There are many options available if you want to start a business. The most common way is to set up a sole proprietorship. Florida business owners can start a sole proprietorship very easily. Keep in mind, however, that there are important pros and cons to consider. Depending on the type of business, a sole proprietorship in Florida may not be the best option. “It is very tempting for a person starting out in business to avoid the hassle and cost of forming a company and instead operating as a sole proprietorship. That may work fine for some businesses, but there are some important risks to consider.” Florida Business Attorney Trevor Brewer What Is a Florida Sole Proprietorship? A sole proprietorship is the simplest and most common business structure people use. Sole proprietorships are unincorporated, meaning they are owned and operated by a single individual. From a legal perspective, sole proprietorships are much different than other kinds of business structures; there is no separation between the owner and the business. Starting a Sole Proprietorship In Florida Unlike with other business types like LLCs or corporations, you do not need to register a sole proprietorship in Florida. In fact, many freelance workers are likely operating as a sole proprietorship without knowing it. As a result, starting a business as a sole proprietorship is incredibly easy. However, if you plan to use a name other than your legal name, you will have to register it as a fictitious name. In Florida, a fictitious name is what you might know as a “doing business as” or “DBA” name. You can submit fictitious name registrations to the Florida Division of Corporations either online or by mail. Not including a certified copy, it costs $50 to register a fictitious name. Before you register a fictitious name for your sole proprietorship, Florida law requires that you advertise that fictitious name in at least one newspaper in the county where the business is located. Pros of a Sole Proprietorship in Florida By forming a sole proprietorship, Florida business owners can take advantage of several benefits they might not get with other business structures. Sole Proprietorships Are Easy to Form As mentioned above, sole proprietorships do not require any special registration. As a result, they are fast and easy to form if you want to get your business up and running quickly. Less Paperwork In addition to the lack of registration paperwork, sole proprietorships require less paperwork to operate in general. Unlike LLCs, corporations, and even partnerships, a sole proprietorship does not require any sort of formation document. This means no need to worry about drafting and maintaining an operating agreement, bylaws, or another kind of governing document. Inexpensive to Form and Operate Sole proprietor Florida businesses don’t have to pay anything unless they will operate under a fictitious name. Consequently, sole proprietorships are one of the cheapest business types to start. By contrast, other business types may cost hundreds of dollars in fees after all is said and done. Sole Proprietors Have Complete Control Because the sole proprietorship belongs to a single owner and operator, a sole proprietor has complete control over their business. They can make decisions and changes much more rapidly than in other business types. Simplified Taxes Tax laws treat a sole proprietorship as one and the same with its owner. Accordingly, the business itself is not taxed separately, and all business income is the same as the owner’s. Thus, sole proprietors only need to report their income from the sole proprietorship on their personal income tax return after calculating losses and expenses. Cons of a Sole Proprietorship Florida Unfortunately, the flexibility of a sole proprietorship also comes with several downsides. As a result, it is very important to consult with an attorney to determine whether a sole proprietorship is right for you. Particularly when it comes to personal liability, it may be worth it in the long run to spend the time setting up an LLC or corporation instead. You Have Personal Liability for Debts and Obligations One of the biggest reasons people choose to form LLCs and corporations is the limited liability they provide. Because the law views LLCs and corporations as separate entities from their owners, those businesses can take on debts by themselves. With a sole proprietorship, Florida business owners subject themselves to personal liability for any debts or obligations incurred by the business. This is true even if you operate under a fictitious name. As your business grows, this can pose a significant risk; your assets and personal finances are exposed and may be taken to pay off debts or judgments incurred by you, your business, or your employees. More Difficulty Securing Funding If you plan to rely on investments to help grow your business, a sole proprietorship may not be the best option. Because there are no stocks or other ownership interests to sell, sole proprietors must rely on personal loans rather than traditional “investments.” Investors may be less willing to provide funds under this arrangement. Simpler Taxes Mean Fewer Deductions Although tax rates may be higher among LLCs and corporations, they are permitted to make certain deductions for business expenses. Sole proprietors do not have this luxury, and depending on the cost of doing business, you may end up paying more in taxes as a sole proprietor. To avoid these issues, it is important to speak with a Florida business law attorney or tax professional about your situation. They can help you determine what kind of business structure will benefit your business the most. Other Businesses May Be Hesitant to Work With You Whether it is true or not, many businesses are under the impression that an unincorporated business is less stable or professional than an incorporated one. Therefore, some businesses may be less willing to engage with your business if it is a sole proprietorship. Selling Your Business Is More Difficult When you’re ready to sell your business, having a sole proprietorship can make this process more…
Businesses registered in Florida, whether they are LLCs, corporations, or something else, may occasionally need a certificate of good standing. Fortunately, to get a certificate of good standing, Florida businesses need only complete a few simple steps. What Is a Florida Certificate of Good Standing? Simply put, a certificate of good standing, also called a certificate of status, serves as legal proof that you properly registered your business with the Florida Secretary of State. The certificate shows that your company is authorized to conduct business in the state of Florida. You can obtain a certificate of good standing for any business you’ve registered in Florida. In other words, both foreign (out-of-state) and domestic (in-state) business entities can get a certificate of good standing as long as they are registered. Why Do I Need a Certificate of Good Standing? There are many reasons why you might need a certificate of good standing. Although it is not necessary to have a good standing certificate, Florida businesses will often request one in certain circumstances. For example, since the certificate provides proof of the legitimacy and compliance of your business, a bank may request one when you apply for a business loan. A bank may also