Frequently Asked Questions
Disputes between business owners, whether they be LLC members, shareholders or partners are a common occurrence. They can involve accusations of breach of fiduciary duty, self-dealing rather than acting in the best interests of the company or issues related to the rights of minority owners. Our firm represents parties involved in all such disputes including conflict over poorly-drafted buyout agreements, executive/management compensation, appraisal rights and rights to dividends paid by the company.
Our firm represents clients involved in a wide range of commercial and business disputes including issues related to business torts, real estate transactions, shareholder disputes, employment law and generally, breach of contract cases. A breach occurs when one party fails to fulfill the duties under the terms of a legally binding agreement. This can happen for example when one party does not perform as promised, does something that makes it impossible for the other party to perform, or makes it clear that it does not intend to perform it’s required duties.
Depending on the circumstances of your case, the following remedies may be available to you if you prevail in your action:
- Compensatory Damages – Money damages to reimburse you for financial losses incurred as a direct result of the breach or tort.
- Consequential and Incidental Damages – Money damages to reimburse you for financial losses you incurred as foreseeable, but indirect result of the breach.
- Liquidated Damages – Money damages agreed-to and written into a contract that would be payable in the event of breach.
- Punitive Damages – Money damages awarded with the intention of punishing the party who acted in an offensive manner in an effort to deter others from engaging in the same wrongdoing.
- Attorney fees and costs – These fees are generally only recoverable if the terms of the agreement specifically provided for them.
- Rescission – A contract is canceled and both parties are excused from further performance.
- Reformation – The terms of a contract are modified to reflect the original intention of the parties.
- Specific Performance – A court order requiring a party to perform as set forth in the contract.
Arbitration and mediation are both means through which disputes can be settled outside of a traditional court setting. Mediation is a process that enables parties in a dispute to resolve their differences with the aid of a mediator instead of resorting to a lawsuit. The mediator is neutral third party that has been trained to assist people with the discussion of their differences. Mediators are not like judges and do not decide which party “wins”. The mediator instead helps the parties come to a solution on their own using communication between the parties and helping them focus on the real issues. Mediation permits the parties to have some control over the outcome, even though it doesn’t guarantee a final resolution. Arbitration on the other hand relies on a neutral arbiter to hear the evidence from the parties and render a decision that is binding. Arbitration may be more desirable when the parties require a definitive outcome in a time frame that is often shorter and less expensive than conventional litigation.
The losing side in a commercial litigation matter generally does not have to pay the winning side’s attorneys’ fees. This enables parties to initiate lawsuits without the fear of incurring excessive costs if they lose the case. There are a few exceptions to this general rule. Courts often have discretion in awarding attorneys’ fees if they believe it will advance justice or if it is in the interest of fairness, such as when a party has started a flagrantly frivolous case with no factual or legal merit. More commonly, parties are liable for attorneys’ fees if they agreed to it in a contract. Nonetheless, even in such cases, courts have discretion as to whether and to what extent such provisions are to be enforced.
Business law encompasses the many rules, statutes, codes, and regulations that are established which govern commercial relationships and provide a legal framework within which businesses may be conducted and managed. Business law is highly diverse and includes areas such as:
- business formation and organization
- transactional business law (contracts)
- business planning
- business negotiations
- mergers and acquisition
- divestitures
Although there are many important things to think about when choosing a business form, some of the main considerations include your preference of tax treatment, how you intend to capitalize the business, whether you plan to issue stock and trade it publicly, how you intend to structure the management of your business and issues surrounding the liability of the business owners, among other things. It is very important to plan your business and to work closely with someone who can help you choose the business form that will meet your needs.
The Internal Revenue Code allows for two different levels of corporate tax treatment. Subchapters C and S of the code define the rules for applying corporate taxes.
Subchapter C corporations include most large, publicly-held businesses. These corporations face double taxation on their profits if they pay dividends: C corporations file their own tax returns and pay taxes on profits before paying dividends to shareholders, which are subsequently taxed on the shareholders’ individual returns.
