“TOP 10 LEGAL CONCERNS” SEMINAR

A seminar entitled “Top 10 Legal Concerns Business Owners Need to Know” was presented by seasoned corporate attorney, author and publisher, Jacqueline Warner, Esq. during a recent CEO Space New York Midtown meeting facilitated by its Chapter President Steve Nye. All companies and entrepreneurs face unique challenges. Finding a single resource that can address a range of needs saves time, money and frustration. CEO Space for 20 years has been providing the Resources for Growing Your Business.

The seminar/meeting was well attended by a variety of business owners and entrepreneurs. The legal concerns discussed by Attorney Warner ranged from the choosing the right business structure, to the pitfalls of failing to keep good corporate records, to the need for a formal agreements among partners/co-owners of the business, as well as with third parties, and much more. Ms. Warner fielded numerous questions from the attendees, some of which are already addressed in her valuable resource for business owners, a book entitled The Mini Legal Toolbox for Entrepreneurs and Small Business Owners (Warner Publishing, 2007) which is the first in what will be her series of books for business owners. Here are a few questions and answers that every business owner should know:

Q1. What types of business structures exist and how should I determine which one to choose?

A1. There are basically four types of business structures – the sole proprietorship, the partnership, the corporation and the limited liability company.  Determining which one to choose should be based upon various factors, such as the potential risk of third party claims, the business’ plan and objectives and tax implications.

Q2. Why is it so important to maintain proper legal records, especially for a corporation?

A2. If a corporation fails to keep adequate records or otherwise act as a corporation, its “corporate veil” could be “pierced” and the owner(s)’ personal assets attacked and seized.

Q3. What are board resolutions and when are they required?

A3. A resolution is an official document representing an action or actions taken by the Board on behalf of the company. They are required for more substantial actions such as when the company is entering into a loan agreement or buying a business or selling its business, as well as in connection with certain corporate governance matters such as adopting bylaws or issuing stock or other ownership interests in the company.

Q4. Should I have a formal agreement with my partners/co-owners and if so, what should it address?

A4. Yes, a written agreement is strongly encouraged – in large part because it minimizes disputes or claims among the owners. Terms that should be addressed in the agreement include the ownership interest amount for each partner, any duties or responsibilities of each of the owners, restrictions on transferability of ownership interests, and any non-compete provisions.

Q5. What types of agreements may I need to enter into during the operation of my business?

A5. The types of agreements and the terms will vary from business to business, but common agreements include consulting agreements, employment agreements, confidentiality or non-disclosure agreements, commercial leases and work-for-hire agreements. Failing to enter into well drafted agreements could be disastrous to your business.

Top 10 Legal Concerns Business Owners Need to Know NOW

• Choosing the Right Structure

Four Basic Types: Sole proprietorship, corporation, limited liability company & general partnership.
The more risky your business, the more you need to shield yourself, as an owner, from personal liability for any debts or wrongdoings of the business.
A structure that may be ideal for one business may not be for another.

• Good Corporate Governance

Failure to maintain good legal records could negate the corporate or LLC status, therefore leaving you personally liable.
Resolutions or a written action is required when certain actions are taken (e.g. entering into a loan; issuing stock or other securities).

• Formal Agreements with Co-Owners/Partners

Important for effective communication and unity among owners  
Minimizes disputes
Facilities buyouts or a dissolution
Provisions commonly addressed in the agreement - Restrictions on transferability of ownership interest, non-compete clause; duties & expectations of owners

• Formal Agreements with Third Parties, including:

Consulting Agreements
Employment Agreements
Non-Disclosure Agreements
Work-for-Hire Agreements

• Labor & Employment

Consultant vs. Employee
Avoid employment tax issues and Penalties
Establish policies/procedures for employees, and proper termination, if necessary

• Commercial Leases

Best to have a written lease
Negotiate the right lease term – a longer term may mean rent stability, but consider, for example, spacing issues and the long term payment commitment.
Be mindful of assignment and sublet terms.

• The Impact  of Taxes on Your Business

Corporate Taxes - S-Corp vs. C-Corp
Tax effect on sole proprietorship
Tax effect on LLC’s and partnerships
Other taxes which may apply - employment, sales tax, etc.

• Legal Compliance in Capital Raising (Equity Offering)

Offering of various securities (stock, member units, note/convertible note).
Types of Regulation D offerings (Rule 504, 505 & 506).
Manner of solicitation to avoid SEC registration.

• Buying/Selling A Business or Assets

Perform adequate due diligence of company/assets to be acquired.
Letter of Intent is helpful before entering into agreement to ensure a true meeting of the minds.
Pay attention to problems you may be inheriting, such as  pending lawsuits, outstanding debt, liens on assets, etc.

• Protecting Intellectual Property

Trademark, patents & copyrights.
Properly secure your internet domain name.
Avoid infringing on anyone else’s IP rights.

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