Business Law Boot Camp

During a “Business Law Boot Camp” talk, many questions are raised by both new entrepreneurs and even more-seasoned business owners. Some of the more frequent topics that come up and a few highlights of comments are:

• How do I try to avoid personal liability for business debts? By NOT, under any circumstance, operating your business as a sole proprietorship or general partnership. Incorporate your business and treat the company as a distinct legal entity separated from your personal life and checking account. You never want to hear a claim made against your company (and your personal assets) seeking to “pierce the corporate veil”.
  
• Why do I need help incorporating my business? For the same reason you don’t want to operate on yourself after reading about surgery on the internet. A good business lawyer is worth his/her weight in gold.
  
• Should I have a co-owner of my business? Not if I can talk you out of it, but, if you must, see below.
  
• My new co-owner and I are best buddies and we’ll never disagree.  I tell new co-owners it might take a “while” before they disagree, maybe as long as a week or two, when one feels like the other(s) aren’t working as hard or toward the same goals. Having seen probably 100+ co-owner disputes, I have no doubt about the potential for unbelievable nastiness and expense. Be sure to include a “divorce” mechanism in your shareholder or operating agreement (see below).
  
• Why do I need a shareholder agreement or operating agreement? Because you added a co-owner. Death, disability, vesting of ownership, valuation of the company and disagreements are some of the items that can be covered to try to prevent future problems and possible litigation.
  
• Should I give out stock to employees/consultants? Not if you can help it. If you must, then securities-law, tax and other issues need to be handled correctly upfront—by example, just ask someone who was part of a “missed” 83(b) tax-election filing on new stock or options if there were any problems.
• How do I keep from making mistakes raising money from investors? By NOT raising money from investors! Ok, if you must, wait until you have provided the disclosure information needed and have followed all the requirements of a securities offering—otherwise, you personally may owe the investor for the total investment, plus interest, plus his/her lawyers’ legal fees.
• Why would an investor want to know about the SC Angel Investor Tax Credit? Because a “qualified” investor making a “qualified investment” in a particular-type company might receive a 35% SC tax credit (that’s a credit, not a deduction!).
  
• Why do I need contracts and what are the basics contracts? People enter into contracts each day whether they know it or not, from clicking on “I Agree” online to buying a house, with basic components being an offer, acceptance and exchanged consideration. Having well-drafted contracts is critical to having a successful business.
  
• What is the REAL value of an oral contract? The smart-aleck answer is, “the paper it’s written on”. General rule: any agreement of substance should be in writing, or else welcome to the litigation world of “he said/she said”.
  
• Why do I need intellectual property assignments from employees? Don’t you want to own potentially your most valuable assets? You also might need noncompete/nondisclosure/nonsolicitation agreements from them to protect your business.
  
• What do I need to know about employment law? Listen: hire a good employment lawyer when you add employees.
  
• What is the actual valuation of my business? What a willing buyer might actually pay. It might be more “art” than “science” in valuing a business, but using certain ranges of EBITDA multiples is one method of valuation calculation.
  
• What is the process for buying or selling a company? A “teaser” document, nondisclosure agreement, letter of intent, “virtual data room”, and purchase agreement with reps, warranties, covenants and indemnifications are just some of the parts of the complicated process for buying or selling a company.
  
• The above is a brief overview of some basic business-law questions. Be smart out there as an owner so you can increase your chances of succeeding.