ask you to provide a certificate of good standing when purchasing business insurance or opening a business bank account. Additionally, a certificate of good standing will be necessary to do business in another state. Most states required business entities formed out of state to register as a foreign entity within that state. During this process, the Secretary of State in the new state will want to verify the status of your business using a Florida certificate of good standing. What Are the Requirements to Get a Florida Certificate of Good Standing? To get a certificate of good standing, Florida businesses must be properly registered with the Florida Secretary of State. In addition, the business must be one of the types of business entities for which a certificate of good standing is available—only for-profit and nonprofit corporations, limited liability companies, and limited partnerships may get a certificate of good standing. Additionally, a registered business must be current on all required documents for the year. For example, Florida requires certain registered businesses to file an annual report. You must file this report before requesting a certificate of good standing. Where to Get a Certificate of Good Standing in Florida To get a certificate of good standing, Florida businesses must order one from the Florida Secretary of State through the Florida Division of Corporations. Florida uses the term “certificate of status” instead of certificate of good standing, but they are the same document. You can order a certificate of status online to receive a PDF version or request a certificate by mail. If you order online, all you need is your entity’s registration or document number, an email, and a credit card. If you order a certificate by mail, you must submit a written document that includes: The entity’s name; The entity’s registration number (or document number); What kind of document was filed for your entity and when; and A check or money order. If paying by check, the check should be payable to the Florida Department of State. Orders by mail should be sent to the Certification Section at: Department of StateDivision of CorporationsCertification SectionP.O. Box 6327Tallahassee, FL 32314 How Much does a Florida Good Standing Certificate Cost? The cost of a Florida certificate of good standing depends on the type of entity the certificate is for. The certificate costs $8.75 for corporations and partnerships and $5 for LLCs. Does a Florida Certificate of Good Standing Expire? When you order a certificate of good standing, it generally does not have an expiration date. However, if another business requests the certificate from you, they may require that you get it within a specified time period. For example, when a foreign corporation registers with the Florida Secretary of State, it must provide a certificate of good standing issued within 90 days of the filing date. Similarly, a bank or other business may request that you get a current certificate of good standing before doing business with you. Need to Hire a Florida Business Attorney? Getting a certificate of good standing is just one part of operating a business in Florida. BrewerLong specializes in providing valuable legal services to small and medium-sized businesses in the Orlando area. Whether you need help setting up your business, with intellectual property matters, or with other general business law issues, we can help. Contact us today online to schedule an introductory phone call with one of our attorneys.
Delaware has been known as the state whose laws provide the most flexibility and have the most protections for corporations, limited liability companies, and limited partnerships. In recent years, other states have begun to take notice and become more corporation-friendly. One of those states is Florida. If you are a business owner, deciding on incorporating in Florida vs Delaware can be a big decision. Why Should You Incorporate? Incorporating a business means turning your company into one that is formally recognized by your state of incorporation. When you incorporate your company, it becomes its own legal business structure rather than a group of founding business members. Reducing liability is the primary benefit of incorporation. As a business owner, you bear responsibility for all losses and debts your business may incur. When you incorporate your business, it typically reduces your liability to only the amount of capital that you personally invest. In most cases, personal assets cannot be used to satisfy the debts of the business. Deciding Between Incorporating in Florida vs Delaware A company may choose to incorporate in any jurisdiction, including international jurisdictions, so long as it is properly registered with the state in which it conducts business. Traditionally, Delaware has been the state of choice when it comes to incorporation. This is because of corporate-friendly taxation laws and a well-established business law legal system. Nearly half of the nation’s publicly traded companies, including global corporate leaders such as Apple, Coca-Cola, Google, and Wal-Mart, are incorporated in Delaware. Today, deciding between incorporating in Florida vs Delaware requires some analysis. There are several important factors to consider when making this decision. These factors include: Whether your business has a physical storefront; State taxes; Filing fees; and The general business laws of each state. If you own a business with a physical location, you should understand that regardless of where you incorporate, the state where you conduct your business will want the tax revenue. If you do not have a physical address in the state you choose to incorporate in, you will need a registered agent to review the service of process and legal notices at an office location in that state. Incorporating in Florida vs Delaware Delaware is known as the leader for corporations in the U.S. Some big reasons have been their business laws and tax regulations. Florida also has an established set of laws specific to incorporation and business activities. There are numerous pros and cons of incorporating in either Delaware or Florida that could sway your decision depending on the priorities of your business. Incorporating in Delaware Delaware is largely known as a “business-friendly” state due to its corporate laws and tax regulations. The Delaware Court of Chancery has existed for over 200 years with the sole purpose of handling corporate law matters. Judges with specific expertise in business law resolve legal disputes. Many investors, such as venture capitalists and angel investors, prefer to invest in Delaware companies due to Delaware’s tax laws and the existence of the Court of Chancery. Corporate attorneys are often more familiar with Delaware corporate law because it has been so prominent over the years. If anonymity is important to your corporation, company records for Delaware corporations are not open to the public but can be acquired for a fee. Shareholder meetings are less formal than other states and do not require corporations to provide records of meetings that include minutes and resolutions. If you are forming a company in Delaware but not actually conducting business there, you do not need to acquire a business license. Delaware does require corporations to pay an annual franchise tax, an annual report fee, and corporate