I’ve Filed an LLC. I’m Personally Protected from Lawsuits, Right?

Filed LLCHow useful is a condom that is never taken out of its box and wrapper?

If you were the kind of person with enough forethought to buy a condom, you would probably want it to protect you from several things.

But it would not be very useful to go through the trouble of buying the condom and not taking the additional necessary steps to get its benefit.

Lawyers call certain legal services “prophylactic.” That’s because their purpose is to prevent problems and unwanted consequences.

Completing your necessary corporate compliance and regulatory paperwork is prophylactic. Buying an LLC and not taking it out of the box will not give you the desired results.

Video Transcript:

Say you filed an LLC using Legal Zoom. Are you personally protected from lawsuits?

Maybe a few, but mostly, no.

Because they don’t give legal advice, budget legal sites don’t tell you there are numerous things to do after you file the LLC to legitimately and legally set up your business.

After years of starting businesses, we have developed a list that is several pages long made up of single spaced bullet points.

If you don’t do all the things on this list for your LLC, then the “corporate veil” can be pierced.

But more likely, if you don’t do all of the things you are supposed to do to start up your business legally, you will violate one of several laws that carry personal liability even if you are incorporated.

There are legal traps in the areas of taxes, wage laws and even corporate laws and torts.

You may also be liable for some contracts and debts.

There are ways to limit your liabilities and protect your assets. While nothing is foolproof, a business-minded lawyer can help you significantly.

Do you know where your legal land mines are? To find out, call us for a Business Risk Review at 800-449-8992 or email us at [email protected].

5 Must-Read Business Books That Might Change Your Life

Reading the top 5 Must-Read Business Books

I have a college degree in English Literature. So you would think that I read a lot of novels. You’d be wrong. Since I graduated, I have mostly read must-read business books and law books.

It’s not that I’m boring. (Although I may be that.) Rather, I’m extremely focused on growing Bellatrix PC into the greatest law firm ever. (I may also be a tad bit competitive.)

Running a successful business requires more than vision, dedication and an entrepreneurial spirit. It requires being a lifelong learner.

Business books can inspire, motivate and help you get past operational, management or financial blocks. Here are my favorites:

  • How to Win Friends and Influence People by Dale Carnegie

Published in 1936, this book is still relevant and insightful. This book teaches three fundamental techniques for dealing with people, both in business and everyday life. It also teaches six unique ways to make people like you, twelve ways to turn people to your way of thinking, and how to influence change in people without making them resent you.

This is perhaps one of the most important must-read business books for small business owners and decision makers to read. Understanding people is one of the keys to success in business and sales.

  • The 4 Hour Workweek by Tim Ferris

I didn’t I was an entrepreneur until I read this book in 2007. I started my first business almost immediately after read this book. So Tim Ferris literally changed my life.

This book promises to teach you how to “escape 9-5, live anywhere, and join the new rich.” Working only 4 hours a week is not immediately feasible for an entrepreneur, though, so it’s promise is initially elusive. But the ideas in this book form the cornerstone of a new school of thought in the business world.

Pen-ultimately, The 4 Hour Workweek teaches the art of leverage, which is the key to finding freedom as an entrepreneur. It also teaches you how to eliminate 50% of your work in 48 hours using proven principles. A lot of the work you do does not move the needle enough. Ferris teaches you to ruthlessly slash those things so you can make more money and take back your life.

This Must-read business book is not for the faint of heart.

  • The E-Myth Revisited by Michael Gerber

Truer words have never been put on paper about why small businesses fail than what is in this book. Most small business owners have bought themselves a job and are not flourishing as entrepreneurs. This book explains why through examples and by contrasting how most small businesses operate to successful models, such as franchises.

If you are struggling as a business owner, doing it all, and barely making ends — read this book right now. It could save your business and your sanity.

  • The Hard Thing about Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz

Building a successful business is hard! I wish more “gurus” would acknowledge this fact.

What is useful about this book is that Horowitz goes there. Ben discusses how difficult it can be to run a successful business. Where other books focus on inspiration, founding a company and getting started, this one focuses on the myriad challenges that can derail a business after it’s up and running.

