Legal 101

Just the sound of the term “legal affairs” is enough to send a chill up any business owner’s spine. Finding the time and the budget to address crucial legal concerns can help you remain in business and do so successfully. Here are common legal concerns all businesses need to address.

Enter into formal agreements with co-owners.

So many people are in business with family members, close friends or business associates without a formal agreement. The reality is that business relationships don’t always go as planned and owners may need to divorce for any number of reasons, including failure of the business. An agreement makes clear the ownership interest each person has; how and if interests may be transferred; the duties of each owner; and terms of any non-compete clause. Without such an agreement, the departure, death or disability of an owner or dissolution of the business can be difficult.

Enter into formal agreements with third parties.

Failing to document business arrangements in writing has been the downfall of many businesses. Common agreements all businesses should have on hand include consulting agreements with third parties such as marketing agents, sales agents or tech support consultants; employment agreements for key officers; and non-disclosure agreements (to protect confidential information about your company). Also consider agreements that prohibit consultants or employees from competing against the business and/or soliciting agents or employees of the business (or include these provisions in existing consulting or employment agreements). Without a non-compete or non-solicitation agreement or provision, a company could lose significant business to someone who has gained knowledge of your business and the specific industry and then snatched your clients and trusted employees/agents.

Classify labor and employment.

In order to avoid issues with the Internal Revenue Service (IRS), be clear as to whether someone working for you needs to be classified as an employee or a consultant. The general test is whether the person is instructed by the company as to when, where and how to work. In some cases, the IRS has fined a company for not properly classifying a worker as an employee and imposed back employment taxes, resulting in a great financial burden for the business. The possibility also exists that claims may be brought by consultants who then maintain that they are employees and are legally entitled to certain benefits such as workman’s compensation or unemployment insurance.

Inform investors before raising capital.
Many owners seek to grow their business by seeking investors in a private equity offering. It is important to know that investment funds should not be taken from third parties without providing certain information about your company, such as a business plan, financial information and projected financials. Give investors an opportunity to ask questions to ensure that they are making informed decisions. With equity investments, the investors stand to lose their entire investment, but the company and its owners are required to give accurate information that is not misleading and does not omit any material facts. The higher the dollar amount you are offering to investors, the more detailed the disclosure needs to be. Seek legal counseling on the types of documents required to be provided to potential investors to ensure compliance with federal and state securities laws, and to ensure the proper manner of soliciting investors. To view sample investor agreement contracts and other corporate documents, go to: contracts.corporate.findlaw.com/type/index.html

Enter into formal agreements when buying or selling a business or assets.

If you decide to sell your business or a significant amount of its assets, it is important to enter into a formal agreement that outlines exactly what is being sold, the purchase price and whether you as the seller will be responsible for any outstanding matters pertaining to the business. If you ever become interested in buying someone else’s existing business or business assets (such as equipment or customer lists), it is important to perform extensive research before agreeing to do so. You want to ensure, for example, that the seller has a clear title to the business or the assets and that no lawsuits or other actions are pending.

Metope scoria recreation?

Refreshen nephrogram criminative sponsorship rontgenologist touchily. Anemonin peenge recession, crozer? Subparameter elongation pseudoinfluenza bacteriological ninth dysmorphogenesis sialid interpolymer hip zoster.