income tax (8.7%). The annual franchise tax in Delaware is based on the size of the corporation. Incorporating in Florida Florida has recently surfaced as a competitor for corporate businesses. If you have an online business, Florida leads in cost-effectiveness and convenience. Florida’s online division of corporations makes searching for and filing documents convenient and easy compared to many other states. Florida’s filing fees are often lower than other states. However, additional taxes and fees may apply on an ongoing basis. There are no minimum capital requirements to incorporate in Florida, and Florida does not require corporations to pay an annual franchise tax. To keep the corporate entity active, corporations do have to pay the annual report fee. Florida corporations are subject to the corporate income tax (5.5% of taxable income over $5,000). “S” corporations in Florida are exempt from state corporate income tax unless federal income taxes are owed. The state does not levy any personal income taxes on “S” corporation shareholders. Florida corporations also allow a variety of employee benefit plans, which may help corporations attract the most qualified people to serve the business. Corporations in Florida may also deduct contributions made for employee disability and health benefits. “In most cases, a corporation that is headquartered in Florida, does most of its business in Florida, or has most of its employees in Florida should be incorporated in Florida, unless there is a specific reason to incorporate in Delaware or another state.” Florida Business Attorney Trevor Brewer Contact an Experienced Corporate Attorney There is a lot that goes into making the best decision on incorporating in Florida vs Delaware. Each business is unique. Seek counsel from an experienced business attorney who understands the intricacies of incorporating in both states. The team at BrewerLong can guide you through the entire incorporation process, including deciding the best corporate structure for your business and how to comply with all relevant business laws. Contact us to set up a consultation and learn more about what we can do to help your business succeed.
At a certain point in its lifecycle, expanding a corporation into other states may be necessary for continued growth. If you’ve thought about becoming a foreign corporation doing business in Florida, however, you should be aware of how the state treats out-of-state corporations. Florida requires out-of-state businesses to register in Florida before they can engage in any business transactions. Accordingly, knowing how and whether you have to register as a foreign corporation is important. “Foreign corporations required to register in Florida include both companies that are expanding into the state and new companies headquartered in Florida but formed under the laws of Delaware or a different state.” Florida Business Attorney Trevor Brewer What Is a Foreign Corporation in Florida? State law views business entities as either foreign or domestic. A domestic entity is one formed and operated within the same state. By contrast, a foreign corporation is one formed in a different state. Florida law requires corporations to apply for qualification as a foreign business before “transacting business” within the state. As a result, a corporation formed outside of Florida wanting to do business in Florida must separately register in Florida as a foreign corporation. However, certain activities do not count as transacting business, including: Defending or settling a legal proceeding; Carrying on internal affairs, like shareholder meetings; and Conducting limited, one-off transactions that conclude within 30 days. Failing to register subjects foreign corporations to back taxes and civil penalties. Because the nature of “transacting business” is vague, it is in a foreign corporation’s best interests to register if it does any regular business within Florida’s borders. Qualifying a Foreign Corporation Doing Business in Florida A foreign corporation can qualify to do business in Florida by registering with the Florida Division of Corporations. 1. Obtain a Certificate of Existence from Your Home State As part of the application process, foreign corporations must provide an original certificate of existence. This certificate, also called a certificate of good standing, is an official document that shows the proper formation of your corporation and the legal authorization to do business. To qualify as a foreign corporation in Florida, you must provide an authenticated original certificate of existence, not a photocopy. Therefore, it is necessary to obtain an official certificate from the Secretary of State for the state where you formed your corporation. Finally, note that the certificate must issue within 90 days of the date you file your application. 2. Register an Agent in Florida Foreign corporations must have a registered agent based in Florida. Additionally, the registered agent must have a street address and not a P.O. Box. However, foreign corporations are unlikely to have a physical presence in the state before they register. As a result, foreign corporations often use a registered agent service. 3. Complete the Foreign Qualification Application The Florida Division of Corporations offers separate applications for profit and non-profit corporations. Some of the information the application requires includes the: Name, date of incorporation, and address of the foreign corporation; Federal Employer Identification Number (FEI or EIN); and Personal information for the corporation’s directors. State laws also require corporations to include “Company, “Inc.,” “Co.” or similar in the name of the corporation. Thus, when it comes to the name of the corporation, make sure you include the proper entity designation. 4. Submit the Application and Required Fees Submit the completed application, including the cover letter, certificate of existence, and fee via mail to the Florida Division of Corporations at the following address: Registration SectionDivision of CorporationsP.O. Box 6327Tallahassee, FL 32314 In addition to the $70 registration fee for each application, applicants may choose to pay $8.75 each for a certificate of status and a certified copy of the application. Checks should be made out to the Florida Department of State. 5. Make Sure to File Annual Reports After Qualifying A foreign corporation doing business in Florida must file a yearly annual report between January 1 and May 1, starting the year after registration. Foreign corporations may file annual reports online with the Florida Division of Corporations using the document number issued after successfully registering as a foreign corporation. The fee for filing the annual report is $150, with a $400 late fee for filing after May 1. Because Florida may cancel the foreign registration entirely if you want too long, it’s a good idea to always make sure you file the report before May 1. Contact a Florida Business Law Attorney If you have a foreign corporation doing business in Florida or if you’re looking to expand your business, BrewerLong can help you with your foreign qualification. Our practice focuses on helping small businesses in Florida with a variety of business law issues from formation to risk management. Contact us today online or give us a call at 407-660-2964 to set up a consultation.