Throughout the book, the author shares insights on managing, buying, investing in and developing a business (with a focus on tech companies, but applicable to all industries).

  • Dotcom Secrets: The Underground Playbook For Growing Your Company Online by Russell Brunson

When I got this book, I devoured it…. And then I promptly read it again. The only other business book that I’ve read more than once is The 4-Hour Workweek. Now Dotcom Secrets sits dog-eared on my desk and I refer to it regularly.

Dotcom Secrets is a hardcore marketing and sales book. I already knew a lot about marketing and sales when I read it. But this dense book filled in some gaps for me. It’s made easier to digest with a lot of stick figure diagrams.

This book generously doles out evidence-based advice on how to sell to your audience (in any context — not just online). There is applied psychological theory in masterful sales. Don’t just emulate — understand.

Optimizing your sales processes could change your business and change your life.

 

Sale of Business

SALE OF BUSINESS

In certain circumstances, selling a business can prove to be a lucrative and beneficial exit strategy. It can also be a lengthy and complicated procedure. Before you embark on this challenging process, it is critical to consult with an experienced business attorney, like the attorneys of Bellatrix PC.

handshake detail

Our legal team routinely works with partnerships, corporations, and limited liability companies across a broad spectrum of industries. We are prepared to advise and represent you on every aspect of selling your business, including preparing your entity for sale, performing due diligence, negotiating with potential buyers, and drafting and reviewing covenants not to compete, non-disclosure agreements, business sale agreements, security agreements, and other documents necessary to complete the process smoothly.

Even if you aren’t entirely sure whether it’s the right time in your entity’s life cycle to consider selling the company, our business attorneys can offer counsel on your legal options and their potential financial outcomes and ramifications. We pride ourselves on our in-depth understanding of the intricacies of the state and federal laws, and will work closely with you to identify a strategic approach toward achieving your desired outcome.

To discuss whether a sale of business is right for you, or other ways we can help you succeed, call the law offices of Bellatrix PC at (800) 449-8992.

Asset Sale vs. Stock Sale: Which is Right for Your Business?

Business sales are not one-size-fits-all. For instance, the distinction between selling stocks and selling assets should not be understated. The type of sale you enter will have a significant impact upon your tax liabilities, and in turn, your ability to benefit financially. Our attorneys will evaluate you specific situation and counsel you on the decision that is the most advantageous to you.

When you sell a company’s assets, it means that the buyer purchases your assets while you retain possession of limited liability company membership interests or corporate stocks, depending on how your entity is structured. Examples of company assets include industrial equipment, furniture and appliances, trade names, trade secrets such as software or algorithms, items included in inventory, accounts receivable, real estate, and other items. While you continue to own the company from a technical standpoint, the entity’s assets are no longer in your possession or control.

Business buyers tend to favor this type of sale. In addition to benefiting from a tax standpoint, by purchasing only the entity’s assets and not the entity itself, the buyer avoids the danger of assuming the company’s outstanding liabilities, including the company’s debts and civil liabilities like like breach of contract or sex discrimination lawsuits.

While sellers have the power to exclude from the sale any assets which they decide they would like to keep, the so-called “tax bite” generally make asset sales unfavorable to sellers. This is particularly true of C-Corporations due to their susceptibility to double-taxation. As a business seller, it is typically more favorable to make a stock sale.

Stock sales are effectively the inverse of asset sales. In other words, instead of selling the assets and keeping the corporate stock or LLC membership interests, the company continues to own the entity’s assets and you sell your stocks or LLC membership. Likewise, the pros and cons for buyers and sellers are also inverse: prospective buyers may resist accepting stock sale proposals because they are hesitant to assume the entity’s liabilities, while sellers benefit from a taxation and liability standpoint.

For all of these reasons, it is crucial to enter buyer-seller negotiations with an experienced and aggressive business sale lawyer on your side. Your attorney will protect you from inadvertently accepting unfavorable terms, and will keep you informed of the potential advantages and drawbacks throughout the negotiations process.