Subchapter S corporations meet certain requirements that allow the business to insulate shareholders from corporate debts but avoid the double taxation imposed by subchapter C. In order to qualify for subchapter S treatment, corporations must meet the following criteria:
- Must be domestic
- Must not be affiliated with a larger corporate group
- Must have no more than one hundred shareholders
- Must have only one class of stock
- Must not have any corporate or partnership shareholders
- Must not have any non-resident alien shareholders.
Additionally, after a business is incorporated, all shareholders must agree to subchapter S treatment prior to electing that option with the Internal Revenue Service.
Sometimes, courts will allow plaintiffs and creditors to receive compensation from corporate officers, directors, or shareholders for damages rather than limiting recovery to corporate assets. This procedure bypasses the usual corporate immunity for organizational wrongdoing, and may be imposed in a variety of situations. The specific criteria for piercing the corporate veil vary somewhat from state to state and may include the following:
- Courts may not allow owners to benefit from a corporation’s limited liability if the underlying business is indistinguishable from its owners.
- If a corporation is formed for fraudulent purposes.
- Courts may impose liability on the individuals controlling the business if a business fails to follow certain corporate formalities in areas such as record-keeping.
Joint ventures and partnerships share certain characteristics. A joint venture is a sort of partnership where two or more entities join together for a particular “short term” purpose. In both partnerships and joint ventures, each partner has equal ability to legally bind the entire entity. A partner can represent the entire organization in the normal course of business and his or her legal actions on behalf of the joint venture or partnership create legal obligations.
Though the powers of individual partners in a partnership or joint venture can be limited by agreement, such agreements do not bind third parties. Because business contacts outside of the partnership may have no knowledge of the limitations, they may be entitled to rely on the apparent authority of an individual partner as determined by the usual course of dealing or customs in the trade.
A non-profit corporation is a corporation formed to carry out a charitable, educational, religious, literary, or scientific purpose. A nonprofit corporation doesn’t pay federal or state income taxes on profits it makes from activities in which it engages to carry out its objectives.
This is because the IRS and state tax agencies believe that the benefits the public derives from these organizations’ activities entitle them to a special tax-exempt status.
The most common federal tax exemption for nonprofits comes from Section 501(c)(3) of the Internal Revenue Code, which is why nonprofits are sometimes called 501(c)(3) corporations.
Any time a corporation undertakes a major change or transaction, it should be reflected in its minutes. In addition, meetings of shareholders and directors should take place at least annually if for no other reason than to elect new officers and directors. Failure to adhere to the formality of regular meetings can jeopardize the corporation’s ability to shield its officers, directors and shareholders from personal liability for the corporation’s actions.
Corporations with more than one shareholder should seriously consider a buy-sell agreement. A shareholder’s death, divorce, disability or termination of employment can create serious problems for a corporation and its other shareholders. A buy-sell agreement can help minimize these problems by providing for an orderly succession in such plans. Similar provisions are recommended for partnership.
Like most corporate law, mergers are regulated at the state level. While these laws vary by jurisdiction, many aspects of the merger process are the same across the nation. Generally, the board of directors for each entity must initially approve a resolution adopting a plan of merger that specifies the names of the entities involved, the name of the proposed merged company, the manner of converting shares of both entities, and any other legal provisions to which the corporations agree. Each entity notifies all of its shareholders that a meeting will be held to approve the merger. If the proper number of shareholders approves the plan, the directors sign the papers and file them with the state. The secretary of state issues a certificate of merger to authorize the new corporation.
Each state has its own corporate statutes that govern the procedure for mergers. Furthermore, state or federal agencies may wish to investigate the potential anticompetitive effects of a proposed merger. Because of the requirements and variables involved in merging, a corporation considering a merger should consult a lawyer who is experienced in mergers and acquisitions law.