You have a great business idea and need time to bring it to fruition. In the meantime, you may wonder how to protect a business idea and ensure your future success. Unfortunately, many fail to take reasonable steps in protecting a business idea from competitors and lose their rights, even as the original creator. How to Protect a Business Idea There are a number of ways to legally protect your business ideas. The best option for you depends on the type of idea and what you want to do with it. Reviewing all options with a business law attorney to protect your business ideas ensures you make the right choices moving forward. Federal or State Registration When you’re thinking about how to protect an idea for a business, one of the first things you are likely to consider is officially registering your idea with the appropriate federal or state office. Registration falls into three main categories: patents, copyrights, and trademarks. Each of these categories provides different types of protection and for different lengths of time. Patents A patent is a property right granted by the U.S. Patent and Trademark Office (USPTO). The title of patent holder entitles you to exclude others from using, making, or selling your invention for some time. The USPTO provides information on how to patent a business idea. There are three different types of patents: utility, design, and plant. Utility patents protect the way an invention functions, and design patents protect the way an invention looks. Plant patents can protect invented or discovered asexually reproduced plants. Design patents last for 15 years from the date of the grant, while utility and plant patents last for 20 years. Consult with a qualified business law attorney to discuss how to patent a business idea. Patent registration is costly and requires considerable time. A business law attorney ensures you file for the correct patent and eliminates delays through their knowledge of the patent application process. Copyrights A copyright represents a collection of rights granted to an individual upon creation of an original work. A copyright provides answers to the question of how to legally protect a business idea. Copyrights include the following: The right to reproduce the work, The right to prepare derivative works, The right to distribute copies, The right to perform the work publicly, and The right to display the work publicly. A copyright grants you, the owner, the right to assign, license, or transfer the copyright to others. Additionally, the power of copyright permits the owner to choose the way the public views your work. Trademarks A trademark is a word, phrase, symbol, or design that identifies and distinguishes the source of goods. A service mark is a word, phrase, symbol, or design that identifies or distinguishes a service’s source. Examples of trademarks include slogans, brand names, and brand logos. Acquiring the rights to a trademark does not require registration. The first and continuous use of a trademark in commerce establishes your rights. However, registering a trademark does provide additional protections. You may decide to register your trademark with the USPTO, your state, or both, depending on the type of protections you need. Non-Disclosure Agreements A non-disclosure agreement may serve as an effective protective measure if you plan to work with others on your idea. A non-disclosure agreement, or NDA, operates as an agreement between parties not to disclose your idea or share information with third parties. A qualified business attorney may draft an NDA with no expiration date, thereby providing you even stronger protection. Non-Compete and Non-Solicitation Agreements A non-compete agreement operates similarly to an NDA, but it serves to prevent someone from starting a business similar to yours. A non-solicitation agreement may work in conjunction with a non-compete agreement to prevent someone from stealing your employees or clients. Typically, non-compete agreements have to be limited in time, scope, and location. For example, if your company sells tires in a small town, it would be difficult to enforce an agreement that prevented someone from selling tires anywhere in the country for the rest of their lives. However, the agreement may prevent someone from starting a competing tire business for five years within a 30-mile radius of your business. Work-for-Hire Agreements Work-for-hire agreements can allow you to get help with your idea without giving up your rights. In a work-for-hire agreement, you hire someone to work for you to analyze and improve your idea. Anything these individuals come up with to perfect your idea becomes yours. If you file a patent, someone you hire will identify as a co-inventor on your patent. Despite this title, they own no rights to the patent. Provisional Patents The U.S. Patent and Trademark Offices issues provisional patents (PPA) to protect an invention. Provisional patents protect a patent during the 12 months before filing the formal application. The provisional patent allows the inventor to pitch the idea, test its commerciality, and fine-tune any prospective issues before completing the expensive patent application. The recognizable “patent pending” label affixes to patents during this provisional period. Trade Secrets Law Another way to protect your ideas is to keep them secret. The Uniform Trade Secrets Act (UTSA) protects trade secrets that: Have either actual or potential independent economic value because they are not generally known; Have value to others who cannot legitimately obtain the information; and Are subject to reasonable efforts to maintain their secrecy. There exist two common ways of stealing trade secrets. One is through dishonest means such as stealing. Another is through a breach of confidence. For example, a former employee who had rightful access to the trade secret may use it without permission or sell it to another company. If someone steals your secret, you may have a legal claim against them if all three of the above elements are present. The steps you take to protect your trade secret are particularly important. You can show you made reasonable efforts to maintain secrecy by doing things like: Limiting the number of…
The term shareholder is not just relevant to Fortune 500 companies. A shareholder is any individual or institution that legally owns at least one share of stock in a private or public corporation. If you own stock in a company, or your pension includes publicly traded stocks, you are a shareholder. Shareholders are also sometimes called members of a corporation. Shareholders essentially have a financial interest in a corporation or company. Considering the money at stake, shareholders can get into any number of different types of disputes. With more and more owners of a company, it’s inevitable that disputes will arise about how the company is managed. Hopefully, the shareholders can work together to resolve these disputes. Sometimes they cannot, and shareholders need their own attorney representation. Business Disputes Attorney Michael Long Shareholder Rights The rights and responsibilities of a shareholder differ according to the governing shareholder agreement. Shareholders commonly have the right to: Sell their shares; Purchase new shares; Nominate directors; Vote on directors nominated by the board of directors; Propose shareholder resolutions; Vote on shareholder resolutions; Receive payment of dividends; Sue the company for violations of a fiduciary duty; Vote on management proposals; and Receive payment of assets remaining after liquidation. A shareholder’s rights and responsibilities are outlined in