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Archive for the "Corporate Law" Category

Minority Shareholders Navigating a Buyout: Know The Landscape

Minority ownership of a closely held company can be a lucrative but risky proposition. A minority shareholder’s marginal voting position can unfairly empower other shareholders, especially if they vote together.

To illustrate this point, consider a family business owned by three siblings working for the company. Without laws protecting each individual shareholder, one sibling would be powerless to stop the others from cutting her out of a profitable deal or firing her and refusing to pay dividends, thereby depriving her of any ownership benefit. The two siblings could also vote on a risky business change – like selling all of the company’s assets in a blue chip market to finance the production of a fad product – without opposition from the minority owner. 

South Carolina has attempted to balance the power enjoyed by majority shareholders through laws that permit an alienated owner to force the company to buy out her shares. These laws are applicable to situations like those discussed above, when a minority shareholder is being treated grossly unfair (often called “minority oppression”) and also when a minority shareholder dissents on a vote that would fundamentally change the way the business operates or is owned, as in a merger (often called “dissenter’s rights”).       

Forming an LLC? Don’t Forget to Have “The Talk”

About two-thirds of all new businesses in the U.S. start out as LLCs, or limited liability corporations. Entrepreneurs recognize that LLCs combine the protections of a traditional corporation with the operating flexibility that small businesses need. 

We’re big fans of LLCs, but they are not without potential pitfalls. When there are problems, it’s usually because the LLC members were in a hurry at the outset, and didn’t take advantage of all the safeguards and flexibility this business formation entity allows.

Precise Communication is the Antidote to Accounting Malpractice Claims

In my experience as both an attorney and a formerly licensed CPA, true accounting malpractice is rare. But, when there are claims, they can be expensive. It’s incumbent on accountants, as well as clients, to take steps to minimize the misunderstandings that can lead to litigation. 

Records Retention - Do You Have a Plan?

For many small businesses, deciding what documents to keep and for how long is a function of storage capacity. As servers and filing rooms reach capacity, businesses look for documents to discard. 

This is not the way to manage your documents.

Why You Must Renew South Carolina Buy-Sell Agreements to Reflect Inclusion of Goodwill

A recent South Carolina court ruling has adopted the emerging majority approach utilized by the courts nationwide, and for the first time has recognized the distinction between “enterprise goodwill” and “personal goodwill” for equitable distribution purposes in a divorce action. 

Why Your Lawyer and Accountant Should Work as a Team

One of the first things I do when I get a new business client is to ask if they have a relationship with an accountant. With the client's permission, I'll call the accountant, introduce myself and open up the lines of communication between us. 

Protect Your Intellectual Property with Employment Agreements

In an era when confidential information can be secreted out the door on a thumb drive, business owners can’t depend on the goodwill of employees to keep their intellectual property safe. If you have any form of IP – and almost every business does – we recommend that you protect it with employee agreements. 

While many businesses have unique intellectual property concerns, here are some of the topics we often see emerge. 

What You Need to Know about Estimating the Value of Your Business

If you're considering buying or selling a business, including it in estate planning or setting terms for a buy-sell agreement that is part of succession planning, you want to know what it's worth. While valuing a business certainly includes subjective judgments, there is a method to arriving at an accurate estimate.

Key Legal Issues for Entrepreneurs

If you're thinking of starting a business, you likely are focused on how to sell the product or service you plan to offer. But don't neglect to set up a legal framework that will protect your business and allow it to thrive. In our litigious society, a working knowledge of business law and a relationship with a law firm has to be part of your entrepreneurial toolkit. 

Here are six areas where we recommend that first-time entrepreneurs protect themselves by getting good legal counsel at the outset to reduce the possibility of problems down the road.

What to Expect When You are the Target of a Lawsuit

It’s frightening for most business owners to receive notice of a personal injury or premises liability lawsuit, and one of the first questions lawyers are asked is whether to settle the suit and for how much. The good news is that a majority of suits settle, usually within the limits of insurance coverage, and those plaintiffs who insist on going to trial generally have weak cases.