Due Diligence Checklist for Selling Your Company: Preparing for Buyers

Due diligence is generally associated with business buyers who must carefully appraise and evaluate a potential purchase before committing to the transaction. However, it is equally important for business sellers to prepare for the inevitable due diligence phase of the purchase and sales process. Advance preparation can make the business appear more attractive to potential buyers, and in turn, can allow you to complete the sale more rapidly and with an enhanced financial benefit. Needless to say, a seller’s failure to disclose information to a potential buyer can make even the most promising transactions turn sour. That’s why preparation is for a sale is as critical to a seller as it is to a buyer.

In order to keep the transaction as smooth and efficient as possible, sellers should gather and prepare the following documents and records:

  • LLC records or corporate books, including but not limited to, where applicable:
    • Business Ownership Certificates
    • Certificates of Good Standing
    • Corporate Meeting Minutes
    • Corporate Resolutions
  • Contracts with vendors, distributors, suppliers, customers/clients, and other businesses.
  • Trade secrets and intellectual property.  Trade secrets can potentially include any of the following:
    • Algorithms
    • Blueprints/Inventions
    • Databases
    • Marketing Strategies
    • Recipes
    • Software/Computer Programs
    • Supplier Lists
  • Tax and other financial documents, including but not limited to:
    • Balance Sheets
    • Profit and Loss Statements (“P&Ls”)
    • Tax Returns
  • Any special permits and/or licenses your business may hold, such as a liquor license or an outdoor entertainment license.
  • A breakdown of your business’ inventory.
  • Documents pertaining to real estate and property, including but not limited to:
    • Commercial Leases
    • Deeds of Trust
    • Mortgages
    • Property Liens
    • Zoning Permits

The forgoing is not a complete list, and should be evaluated on a case by case basis. If you’re ready to sell your entity, or are still thinking about whether the sale of the business could be right for you and your company, the business lawyers of Bellatrix PC can help. To start discussing your goals in a private consultation, call our law offices at (800) 449-8992 today. If a sale is not desired or appropriate for your entity, we may be able to assist with business dissolution or other alternatives.

Why Do 80% of Businesses Fail In Their First Year?

rows of silouhettes of diverse peopleEric is really angry. Less than a year ago, he started a business with four guys he knew from friends of friends. They shared the dream of opening a sports bar dedicated to soccer that would serve international beer and bar food.

They found the perfect spot and signed a lease. Eric personally guarateed the lease and put $30,000 down for a deposit. He paid for all the kitchen equipment and hired a contractor to bring the building to code.

His partners (they were all equal according to the one page document he typed up) chipped in for a little while. One brought in some TVs. Another bought some beer and tended bar sometimes. Another pitched in a few thousand dollars to buy some advertising to announce their grand opening.

After a month, the first partner was run out by Eric after taking cash from the till. He never came back.

Then one of the partners got sued for pinching the waitresses. Eric became embroiled because they were not a registered partnership or corporation.

Six months in, Eric ran out of savings before the bar started turning a profit and he got behind on rent. He asked the third partner for money. Instead, the third partner took all the TVs and left.

The waitresses quit because they were paid late. There was no cash for food or beer. And the landlord said that Eric was personally responsible for the five year lease — a debt of $250,000 at least.

After a few more months of barely scraping buy, Eric closes the doors to his dream bar. And the landlord sues.

Although this is a fictional story, I get a call from someone like Eric at least once a month. The details vary, of course. But the story is more or less the same: an erstwhile entrepreneur gets burned by less-than-honest partners or landlords and now has major problems. He’s broke, depressed and ruined.

It’s a really depressing story for an optimistic entrepreneur like me. But sadly, 80% of businesses fail within their first year. And the blow up is usually spectacularly devasting for an owner like Eric.