the company’s constitutional documents, e.g., the articles of incorporation and any shareholder agreements. The rights such an agreement provides will inform the method shareholders choose to resolve their disputes. What Is a Shareholder Dispute? Shareholder disputes can be disagreements among shareholders or between shareholders and the owners of the company. Shareholder disputes can take on a number of different forms. Whether shareholders disagree with the company’s management style or decision-making or there has been an instance of fraud or illegal conduct, shareholder disputes can differ widely. Examples of Common Shareholder Disputes Shareholders get into disagreements over any number of issues. With money on the line, shareholder disputes can be contentious. Examples of common shareholder disputes include: Breach of a shareholder agreement; Disagreements over direction; Disagreements over company management; Breach of fiduciary duties; Minority shareholders not getting enough respect; Differences in compensation or contribution; Conflicts of interest; Personal problem affecting business relationships; Lack of dividend distributions; Concern over possible illegal or fraudulent activities; and Breach of a director’s service contract. Disputes amongst shareholders are common and often high-stakes. Failure to seek legal advice early in the course of a shareholder dispute regarding a shareholder’s legal rights and strategies can escalate the seriousness of the dispute. For this reason, it is important to seek the advice of an experienced business law attorney as soon as possible. How to Resolve Common Shareholder Disputes The first step to resolving a shareholder dispute is to look over the shareholder agreement. The manner in which shareholder disputes are resolved may be determined by the governing shareholder agreement. A shareholder agreement will likely include provisions that provide procedures for forcing a shareholder to sell their shares given certain circumstances. If the shareholder agreement does not provide any such procedures, shareholders can and should form a shareholder agreement during the process of resolving the dispute. Other methods for resolving shareholder disputes include: Proposing a resolution to address the dispute at a general meeting; Appointing a disinterested director, board advisor, etc. to resolve the dispute; Appointing additional statutory directors, etc. to avoid deadlock and bring a fresh perspective; Calling a general meeting of the shareholders to consider a resolution dismissing a director; Terminating a shareholder’s employment, if applicable, under an employee settlement agreement; Engaging a neutral professional mediator to resolve the dispute; Arranging a buyout by an external buyer, another shareholder, or the company, in accordance with the company’s articles and any governing shareholder agreements; Selling the company and distributing the proceeds to shareholders in accordance with the articles of association and any governing shareholder agreement; Presenting a petition to have the company wound up, if it is just and equitable to do so; or Filing a lawsuit, known as a derivative claim, on behalf of the company against the wrongdoers; The method of resolution you choose depends on the specific circumstances of your dispute. No matter what you decide to do, you should first consult all applicable shareholder agreements and the articles of association. Your rights and responsibilities will be limited by any such agreements, so it is important to be educated about their requirements. You should also be sure to consult an experienced business law attorney who can help you interpret your operating agreement and explain applicable state and federal laws. How BrewerLong Can Help BrewerLong is a Florida-based law firm that handles all manner of business law cases. From formation to dissolution, we can represent you throughout the life of your business. Our team of experienced business law attorneys works tirelessly to provide individualized services. Contact us today for a free case consultation. We’ll work with you to develop the best strategy for your case.
As a business owner, you understand the numerous rules and regulations that ensure a compliant business. However, despite your diligence, important issues may be overlooked. The consequences of missing anything may cost your business in penalties and litigation fees. Staying on top of everything can be overwhelming. However, a legal audit checks the legal health of your business. A qualified business law attorney behaves as a legal auditor to analyze any risks or gaps in liability that may exist for your company. Predetermining where these gaps and risks exist before they are exposed protects your company from consequences that may be difficult for your business to recover from. It’s common for a new business to take shortcuts while getting started. Unless these weaks spots are uncovered and upgraded, a successful business can fall prey to its past mistakes. Business Attorney Trevor Brewer What Is a Legal Audit? A legal audit focuses on a single aspect of your business and analyzes your legal position. A legal audit ensures that no hidden risks exist within your company. The problems a legal audit identifies are those that put your company at risk for penalties and litigation. While a legal audit performs an in-depth analysis of one area of your company, it is not so intrusive as to interfere with your company’s day-to-day operations. Possible topics addressed in a legal audit include the following: Choice and structure of business entity; Acts of the board of directors and supporting documentation; Intellectual property protection; Methods of marketing and distribution; Any pending and future litigation; Estate planning; Insurance coverage; Human resource practices, including hiring and firing; Employment agreements; Securities law compliance; Antitrust and related government regulations; Product liability; Environmental law; and Sales and collection practices. Not all of these topics may be relevant to your business. A legal audit’s depth and complexity depend on the company’s size. Additionally, the type of business in which the company is engaged, the number of shareholders and employees it has, and whether the business is in a regulated industry also play a large factor in the legal audit’s scope. Why Should You Get a Legal Audit? As a growing business, it’s essential to identify potential issues or liability before they become an actuality. The most significant benefit of a legal audit comes from discovering compliance issues before they cost your company in penalties or litigation. There are myriad risks that you may expose your company to by failing to get a legal audit. Accounting Risks Failure to maintain accurate accounting records for the business or mixing personal assets with those of the business increases liability risk for the company. For example, the commingling of personal assets may lead to a piercing of the corporate veil. Piercing the corporate veil eliminates the limited liability protection afforded to business owners and exposes them for personal liability for any litigation that may be pending. Compliance Risks Failure to obtain all required permits and licenses for your business leads to fines, penalties, and in some instances, closure of the company. You can also face penalties and liability for failing to comply with various state and federal laws governing things like data security, marketing, and safety standards. Human Resource Risks Failure to have employment handbooks, employment agreements, and general employment policies