Business Law

An agreement among limited liability company (“LLC”) members governing the LLC’s business, and members’ financial and managerial rights and responsibilities. An operating agreement is similar in function to corporate by-laws, or analogous to a partnership agreement in multi-member LLCs.

In single-member LLCs, an operating agreement is a declaration of the structure that the member has chosen for the company and sometimes used to prove in court that the LLC structure is separate from that of the individual owner and thus necessary so that the owner has documentation to prove that he or she is indeed separate from the entity itself.

Providing protection from the allegation from the opposing side to pierce the corporate veil and therefore to gain the ability to pursue collection against you personally Operating agreements can be amended at any time by the company members or managers. Not having an operating agreement especially between friends and family members open you up for potential challenges when things are either good or bad.

Deciding on how decisions are made in advance especially when you are both equal in ownership. How are disagreements resolved? Assuming that your relationship outside of business will remain the same forever is unfortunately naive and with the current divorce rate, the time to act is before you start the business together.

C corporations are subject to double taxation; that is, one tax at the corporate level on the corporation’s net income, and another tax to the shareholders when the profits are distributed. S corporations have only one level of taxation. All of their income is allocated to the shareholders.

However, C corporations have greater tax planning flexibility and can shield shareholders from direct tax liability. In addition, S corporations are subject to limitations, such as the number and type of shareholders (100) they can have.  We currently are teaching seminars in conjunction with e SCORE (a division of the Small Business Administration) on this subject every month.

Schedule to be announced.

This is the person/company designated to receive official state correspondence and notice if the corporation/LLC is served with a lawsuit. Any owner, responsible person, or company can be a registered agent.  The annual renewal notice is sent to this person or entity and must be renewed normally by the end of April every year

There are some advantages to having another person or company act as your registered agent. It adds an extra layer of privacy, since the registered agent’s name and address are publicly available, and therefore you will not be surprised at home with court papers.

Yes, a corporation can be formed with only one shareholder. However, corporate formalities, such as director and shareholder meetings, are still required in order to preserve the corporate form and prevent the shareholder from personal liability.  You must also be careful not to commingle your assets including your bank accounts.  Keeping your business expenses paid from your business bank account and your personal expenses paid from your personal bank account.

Professional corporations (PC) are corporations that provide professional services. State law and the regulating board determine what constitutes professional services and when you are required to be a professional corporation. Typically professions that require a license, such as doctors, chiropractors, lawyers, dentists, accountants, architects or engineers. Please see your tax advisor if you are a “c” corporation who is also a professional service.  A professional Service Corporation can pay at much higher tax rates than other corporations.

According to the Nevada Secretary of State:

• No Nevada State corporate income tax
• No Nevada State taxes on corporate shares
• No Nevada State franchise tax
• No Nevada State personal income tax
• No I.R.S. information sharing agreement
• Nominal annual fees
• Minimal reporting and disclosure requirements
• Stockholders are not on public record

The advantages of incorporating in Delaware according to the Delaware Secretary of State:

More than half a million business entities have their legal home in Delaware. This includes more than half of all U.S. publicly-traded and Fortune 500 companies. Businesses choose Delaware for its complete incorporation services package, which includes modern and flexible corporate laws, the highly-respected Delaware Courts, a business-friendly state government and the customer service oriented staff of the Delaware Division of Corporations.

An LLC has more operating flexibility and fewer corporate formalities than an S corporation. For example, an S corporation cannot have more than 100 stockholders and must hold both periodic director’s meetings and an annual meeting of stockholders. However, owners of an S corporation may be subject to fewer taxes than LLC owners.

Also known as a Stockholder Agreement, is a contract between the shareholders of a corporation.

The contents in a Shareholder Agreement depends on the corporation and the shareholders, but it usually addresses:

• Shareholder rights and responsibilities.
• Share ownership and valuation.
• Management of finances, business, and assets.
• Conflict of interest rules
• A non-compete clause or non-solicitation clause.
• Dispute resolution methods.
• Rules for issuing new shares and restrictions on share transfers.
• First Right of Refusal
• Actions to take upon the death or incapacitation of a shareholder

Essentially, it establishes the rules that govern the shareholders’ relationship to the corporation and to one another.

Right of First Refusal

Each shareholder must first offer to sell their shares to other shareholders at a fair value. If the shareholders cannot purchase them, the selling shareholder can offer them to a third party.

Shotgun Valuation Provision

This is an exit provision, (also known as a buy-sell agreement), may be used because of a shareholder dispute, and it specifies that Shareholder ”A” can offer to buy Shareholder “B’s” shares, whereby Shareholder “B” can either sell at the offered price, or turn around and buy Shareholder “A’s” shares at the same price.

Piggy Back Provision

Also referred to as a “tag along” or “co-sale” provision, a Piggy Back provision applies to majority shareholders who intend to sell a significant portion of their shares. It protects minority shareholders because the buyer must also purchase their shares at the same price as the majority shareholder, therefore agreeing to purchase all the shares.

An agreed fixed amount of money that is agreed to in advance by the parties of the contract that is paid by the breaching part to the non-breaching party.  Liquidated damages have to have a relationship to what the real damages would be.  Liquidated damage provisions are usually not enforceable when they are really designed to be a penalty.

Most oral agreements are binding, however real estate contracts in Florida are usually not because of the statute of frauds (certain types of contracts are not binding unless they’re in writing and signed by the party against whom it’s charged, and commercial leases exceeding a year will need to be in writing, usually with two witnesses as well).

How to begin to prove unwritten agreement becomes challenging.  One way is, to look at what was physically accomplished during the time frame in question or the industry custom.

Employees cannot do acts that would be harmful to the interest of the employer. For example, if an employee starts a competing business while still working for the employer, then the employer can sue the employee for lost profits and other damages.

An agreement not to contact, solicit, or obtain clients of another business or sometimes employees of that business. Typically, occurs in employment arrangements where an employer wants to prevent current or former employees from contacting or soliciting its clientele.  It also can be used in a business sale, when the buyer would like to prevent the seller from contacting or soliciting its clientele after the sale with the buyer.

A covenant not to compete is a contractual obligation not to compete against someone or a company. Typically, occurs in employment arrangements where an employer wants to prevent current or former employees from competing with the employer. It also can be used in a business sale, when the buyer would like to prevent the seller from competing after the sale with the buyer.

Non-compete agreements are not always enforceable. Florida is a right to work state. Florida Statutes (SS 542.335) governs non-compete agreements. That statute requires that there be certain legitimate business interests of the employer set out in the statute such as for example, the protection of trade secrets or the protection of confidential information. Restrictions should be both reasonable with respect to geographic area and time. Presentation of the non-compete agreement should be prior to employment not after employment has already been engaged