Protect Your Business Investment with a Buy-Sell Agreement

Every business relationship eventually will lead to a parting of ways. Investors or business partners retire or are slowed by health issues, die, disagree about the future course of the business, or simply decide they want to do something else with their time and money.  

We often deal with “corporate divorce,” and it’s surprising how many people go into a business relationship without giving sufficient thought to their exit strategy. If you’re forming a new business or investing in one, you need a buy-sell agreement that anticipates the end of the relationship and sets terms that will help you avoid hurt feelings, protracted and unpleasant negotiations and even litigation. 

Here are some of the factors you will want to discuss with your legal counsel.      

Business Start-up Legal Checklist

Anyone who has started a business can tell you that they were surprised at how many legal and regulatory hoops they had to jump through just to open their doors. My husband and I experienced this first-hand when we opened a coffee shop and retail business in Greenville. We’re both lawyers, and we still found the process daunting. 

When you start a business, be sure you have the right people in place to help you. A lawyer will be one of them, and here’s a checklist that will help new entrepreneurs stay out of trouble and increase the chances of getting their business off to a trouble-free start. 

Be Careful What You Sign: Red Flags in Commercial Contracts

When businesses sign a contract, they’re usually focused on the opportunity it represents – a new customer, a better supplier or a partnership that expands their reach. Unfortunately, when we, as lawyers, see some of these same contracts, it’s after the air has gone out of such expectations and a deal has soured. 

While our best advice is to have every contract reviewed by your attorney, we realize that most businesses aren’t going to do that for every agreement. If there is a lot of money – or risk – involved, consider asking your attorney to review a contract – a process that usually isn’t time consuming for legal counsel familiar with your business. 

However, in those cases where you choose not to make a call to your attorney, here are some things to watch for based on our experience. 

How to Pick a Lawyer

Just as we all need a family doctor who we can rely on, every small business eventually finds that it needs a relationship with a lawyer. As with the family doctor, many small business owners find it beneficial to develop rapport with one lawyer as a point of contact. While the relationship attorney may sometimes direct the client to someone with specific experience, it’s reassuring to begin the conversation with someone who understands your business and industry – and remembers the names of your kids.

I frequently go shopping for other lawyers myself, so I have some experience in this area. In my case, I’m usually looking for a lawyer or firm in another state who can handle a matter for a client. Even as a lawyer, it’s not always easy to judge if another is going to be a good fit, so I understand how business owners may find it difficult to pick an attorney. Here’s my test for picking a lawyer. 

How to Collect Business-to-Business Bad Debts

Uncollected business-to-business debt is a huge problem for most small companies, and unlike consumer debt, there are no laws in South Carolina that directly address either the rights of creditors or debtors. Hardly a day goes by that we don’t hear from a client seeking advice on how to collect on a long-overdue commercial debt. Here is a list of best practices to help collect bad commercial debts, and to avoid ending up with these tough-to-collect liabilities in the first place.

LLC or Corporation? Which Is Right for Your New Business?

For most entrepreneurs, the choice of business entity comes down to an LLC or corporation, since both insulate personal assets from liability claims. LLCs, S corporations and C corporations all have advantages, depending on your business goals. 

Generally, the comparisons among the three will center on taxes, operating flexibility and treatment of investors and shareholders. 

Here’s a quick overview of these three alternatives that will give you a starting point for considering your options before you talk to your attorney. 

All Businesses Should Have a Document Retention Policy

Technology has made it easy for us to electronically store documents that would have required warehouse-size space in paper form. Now, businesses wrestle with the question of what they can safely get rid of, and what they must retain. This is especially a problem for small businesses, which may not have the luxury of designating someone to supervise document retention.  

Don’t Let Hackers Cripple Your Business

Some of the biggest names in American business were the victims of data breaches last year, but hackers didn’t limit their attacks to companies such as Target, Home Depot and eBay. If trends hold, almost half of American businesses each year will have sensitive data stolen, according to the Ponemon Institute, which studies cybersecurity. 