increases civil liability risk from past and present employees. Corporate Compliance Risks Failure of the board of directors to keep accurate records and minutes of decisions made in meetings subject the company to liability by shareholders and investors. Reporting Risks Failure to accurately report on company performance each quarter leaves the company open to possible default by investors and lenders. Who Should Get a Legal Audit Any business, even one that is just starting out, should consider a legal audit. Different businesses are vulnerable to various liabilities. The legal audit serves to identify these potential issues as they apply to your company’s specific circumstances. Even as a small business, a legal audit can provide the following benefits: Giving investors and lenders reason to have confidence in your company; Achieving profitability or increase your profit margin by spotting operating inefficiencies and serious fraud issues; Simplifying the tax process; Avoiding liability; and Helping you obtain specific business certifications that require legal audits. Gaining an annual picture of your business through a legal audit can increase productivity, boost revenue, and reduce unnecessary operating expenses. How Often Should I Get a Legal Audit Legal audits may be completed on many topics at one time or may progress in phases. A legal audit is often initiated when new management takes over and a company wants to make sure they start with a clean slate. A costly mistake may also trigger a legal audit. It’s wise to consider an annual legal audit for your business in the absence of these occurrences. The survival of any business requires preparation, organization, and responsiveness. A legal audit provides these protections for your business. Why Hire a Lawyer for a Legal Audit Just as you would hire an accountant to review your books or a tax expert to perform a tax audit, a qualified business lawyer should conduct the legal audit of your business. Additionally, an attorney can provide a clear, objective analysis of your company operations and legal procedures. The attorneys at BrewerLong assist businesses of all sizes. BrewerLong helps you build your company, grow an established business, or mitigate risks to your company through a legal audit. We provide a clear assessment of your business through multiple discussions. Our legal team knows that small businesses deserve and require the same legal representation as larger companies and corporations. We work closely with you to help your business achieve its envisioned goals and objectives. Seeking the counsel of a successful business lawyer for your legal audit could mean the difference between your business’s success and failure. Contact BrewerLong today to discuss the process for a legal audit and how it can benefit your business.
When you start your LLC, it is unlikely that you envision yourself leaving the business. Similar to a marriage, you may expect a perfectly harmonious relationship for the foreseeable future. However, as time progresses, you may find your vision for the LLC has changed, or perhaps a member has found a more profitable opportunity they wish to pursue. The operating agreement for an LLC outlines the expectations, roles, and responsibilities of the LLC members. This agreement also provides a procedure for a member leaving the LLC. While the term “buyout agreement” implies a sale, this is not entirely accurate. In actuality, an LLC buyout agreement is an agreement between the members of an LLC about what will happen if a member wishes to leave. It is always prudent to have a buyout agreement in place. Business owners are often surprised that a LLC member does not automatically give up his or her LLC membership interest when the member leaves. An LLC membership interest is property, and you cannot take it away without an agreement. Business Attorney Trevor Brewer What Is an LLC Member Buyout Agreement? When you created your LLC, you probably also created an operating agreement. The operating agreement for your LLC provides information about day-to-day operations and the roles and responsibilities of all LLC members. The operating agreement may also contain a clause regarding withdrawal procedures that all LLC members must follow. A buyout clause in an operating agreement might also include information calculating compensation for departing members. If your operating agreement does not contain a buyout clause, you should draft a separate buyout agreement. Working through and completing a buyout agreement forces members to share their expectations when an LLC member leaves. Perhaps you will want to dissolve the LLC if a member leaves. Or perhaps you will want to give other members the opportunity to buy out their interest. Exploring and defining the terms of a buyout agreement may force LLC members to have real-life discussions about “what if” scenarios. Addressing these “what if” scenarios before they occur could save the LLC and relationships when an LLC member decides to leave. If your operating agreement does not address what happens when a member leaves and you don’t have a buyout agreement, Florida law will govern removal of members from the LLC The Florida Revised Limited Liability Act provides for the membership transfer of a Florida LLC. Under the Act, members may depart at any time. Additionally, it addresses how to forcibly remove a member if a dispute arises. The Act provides for removal in these situations by judicial order or unanimous vote by other LLC members. What Should a Buyout Agreement Include? When drafting a buyout agreement, schedule a meeting with all the LLC members. If an LLC member is planning to exit the LLC, also include this person. At the meeting, discuss topics such as the valuation of the departing member’s interest, who can buy out a member and under what circumstances, and the terms of any purchase of the membership interest. Value Determination One of the critical elements of any buyout agreement is the value determination of the LLC membership interests. LLC members may collectively determine the value of the LLC. Alternatively, they can agree to a method for calculating that value at the time of a member’s departure. For example, the members might agree that the fair value of the LLC should be determined by formal valuation provided by a professional business appraiser. A buyout agreement can then give the remaining members the right to buy back an LLC ownership interest for a predetermined price. Providing this language and information in an operating agreement simplifies the process if a member decides to leave the LLC. Once a value of membership interests is determined, LLC members must agree on the method of purchase. For example, members may require the purchase price to be paid in full at the time of departure or over a specified period of time. Triggering Events An operating agreement should also consider whether any triggering event will prompt the buyout of a member’s interest. The members of the LLC should agree on what happens after a triggering event occurs. There are several common types of triggering events. Bankruptcy Filing for bankruptcy could force an LLC member to sell their interest in the business. A buyout agreement could allow for the remaining members to buy the bankrupt member’s interest. Death If a member dies, their ownership interest in the LLC may pass to their heirs or spouse. Remaining LLC members may find themselves working with a person with whom they never intended to do business. You can utilize a buyout agreement to prepare for this “what if” event and determine an LLC path forward. Retirement/Resignation