Discrimination is illegal if you belong to a protected class as outlined by federal or state law. These legally protected categories include age, disability, gender, pregnancy, race, national origin, military status and religion. Several states also define sexual orientation as a protected category. Favoritism or nepotism in the workplace may be unfair but treatment of this sort is not necessarily illegal.
The Family and Medical Leave Act (FMLA) enables eligible employees to take a leave of absence for up to 12 weeks per year for one or more of the following reasons:
- medical leave if an employee is unable to work due to a serious illness
- for the birth and care of a newborn child
- recent adoption of a child by the employee
- to care for an immediate family member including a spouse, child or parent
- In addition to this federal statute, many states have separate family leave regulations which allow individuals time away from the office to care for their loved ones.
These laws can be very complex and there are many exceptions and restrictions on the right to take medical and family leave. For example, individuals working for businesses with less than 50 employees are not eligible for unpaid leave under the FMLA. However, they may be eligible under their state’s laws. If you are considering taking leave from your job, you should consult an attorney who can determine your eligibility and explain your rights under federal and state employment laws.
A non-compete agreement prohibits an employee from working for a competitor for a specified period of time after leaving the company. Employers often ask their employees to sign such contracts to ensure that they don’t lose trade secrets or other confidential information which may harm their competitive advantage. These agreements are usually made with a benefit being offered to the employee, such as a job offer, raise or promotion so it is typical that employees will be asked to enter into an agreement of this nature when accepting a job offer.
Before entering into a non-compete agreement, all individuals should ensure that the terms of the contract are reasonable. The length of the non-compete agreement should not last too long; although there is no set rule on these limits, most non-compete agreements last from six months to two years. Also, the agreement cannot span too wide of a geographic area as this may limit all possibility of employment should you leave the company. While most states, with the exception of California, acknowledge these agreements, the laws which govern them vary. Before signing any non-compete agreement, it is important to consult a lawyer who can evaluate the terms of the agreement.
Unless your employment contract or company policy specifies the presence of a severance package in the event of discharge, you are probably not entitled to a severance package. In many instances, employers offer a severance package in exchange for your agreement to a confidentiality or noncompetition contract, or to secure release of any employment-related claims you may make. Before signing any severance agreement, it is important that you contact an employment attorney to ensure your rights are protected.
The courts have ruled that employees have few privacy rights when using their employers’ computer systems. All websites visited by workers may be tracked and non-work related sites may be blocked. All employers should have an acceptable use policy which outlines internet use in the workplace and any sites which may not be visited. If an employee knowingly violates this policy, he or she may be disciplined accordingly.
In most cases, an employer does not have to give reasons for not hiring an individual. It is, however, a wise business practice to keep a record of all interviewed candidates and your reasons for not hiring them. If in the future you are accused of illegal discrimination in hiring, you can use these records to recall the reasons and defend your company against the claim.
Each state has laws which vary drastically concerning alcohol and drug testing in the workplace. Depending on the occupation in question, including some transportation jobs, federal law may also play a role in whether and how often employees should be tested. If you are considering drug or alcohol testing for your employees, it is crucial that you consult an experience employment lawyer who can explore your options with you, reviewing state and federal regulations.
Yes, the Immigration Reform and Control Act requires that all U.S. employers verify the identity and eligibility of all workers, whether they are American citizens or not, by completing the Employment Eligibility Verification Form I-9. In order to complete the I-9 form, the employer must review particular documents for proof of legal work eligibility. An employer must retain these forms for all employees either for three years after the date of hire or for one year after employment is terminated, whichever is later.
In most cases, the employer may tell potential employers the real reasons for the termination. As long as the information provided by the employer is true and based on a thorough investigation, they are generally protected by qualified privilege. If untruthful statements are made concerning the employee and the employer has no credible grounds for these accusations, they may be sued for defamation. To avoid suits, many employers refuse to release any information concerning past or present employees. Others require that all individuals seeking a reference sign a release giving the employer the right to discuss any good or bad feedback; these releases protect the employer from any claim which may arise from the dissemination of this information.
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