With the new millennial technology era, social media has become a very significant tool in the business world. The advancement of social media has changed the way we….
Clients often ask me what a Force Majeure clause is. It is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. The clause involves situations such as natural disasters, prolonged shortages of supplies, unanticipated or unpredictable government action, and much more. Parties negotiating a contract are free to define force majeure events at their choosing. Ultimately, events that are unforeseeable, unpredictable, and not contemplated by the parties at the time of contracting can generally fall within the force majeure realm.
Revisions to the Fictitious Name Act clarify the requirements for registering fictitious names in Florida, and modernize the statute to deal with the myriad of types of entities that now exist. Read on the Legal Newsstand on FantettiLegal.com
Deciding to build a company in the start-up phase or for a family business, day-to-day operations and growth objectives tend to consume most of management's time and effort. Day-to-day decisions, however, can enhance or diminish the exit value of the business at some point in the future, or can delay a sale. It is plausible that most business entertain the idea of one-day merging or cashing out in a sale of their business through an acquisition of some form. Regardless of the viewpoint, operating the business with a potential exit in mind can steadily increase the valuation realizable in a future sale.
As 2018 approaches, year-end projects emerge relating to the termination, formation and conversion of business entities prior to December 31, 2017. People may be stuck in a business they want out of, whether with family, friends, or you took a flyer with an investment opportunity that isn’t working out the way you thought.
Many who organize small businesses, such as corporations or limited liability companies, assume that the benefits of such entities are absolute. One of these benefits is the complete separation of the business from an business owner’s personal net worth. However, these benefits are not maintenance-free. Once your company is formed, it is easy to go back to business as usual and forget to comply with necessary formalities, such as preparing detailed company minutes and resolutions. When properly kept, minutes constitute a record of company proceedings and should be regularly prepared for the following reasons: (i) reducing exposure to personal liability, (ii) proving authorization of major business decisions, and (iii) preserving a credible record for audits.
It is not uncommon for a family business, business among friends, or perhaps boyfriend and girlfriend or husband and wife, enter into a business where the two people want to be ‘fair’ with each other and state they will split everything equally – ’50/50. This sounds great in theory, but in reality, as the Delaware Supreme Court has taught us in Philip Shawe v. Elizabeth Elting, the business doesn’t always run smoothly and relationship issues/ disagreements on the direction of the business can get in the way of development. Moreover, growth can stagnate because decisions aren’t being made due to deadlock situations and other persistent problems. Take for example, a business founded by two college friends, that own a business 50/50, although one owner gave one percent to his mother. Aside from being business partners, the two founders were initially engaged. The engagement was called off, and the relationship soured and remained hostile. Despite the breakdown of the personal relationship, the business grew to be one of the largest in its industry.
The role of the business owner is always changing. Not only do many business not have an attorney or any form of a legal department, but business owners without legal assistances play the dual role or making business decisions and legal decisions. It is important that a business owner find a lawyer that can understand legal consequences, draft legal documents and conduct litigation; otherwise, the business owner is required take on the strategic management of legal risks to protect the value and assets of a company. Absent proper understanding of the issues facing business and how the issues can impact the bottom line of a business, the risks will negatively impact a business without a business owner even realizing it before its too late.
For businesses across America, especially small, family-owned businesses, shares in family-owned businesses are often transferred between family members, whether through a sale or gift during a shareholder’s lifetime or through inheritance after an owner’s death. The parties to such a transfer should make sure it is properly documented to reflect the intention to transfer the shares. This reality is something business owners neglect and fail to have a plan in place for any transfer until it is too late. Typically, the documentation for any such transfer is done through the transferor’s delivery of a signed share transfer instrument and the company’s issuance of a share certificate in the new holder’s name. In the absence of proper documentation, the transferee may not have a valid claim to the share ownership. Even worse, the company may find itself in the middle of an ownership dispute if the transferee has attempted to acquire the shares through fraud or deceit.