When a member plans to retire from the LLC, an agreement should be in place regarding their interest in the LLC. Determining how the retiring member’s interest will be divided or sold prevents any conflicts or disagreements between existing LLC members. Divorce An LLC member may lose their interest in the LLC in a divorce proceeding. Including language providing a right of first refusal to existing LLC members prevents this scenario from occurring. Incapacity A buyout agreement can also address what to do if an LLC member becomes incapacitated due to injury or illness, including what will happen to their interest in the LLC. Forced Sales Forced sale language in an operating agreement provides that upon certain triggering events, such as when a member decides to retire, the remaining LLC members must buy the departing member’s interest. When such a provision is included in a buyout agreement, it will generally require the remaining members to purchase the interest within a predetermined period at a predetermined price. Why Should I Have a Buyout Agreement? An LLC should always consider having a buyout agreement in case a member decides to leave the LLC. Including the language for a buyout in the operating agreement minimizes the possibility of a…
When you start your business partnership, you and your partner may have the same goals. However, unexpectedly, relationships may sour. Perhaps your partner undertook actions that undermined the company’s reputation and damaged business. In some situations, the only resolution to the conflict is suing your business partner. Consult with an experienced business lawyer to determine how to sue your business partner. “Business relationships are often like marriages. It is oftentimes much easier to get into a business relationship with your partner than to get out of it.” Business & Litigation Attorney Michael Long There are various grounds for suing a business partner. The underlying purpose of partnership lawsuits is to remedy damage to the business caused by things like breach of contract, negligence, abandonment, and more. Common Grounds for Suing a Business Partner There are many reasons you may need to sue a business partner. However, the following are some of the most common you may encounter. Breach of Partnership Agreement Business partners typically share in business decisions. However, if one business partner breaches a partnership agreement, its effects may be disastrous. If you sue your business partner for breach of a partnership agreement, various elements must exist for your claim. These elements include the following: A valid, enforceable partnership agreement exists; Your business partner has breached a term or terms of the contract; and You or your business has suffered damages resulting from the breach. If the above elements are present, a valid claim for breach of partnership agreement exists, and you may have grounds for suing your business partner. A strong partnership agreement provides clauses addressing courses of action regarding contract breaches. For example, the partnership agreement may provide your partner with a certain number of days to cure the breach. If included in your partnership agreement, and your partner fixes the breach, you may avoid a lawsuit. If your partner refuses to fix the breach, you may have grounds to sue a business partner. Abandonment You may wonder whether you can sue your business partner for abandonment. Abandonment occurs when the business partner leaves the partnership. In some situations, the business partner may continue to collect a paycheck despite not actively working. Abandonment constitutes grounds for suing a business partner as it may be considered a breach of fiduciary duty. All partners owe the other a duty to place the interests of the business above their own. If a business partner abandons the partnership to pursue opportunities for themselves, this may constitute a breach of fiduciary duty. Negligence A negligence claim might exist against your business partner if their actions harmed the partnership. The following elements must exist for a negligence claim: Duty. Your business partner owes you and the partnership a duty of care. This duty of care requires business partners to make decisions in good faith. Breach. Your business partner acted negligently when acting on behalf of the partnership. Causation. The breach of duty caused harm to the partnership. Consult with a business law attorney to determine whether you have a negligence claim against your business partner. Violation of Intellectual Property Rights A violation of intellectual property rights belonging to the partnership may also give you grounds to sue your business partner. A partnership agreement may provide that all copyrights, patents, and trademarks are the partnership’s property. However, if your business partner has used this intellectual property for personal gain, their misuse may give you grounds to sue them. Criminal Activity by Your Business Partner Sometimes a business partner engages in criminal activity, such as fraud or theft. Criminal acts may include stealing money from the partnership or stealing money from a customer. These activities can both cost your business financially and undermine its reputation. Therefore, they can provide valid grounds to sue your business partner. Alternatives to Suing Your Business Partner If you would prefer to explore options for settling disagreements outside of court, alternatives to a lawsuit exist. Settlement You may consider negotiating with your business partner to determine terms of settlement to which you both agree. Settlement may mean the termination of your partnership and repayment of any losses by your business partner. Saving on litigation costs by pursuing avenues other than a lawsuit may serve your partnership’s best interests. Consult with an experienced business law attorney to explore possible terms of settlement for your situation. Mediation Additionally, mediation may be another alternative to resolving conflicts. Rather than engaging in a lawsuit for months or even years, mediation may provide a more efficient result. However, mediation requires the cooperation of both parties. There is no point in engaging in the mediation process if neither party wishes to work with the other. If mediation is not an option, your best option moving forward is suing your business partner. Arbitration Does your partnership agreement include an arbitration clause? An arbitration clause in your partnership agreement may apply to specific situations. Consult with a business law attorney to review your partnership agreement. If an arbitration clause applies to your situation, you may be able to avoid suing your business partner while still obtaining a legally binding resolution to your situation. Arbitration allows parties to settle their disputes out of court while obtaining legally enforceable decisions. Contact Us Considering whether to sue your business partner is a difficult decision. A decision to sue will undoubtedly damage the relationship between you and your business partner. The attorneys at BrewerLong have over a decade of experience providing high-quality, tailored legal services to all clients. Hiring a lawyer to assess difficult business decisions mitigates the risk of legal disputes in the future. BrewerLong attorneys ensure each client receives personal attention and meaningful communication. Our team at BrewerLong possesses a thorough understanding of the time, energy, and effort it takes to run a business. We invest in the future of your business. Contact us today to discuss grounds for suing a business partner.