I am CONVINCED that many businesses would not fail if they had simply started off right. New business owners make a lot of the same mistakes that lead to failure. These include:

  • Not organizing legally, following ALL the steps necessary (e.g. just filing an LLC is not good enough)
  • Failing to keep professional accounting records from Day 1 and getting into tax problems
  • Not having good contracts with business partners and investors (this is one of the biggest mistakes)
  • Getting stuck in a bad commercial lease
  • Not having adequate resources to deal with all the things a new business must do because of lack of planning or education, which destroys cash flow because of constant traps and problems
  • Failing to follow good employment and pay practices from Day 1
  • Underestimating what starting and running a successful business takes

Eric didn’t call me before starting his business. If he had, I would’ve given him my ebook, How to Start A Business… Legally: A Quick and Easy Checklist.

I cannot stress this enough. Getting set up right and under the guidance of someone who has started or help start many businesses will save you thousands of dolalrs and help prevent failure.

Someone like Eric spends $100,000 to open his bar, only to crash and burn in just a few months. Now he’s liable for another $250,000 just with a broken lease…. There are still employee liabilities and taxes to deal with (and that’s if the partners all just disappear). His legal fees with me are going to be a minimum of $50,000. Alternatively, he will bankrupt and lose everything.

In a more perfect universe, Eric would have come to me a year ago. He would have hired me for between $5000 and $18000 and I would’ve helped him set up everything and given him the benefit of my years experience in business start ups.

He would’ve avoided the bad partners, the bad lease, the sexual harassment lawsuit and the waitresses quitting.

He also would have been on track to avoid the plethora of other problems that come from starting a business.

And then his $100,000 investment would not have been such a hopeless risk!

If I practiced law just for money, I would rather have people like Eric pay me $50,000 or more to pick up the broken pieces of their dreams and help them move on.

But I’d rather more small businesses be successful. And the odds of that are much improved when you invest in the foundation when you start up.

Either way, you’ll be calling me.

Sarbanes-Oxley Attorney

SARBANES-OXLEY

In 2002, Congress passed a law known as the Sarbanes-Oxley Act, or SOX.  SOX applies to both publicly- and privately-held companies, and imposes a rigid list of corporate best practices in an effort to deter acts of fraud. Companies who violate these standards risk exposure to a long list of civil and criminal penalties, as well as investment and loan denials.  In short, failure to adhere to the provisions supplied by SOX presents allegedly non-compliant corporations with a battery of devastating legal and financial problems.

Whether your business needs experienced legal representation to challenge claims of non-compliance, or you are simply unsure whether your current practices align with SOX best practices and would like a closer review of your policies, the knowledgeable employment attorneys of Bellatrix PC are here to help.  Our business risk review will identify and improve upon vulnerable areas in your employment and record-keeping policies to better protect you against legal claims in the future.  If your organization has already been targeted by a lawsuit, our aggressive commercial litigation lawyers will prepare tactical defense strategies to protect your company’s best interests.

To arrange for a private legal consultation, call Bellatrix PC right away at (800) 889-8376.

Evidence

What is Sarbanes-Oxley in Employment Law?

In response to the controversial and heavily publicized Enron and WorldCom bankruptcies, Congress passed the Sarbanes-Oxley Act into law in July of 2002.  This act, which was quickly nicknamed “SOX,” is also known as the Public Company Accounting Reform and Investor Protection Act, or the Corporate and Auditing Accountability and Responsibility Act.  These names provide a good idea of SOX’s general purpose.

The act has two primary objectives:

  • To deter and punish corporate fraud, accounting fraud, and acts of corruption among corporate executives.
  • To protect whistleblowers in whistleblower lawsuits, making the destruction of evidence and impeding federal civil investigations a crime.

It is crucially important for business owners to know that, contrary to common misconceptions, this act applies to privately held companies — not just publicly-traded companies.  This means private companies may not destroy evidence or interfere with federal civil investigations by agencies such as OSHA, the EEOC, or the IRS, which implicates employment law.  SOX also imposes specific restrictions on private placement securities solicitations, which is particularly important if you or your organization is raising capital from investors.  Private companies must demonstrate full compliance with SOX before going public.

Sarbanes-Oxley also establishes corporate “best practices,” which include:

  • Maintaining and archiving corporate records and email.
  • Maintaining audit-worthy financial records.
  • Maintaining legally sound corporate records.
  • Establishing business policies and codes of ethics.
  • Monitoring conflicts of interest.
  • Establishing independent directors on the Board of Directors where appropriate.