Courts are starting to take consistent positions on this matter across the United States. A California Court of Appeal recently faced such a situation in Patel v. Clocktower Inn, Inc. The company owned a hotel in California. The hotel was managed by members of the Patel family. One owner, lets call the owner “Owner A,” owned 12 of the shares of the company’s stock, equaling 50%, while three of Owner A’s nephews, collectively, owned the other 50%. Owner A’s two sons worked for the company but did not own any shares. Owner A was in his late seventies and did not read English. Instead, he relied upon the nephews to explain company matters to him Unfortunately, as the Court later noted, “formal corporate procedures were rarely used [and] [b]usiness decisions were often made orally and without formal board of directors meetings [and recorded minutes”] to properly justify sanctioned corporate action.
Owner A either told his sons or led them to believe that Owner A’s shares in the company would pass to them upon his death. According to the Court, however, the nephews did not want to wait until Owner A’s death to claim some of the stock. In order to do so, the nephews caused the company to hold a shareholders’ meeting pursuant to signed waivers and a notice of consent. The minutes created in connection with that meeting stated that the shareholders “were informed” that Owner A had agreed to transfer three shares each to the nephews “as a gift” and instructed the company’s secretary to issue new shares. Owner A signed the shareholder meeting minutes at the nephews’ urging but without reading or understanding its contents.
The company’s by-laws required an endorsement to effectuate a transfer of any company shares. It was undisputed, however, that Owner A never signed any stock transfer certificate. Instead, when Owner A finally learned from one of the sons that six of his shares were being transferred, Owner A objected and refused to make any transfer. Nonetheless, based upon the supposed transfer, Owner A’s nephews, now ostensibly holding a majority of the company’s shares, took over the management of the company. Owner A then filed a declaratory judgment action against the nephews, and the company, asserting that he never intended to transfer any of his shares and that the claimed transfer to his sons was therefore ineffective.
At trial, the court rejected the nephews’ contention that the shares were effectively transferred through the statement in the shareholder meeting minutes that Owner A had transferred the shares “as a gift.” The trial court also noted that, “[b]eing gratuitous and without consideration, the intention stated in the minutes could not constitute an enforceable contract.” Instead, Owner A “remained free to change his mind until the transfer was completed.” Where Owner A never signed any transfer certificate/assignment and stated that he never intended to transfer the shares to his sons during his life, the transfer was never completed. The trial court thus entered declaratory relief in Owner A’s favor, providing specifically that the minutes did not alter the share ownership and that the allocation of shares remained as it had been before the minutes were created, with Owner A continuing to own 50% of the company’s shares.
The nephews tried to argue that the meeting minutes were an enforceable contract; however, Owner A could not read the minutes nor were they translated for him before he signed the minutes; that Owner A never agreed to transfer his shares to anyone during his lifetime; and that the nephews deceived Owner A into signing the minutes of the shareholder meeting.
This case serves as a reminder that corporate formalities matter when transferring shares of family-owned businesses. Not only do you have to keep the formalities (be certain you have intercompany agreements and keep track of minutes and resolutions), but if the by-laws or other governance documents require delivery of specific signed documents to the company in order to effect a transfer, both the company and the transferee should make sure the transferor has signed and delivered all such documents in accordance with the necessary requirements. Also, while children of family- business owners may wish to speed up their expected inheritance of certain shares in the company, they should not try to avoid the required corporate formalities for a transfer through deception or other maneuvers designed to give the appearance of a present intent to transfer where none exists. Corporate formalities will reign supreme as a method to keep consistency in corporate practice for disputes. Such misconduct will increase the risk that the supposed transfers will be deemed invalid if later challenged by the shareholder of record. It is also entirely likely that, in the face of such misconduct, the shareholder will reconsider his or her estate plan and disinherit the offending heirs entirely.