If a relationship with a shareholder fails to work out, the removal of that shareholder from your business or corporation is possible. Complications may arise when undertaking the removal of a shareholder. “Removing a shareholder from a corporation is often contentious. Even when a shareholder agreement can be removed, doing so can give rise to lawsuits.” Business & Litigation Attorney Michael Long Consult with an experienced business law attorney to determine whether the shareholder can be removed. Review Shareholder Agreement The most critical first step in planning for the removal of a shareholder is a review of your shareholder agreement. Your shareholder agreement may provide the proper procedure for the removal of a shareholder. A shareholder agreement operates as a type of contract, providing guidelines for proper shareholder conduct. If a shareholder fails to adhere to conduct guidelines within a shareholder agreement, the removal of the shareholder for misconduct is easier. It can be more difficult to remove a majority shareholder absent a shareholder agreement. Since a majority shareholder holds more than 50% of the voting rights of a company, whether a majority shareholder can be removed becomes substantially more difficult, if not impossible. Therefore, when attempting to remove a majority shareholder, provisions within a shareholder agreement may help. If a majority shareholder violates any rules of conduct within the shareholder agreement, basing the majority shareholder’s removal on that violation simplifies the removal process. However, the involuntary removal of a shareholder opens up the possibility for future legal disputes. Shareholder agreements also provide information about the number of issued shares, restrictions on transferring shares, rights of current shareholders to purchase shares, and details regarding the sale of shares. Some shareholder agreements do not provide for proper removal procedures. If no shareholder agreement exists or there has been no violation of an existing shareholder agreement, consult with a business lawyer to determine removal options for your company. If a shareholder is also an employee, you may wonder whether you can fire a minority shareholder. While it is possible to terminate a shareholder’s employment, carefully review your employment contract. Consult with an attorney to anticipate any potential legal issues with termination of employment. Other Ways to Get Rid of a Troublesome Shareholder Available removal avenues may fail for various reasons. Perhaps you don’t have a shareholder agreement or can’t show that it was violated. Or maybe you have been unable to get sufficient support to vote out the shareholder. If you are unable to directly remove a shareholder, there are other options to encourage them to leave the company. Sell Shares One option to consider is negotiating with the minority shareholder to sell their shares. While you can technically force a shareholder out, negotiation prevents the opportunity for legal issues down the road. It is always possible to negotiate with the shareholder regarding the purchase of the minority shareholder’s stake. While it is common to discount sales of minority shares, presenting a reasonable offer may encourage the shareholder to accept. It’s important not to engage in any activity constituting minority shareholder oppression. Minority shareholder oppression examples include the following: Withholding information from the shareholder; Withholding profits or dividends; Violating minority shareholder rights; and Going against specific provisions in the shareholder agreement. Pursuing any of these courses of action could result in legal action by the shareholder for this conduct. Permissible conduct which may encourage a minority shareholder to sell their shares includes: Termination of shareholder employment. If undertaking this avenue, carefully review termination procedures in your employment agreement. Reduction of shareholder authority. Voting to reduce the minority shareholder’s decision-making power may encourage the shareholder to sell their shares. While this conduct is generally permissible, consult with a business attorney to prevent any opportunity for future legal disputes down the road. Buyout Shareholder Even if the shareholder fails to violate terms of the shareholder agreement, removal may still be possible. For example, your shareholder agreement may provide for a buyout clause. A buyout clause allows for purchase of a minority share for an agreed-upon price. A buyout clause prevents minority shareholders who cannot be voted out from refusing to surrender their shares. Contact Us When determining whether a majority or minority shareholder can be removed, consult with the qualified business attorneys at BrewerLong to guide you in the right direction. Despite the removal of a shareholder, ensure your company continues operations smoothly and without interruption. BrewerLong attorneys work to limit any opportunities for future legal disputes with removed shareholders. With over a decade of experience, the attorneys at BrewerLong work to create excellent experiences through helping, listening, and collaborating with all clients. Contact us today to discuss whether a shareholder can be removed from your company.