Don’t Automatically Include Arbitration Clauses in Commercial Contracts

For years, mandatory arbitration clauses have been almost automatically included in many commercial contracts, because they’ve been regarded as cost-effective detours for matters that might otherwise work their way through the courts. Over the last few years, we’ve adopted a more critical view of arbitration, and now regard it as a good strategy for some clients, but not for others.

How to Write a Workable Non-Compete Agreement

Employers invest time, training and trust in key employees, and they don’t want to see them walk out the door and help a competitor. Non-compete agreements can protect your investment in employees – but only if they’re written with reasonable restrictions. 

Don’t Allow Your Business to Become a Victim of the Dreaded Ds

Is your closely-held business protected from the five dreaded Ds – death, disability, divorce, disaster and disagreement?

Turmoil, and even business failure, can follow if you don’t have a legal succession plan in place when any of these events occur. While this may not offer you any comfort, you are certainly not alone if you haven’t yet set up a succession plan: fewer than half of closely-held and family-owned businesses have a plan in place that covers these contingencies.

Criminal Background Checks are a Minefield for Employers

A big issue that will continue to vex hiring managers this year is criminal background checks of job applicants. Employers should be cautious in how they use background checks while we wait for the courts to clarify an area of the law that is fraught with peril.

Don’t Misunderstand the Memorandum of Understanding

Can a city change its mind about development partners after signing a memorandum of understanding (MOU)? 

That question bounced around in South Carolina courts for a decade, and the state Supreme Court issued the final answer last summer. A city – or any party – may back out of an “understanding” that doesn’t include a definitive agreement. 

Judicial Dissolution of an LLC: Why You Need a Prenupt

The formation of an LLC could be viewed like a business marriage in which members join their respective interests to attain mutual objectives. Keeping the analogy going, it’s a marriage that needs a prenuptial. Members who form or join an LLC may have every intention to keep the LLC going indefinitely, but as life happens and problems arise, dissolution of the entity may be in everyone’s best interests. If the LLC’s operating agreement clearly defines the why’s and how’s for voluntary dissolution (what we mean by prenuptial), the process to windup the company can be relatively easy and accomplished without the need for judicial involvement. However, without a clearly articulated plan, LLC members may be forced to have their entity dissolved through judicial action. 

Keeping the “Limited” in Limited Liability Companies:  Promoter’s Contracts and Torts

Organizing a limited liability company (LLC) often requires more than simply preparing and filing articles of organization. Like any other corporate entity, an LLC frequently has to prepare itself to conduct business even before the LLC is formally organized. Enter the promoters - individuals who act on behalf of an LLC prior to its formal organization and conduct necessary pre-organization work, which generally includes entering into various contracts. Until recently, South Carolina courts had not directly addressed the issue of whether an LLC may be held liable for the actions of a promoter taken prior to the organization of the LLC.

To Sue or Not to Sue - When a Homeowner Fails to Pay Assessments

When a homeowner falls behind on payments, which is a common problem for communities both large and small, the association should be diligent in its collection efforts so that it will have enough funds to operate properly. Associations should establish and follow internal procedures in pursuing collections, such as providing notice and opportunity to cure to defaulting homeowners. However, if such attempts fail, an association should consider legal action.

The South Carolina Business Court:  What It is and Why It’s Used

On September 7, 2007, the Chief Justice of the Supreme Court of South Carolina signed an administrative order creating the Business Court Pilot Program in South Carolina. The signing of this order was not a laissez-faire undertaking; rather, it was the result of a well-reasoned recommendation by the South Carolina Bar’s Task Force on Courts.

The Best-Laid Plans of LLCs…Sometimes Turn into Disputes Between Members

The Limited Liability Company structure can be a great option for businesses; it combines the best of partnerships and corporations. Like corporations, members are not personally responsible for company debt.