Civil and Criminal Penalties for Violating SOX Best Practices

It is critically important for employers and business owners to note that the best practices delineated by Sarbanes-Oxley are not merely recommendations.  On the contrary, failure to comply can result in a variety of debilitating civil and even criminal penalties being imposed on non-compliant companies.  For example, depending on the severity of the offense, a maximum prison sentence can range from 20 to 25 years: nearly three decades of incarceration.

It is also important to remember that, in addition to the formal civil and/or criminal penalties imposed by judges or regulatory agencies, organizations which fail to comply with SOX best practices are often highly unappealing to lenders, venture capitalists, and other investors.  If your company’s practices are deemed to be unethical, unsound, or otherwise fall short of the act’s requirements, the likely result is the denial of a loan or investment, or ongoing investor disputes.  In other words, the negative financial consequences of non-compliance extend far beyond fines and penalties imposed by the government: they extend to your business opportunities and daily operations as well.

Finally, because SOX provides whistleblower protection provisions, a whistleblower whose rights are violated may seek special damages, back pay, reinstatement, and attorneys’ fees.

Contact Our Business Attorneys

SOX convictions can devastate even the most stable and robust of corporations.  If you are at all concerned that your current employment or accounting practices are not in alignment with SOX provisions, it is absolutely crucial that you take immediate action to address the issue now before it is already too late. Failure to resolve legitimate concerns at the outset only increases the likelihood that costly, disruptive, and time-consuming litigation will arise in the future, draining your financial resources and damaging your organization’s reputation as a trustworthy and ethical business.

Let our team help yours.  To start discussing your organization’s legal situation in a completely private consultation, call the experienced Sarbanes-Oxley lawyers of Bellatrix PC at (800) 889-8376 today.

Minutes, Resolutions, and Corporate Books

MINUTES, RESOLUTIONS, AND CORPORATE BOOKS

Owning and running a business is a challenging and time-consuming task, no matter its size. You are constantly being pulled in a number of different directions, have a long list of things to accomplish, and revenue goals to hit. So it should come as no big surprise that maintaining your corporate minutes, having shareholder meetings and updating your corporate books is not on the top of any business owner’s priority list.

Unfortunately, corporate record keeping is a boring task filled with formalities and minutia. It also feels particularly silly when the business is owned by less than three people. But the law requires you to keep it up, and failure to do so can result in a number of nasty surprises.  Like a lawsuit, audit or dispute with your partners or creditors.

man holding noseThe most obvious of these consequences is personal liability attaching to the business owner (failure of the corporate form).  Other problems include suspension of the corporation (and its legal rights and contracts) or liability for fiduciary failures.

Depending on your business needs, you may be required to adjust your corporate books or operating agreement (if you are an LLC), or take certain financial and legal actions, such as opening a bank account or securing financing. You will be required to update everything when you bring on new stockholders as well.

You can buy corporate minutes as forms with fill-in-the-blanks, but such forms are more easily pierced and will not account for your specific business needs. We recommend having your business law attorney put you on an automatic maintenance schedule to keep up your corporate “minute book” and make regular, required filings with the Secretary of State.

A minute book serves as a legal journal, documenting your business’ ongoing corporate activities, decisions, and significant business transactions. It acts as the business’ official repository of all major corporate documents and records. For instance, the minute book should state past and present officers and directors of the business and the dates when they held these positions. The minute book will also outline all of the business’ stock information, including the types and numbers of stocks purchased and sold, the names of the stockholders, and their dates of ownership. Where applicable, the minute book will also note the payment of dividends to shareholders and compensation to management personnel.

Put our Business Savvy Attorneys to Work for your Business

Allowing our business attorneys to handle these tasks, in the long run, is the surest and most cost-effective means of protecting your business from future costly problems.  Bellatrix will provide you and your team with the peace of mind that only comes from 100% asset protection. To sign up for our annual corporate maintenance service, contact us or call (800) 889-8376.  And if you are not sure what state your corporate records are in, consider a Business Risk Review before something blows up.