Starting a small business can be difficult. It requires a tremendous amount of passion and dedication, as well as some assistance from professionals in specialty fields with information that is generally applicable to any business such as accountants, insurance agents, lawyers, and others. While you may not need an attorney in the same measure, consulting one at the outset of the business and periodically throughout can get you off to a good start and keep you from falling into common legal traps. Here are five reasons you should consult with an attorney at the moment you begin to start a new business that will greatly benefit your small business.
1. You need to choose a business entity:
There are several different types of business entities, and each has varying tax treatments and liability issues, depending on circumstances in the business. For instance, a relatively new and popular type of business entity is the Limited Liability Company, which provides the limited liability of other corporate forms with the single taxation of a partnership. The organization and operational needs of the business and whether there will be employees are large factors in choosing the best entity to get the job done.
2. Your employees come with complicated requirements:
When you have employees, you must comply with a host of laws that define your relationship with them. You’ll need to know what laws apply to your pay scale and payroll, how to handle leave time for medical issues, what records must be kept, how to avoid discrimination in employment actions and a slew of other requirements. Even if you choose to use independent contractors, you must be very careful in setting the terms of relationship to avoid penalties for “wage and hour” violations. On top of this, the actions of employees may create liability for employers when done as part of the job so clear guidelines and training are a good investment.
3. Large business transactions require legal expertise:
Almost every business will need assistance with standard legal functions such as contract drafting and or real estate negotiation. As businesses get more complex, more legal functions will be required, such as the creation of a business succession plan, planning and zoning assistance for expansion, or even public offerings of stock in the company. All of these are best managed with the assistance of attorney. Reviewing complicated documents provided by the opposing side in any matter can bring significant pitfalls for a business if an attorney’s counsel is not sought at the outset.
4. Even day-to-day operations need legal assistance:
Nearly every aspect of business is governed by some law or regulation, each with an attendant set of benefits or consequences. These can be anything from sales tax collection issues on local sales, to permitting and license regulation compliance, to building code issues. It’s important to have a relationship with an attorney from the beginning, not just to help solve problems as they arise, but to anticipate them before they happen.
5. There may be other legal or ethical concerns in your business dealings:
One area that doesn’t always receive the attention it deserves is the interplay between the structure of business dealings and laws, regulations and ethics codes that govern certain professions. For instance, healthcare professionals that form agreements to share certain business arrangements such as staff and office space may run afoul of federal anti-fraud laws. Professional ethics codes can affect these arrangements as well.
In conclusion, the bottom line is that a working relationship with an attorney can provide a safety net for you and your business, revealing traps and providing tips to keep you in business for the long haul. Create these relationships early and rest easy knowing that both you and your business have someone watching your back.
When parties enter into a domestic commercial contract, their focus is typically on memorializing their agreement and getting the deal done; unfortunately, rushing to meet an end goal doesn’t mean a party truly met the end goal. As a result, they may not think critically enough about what will happen if the relationship goes south and how the contract provisions that they chose to include—or did not choose to include or accepted without negotiation—will affect how and where they resolve a dispute and shape the remedies to which they may be entitled.
As the New Year approaches, people begin to think about money making ventures and perhaps starting a new business to see where that great idea can take them. Despite the positivity in aiming for business success, from a relational standpoint, people enter closely-held businesses in the same manner as they enter marriage: optimistically and often ill-prepared
Employers often face the dreaded claim against their company, a claim that the entity, in some form, discriminated against an employee. Aside from worrying about a claim coming, employers often do not understand the process involved in dealing with these claims and the deadlines and process an employee goes through that can affect an employer’s responsibility to deal with a discrimination claim.
You may not be aware, but the NLRB (National Labor Relations Board) has opined on numerous occasions that various common handbook provisions are unlawful under the NLRA (National Labor Relations Act) because they may have the effect of inhibiting employees from engaging in protected activities, such as discussing wages, criticizing management, publicly communicating about working conditions and discussing unionization.