When a business owner forms a limited liability company or a corporation, they expect the entity to protect them from their business’s liabilities. But sometimes the company doesn’t protect its owners. As I discussed in Your LLC Won’t Protect You from Yourself, business owners are always liable for their own negligence and other actions. Piercing the corporate veil is another situation where business owners can be held responsible for their companies’ obligations. [continue reading…]
Blue Maven K
Stock Basics
@theContractsGuy June 27, 2017
Business owners and potential purchasers of businesses tend to have a number of questions about corporate stock and how it works. This post is a basic 101 tutorial, which answers some common questions about stock in a corporation and how it works.
What is stock?
A corporation’s capital stock represents ownership of the company and usually governance rights, although a corporation can issue stock that is non-voting.
A share of stock represents a percentage of ownership of the corporation. How much? It depends on how much stock is outstanding. To determine the percent ownership a shareholder has, divide the total number of shares the shareholder owns by the number of issued and outstanding shares. If, for example, a shareholder has five shares and there are 100 shares of issued and outstanding shares, the shareholder owns five percent of the company. [continue reading…]
Which Flavor is Your LLC?
@theContractsGuy June 20, 2017
Limited liability companies come in two flavors. What’s the difference between them? It’s who is authorized to make the company’s decisions. In member-managed companies the members have this authority; in manager-managed companies the managers have it. It’s important to know which type of LLC your company is so that important decisions will be authorized by the correct people and that contracts will be signed by the people who actually have authority.
This distinction is so important that it’s one of the few pieces of information that are required to be included in every LLC’s articles of organization. But it’s often overlooked — or misunderstood — by business owners.
Certificate of Tax Clearance vs. Certificate of No Tax Due
@theContractsGuy June 13, 2017
In Tax Clearance Basics I discuss the importance of obtaining a tax clearance certificate when buying a business. I also provide instructions on how to obtain such a certificate in Missouri.
In short, when you buy a business, state taxing authorities can assess the seller’s unpaid state taxes against you. This is true even if your purchase agreement states that the seller is responsible for paying the taxes.
The good news is that many states have a process through which buyers can protect themselves. This is called tax clearance.
Trademarks and Naming Your Company
@theContractsGuy June 6, 2017
What you name your company is an important decision, and it can have consequences far into the future. I have discussions with entrepreneurs all the time about how trademark law affects their companies’ names. In this post I’ve collected some of the information entrepreneurs need to consider when they are deciding on what to name their companies.
Legal Names
When you organize your LLC or incorporate, you file articles of organization or incorporation with the secretary of state under a particular name. This name appears on the face of the certificate of organization or incorporation, and it’s your company’s legal name.
In each state only one company can have a particular legal name. So if a company of that name (or one very similar) already exists in the state of your choice, you can’t organize under that name. But that doesn’t mean that you can’t operate your business under that name. That’s where fictitious names come in.
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An Open Memo about Confidentiality
@theContractsGuy January 25, 2017
There are a few things that I want my clients to know about confidentiality when they deal with my law firm. This post is an open memo collecting those thoughts in one place.
First, your attorney has an ethical obligation to keep your information confidential. That’s why I don’t sign many nondisclosure agreements. It’s not so much that I don’t want to be on the hook contractually for safeguarding information that is disclosed to me. Rather, my license to practice law–my very livelihood–is on the line. Most people feel like that is enough protection.
Getting Paid
@theContractsGuy January 21, 2017
I recently made a short presentation at Experts 4 Entrepreneurs about making sure customers pay what they owe. I had a lot of fun with it and thought it might be worthwhile to share here. I’ve embedded the PowerPoint slides below, but slides to my presentations often don’t tell the whole story, so here’s a little detail.
The presentation starts with an illustration about my not-so-pleasant experiences donating blood. (Apparently, my body needs all its blood.) How is that relevant to making sure you get paid? Because cash is a business’s life-blood. When customers don’t pay their invoices, they starve a business of a critical resource that it needs to stay healthy.
Why I don’t Use Automatic Email Disclaimers
@theContractsGuy June 28, 2016
It’s standard fare for law firm emails to have lengthy disclaimers at the end. It’s also standard for the disclaimers to be automatically inserted by the firm’s email system. And the disclaimers are inserted into ALL emails, whether or not they’re meaningful given the context of individual emails.
When I started Blue Maven Law a couple of years ago, I decided not to have disclaimers inserted automatically into my emails. Here’s why.
Automatic email disclaimers don’t really do anything
The main reason I don’t use automatic email disclaimers is that they’re ineffective. Most law firm disclaimers have one or more of these components: (1) a notice that the email is confidential; (2) a request for help with misdirected emails; (3) a warning that email isn’t a secure method of communication; and (4) a notice required by IRS Circular 230 that disclaims tax advice.
Blog Review: Startup Law Blog
@theContractsGuy June 9, 2016
Blogging has been one of the most satisfying endeavors I’ve undertaken business-wise since leaving a corporate firm in 2010 to help build a business law practice at an insurance defense firm. Seeing how valuable the corporate firm brand had been for business development — a benefit I no longer enjoyed — I decided that blogging would be a good way to enhance my reputation as someone who knew what he was talking about. I wanted to focus my business development efforts on providing contract review and negotiation services to corporations, so I blogged as theContractsGuy.
One of the wonderful side effects of blogging that I didn’t foresee was making friends in the blogosphere. One fellow blogger I met while on a business trip to Seattle a couple of years ago was Joe Wallin, who blogged for a number of years at the Startup Law Blog (Joe has since left the firm that hosts the blog and he now blogs at thestartuplawblog.com). I met a few other awesome fellow bloggers on that trip and wrote about it in Making Friends Through Blogging.
How to Make Your Noncompete Unenforceable
@theContractsGuy March 15, 2015
I’ve had a number of clients over the years comment that noncompetition agreements aren’t enforceable. As a blanket statement, that’s simply not true, although some states — most notably California — severely restrict them.
It is true that courts aren’t big fans of restrictive covenants. And it’s not unusual for a court to refuse to enforce a noncompetition agreement. However, it’s often the case the problem lies in the noncompetition agreement itself when considered in the context of applicable law.
A case in point is the noncompetition agreement at issue in NanoMech v. Suresh, an 8th Circuit case which was filed last month. In that case, NanoMech tried to enforce a noncompetition agreement against a former employee who went to work for a competitor. Applying Arkansas law, the federal district court refused to enforce the noncompetition agreement, and the 8th Circuit affirmed the decision.