses incurred by the owner employing the pilot(s) and other flight crew are shared among the owners in the manner provided in the joint ownership agreement.

The forgoing is a general overview of the more common arrangements for the owner of a private aircraft to “share” the aircraft with others and receive compensation for doing so. There are a variety of other arrangements for sharing ownership and/or use of aircraft, including co-ownership, fractional ownership, and interchange arrangements. All such arrangements are governed by and must be conducted in strict accordance with the FARs. The owner of a private aircraft should consult with experienced aviation counsel before entering into any arrangement whereby the owner makes the aircraft available for use by others in exchange for any compensation, reimbursement or other remuneration.