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Starting a business takes a lot of time, and so does closing one. We wish it were as easy as turning off the lights and notifying the post office to stop delivering mail but closing a business in Florida requires several steps to protect yourself legally. We are happy to help. To wind down a business, you need to notify certain stakeholders that the business will cease to exist, which protects you from future lawsuits or incurred costs. The steps you take are generally the same whether you are running a large business with 100 employees or are a sole proprietor working out of a home office. As experienced Florida business law attorneys, we have written this article on how to close a business in Florida to give you a general idea of the work involved. Vote to Wind Down, if Necessary If you run a corporation, then your shareholders will need to vote to formally wind down the business. They also need to do this at a formal shareholder meeting. Avoid sending out an email or a form letter asking people to let you know if they want to wind down.  Hold an official meeting and keep records of the vote. Don’t skip this step. If you do, you could end up financially and legally liable to customers, employers, the IRS, and other government agencies. For example, a customer could allege that your business was really a sham since you don’t follow required formalities to shut it down. That could put you on the hook financially for business contracts and other debts. If you run a sole proprietorship, you don’t need to vote. But you still should carefully document the date that you have decided to stop operating your business. Notify Employees If you don’t have employees, you can skip this step. However, if you have hired full- or part-time employees, you must do the following: Give them clear notice of when their employment terminates. By shutting the business you are, in effect, laying someone off. Coordinate to pay the final paycheck in a timely manner. Florida has deadlines you need to follow. Make sure to compensate employees for unused vacation time. Deal with retirement accounts. Contact the investment company for more information. A key consideration is timing. As soon as you tell an employee you are closing the business, they might immediately jump to a different job. You might need only a skeletal crew working for you as you wind down. Pay Your Creditors A business that is winding down still needs to pay its creditors back. This means you can’t sell your business or its assets and then skip town with the proceeds. Instead, go through your contracts, both short-term and long-term. Identify how much money you need to pay off your debts and make sure you set an adequate amount aside. If the contract gives you a right to early termination, make sure that you exercise that option. What happens if you don’t have enough money to pay all creditors? Realize that they can come after you if you made a personal guarantee on a loan. (This happens more frequently than you probably imagine.) Talk with a business attorney for more information. You might need to file for bankruptcy to wipe out the debts. Pay Your Taxes Notify the IRS and the Florida Department of Revenue that you are closing your business. If you don’t, they might assume you are hiding business income and they could open an investigation. You also need to make all necessary payroll and other contributions, exactly as you did before the winding down process. If you don’t have the money, then a business bankruptcy might be your only option for handling unpaid tax debt. Close Your Bank Accounts Once all checks and transfers have cleared, you should close your accounts. Don’t close too early or checks will bounce. If you have cash in the account after paying off all debts, you will then distribute it to any shareholders. Notify the State You Are Winding Down The state needs to know that the business has closed. This protects you by preventing someone from fraudulently assuming your business identity and doing business with unwary creditors. Fill out the necessary paperwork and keep a copy for your records. Hang onto Business Records Many of our clients have successfully wound down a business only to have an issue crop up years down the road. Maybe the IRS claims they are owed money, or a creditor sues for additional payment. For these reasons, you must keep all your business records, in order, in a safe place. Speak to a Business Lawyer Today Closing a business in Florida isn’t easy, and it is rife with pitfalls. If you have a question, our Florida business lawyers can answer. Brewer Long has helped many business’ owners wind down, and we can help you too. Contact us today for a free, introductory phone call, 407-660-2964.

Let an experienced real estate attorney help you negotiate a commercial lease

You’re starting a business and you need a commercial location. Or maybe your business is growing and you need more space. Whatever the case, if you’re about to navigate the legal and financial minefield of a commercial lease, have an experienced attorney review the document before you sign. Here are three critical reasons why: 1. Complex zoning issues. Before you sign a lease, be sure the city and county zoning will allow you to operate your business on the site. Don’t just assume—verify. If you sign a lease without confirming the zoning, you risk being locked into years of rental payments on property you can’t use. Zoning ordinances can be tedious and nuanced. They address a wide range of issues, including the type of business (retail, restaurant, manufacturing, professional, etc.), health and safety regulations, parking, signage, accessibility and more. Check into all applicable regulations before making a commitment. If the current zoning doesn’t allow what you want to do, you may be able to obtain a variance or special exception. An attorney can help you negotiate a zoning contingency into the lease and navigate land use issues with the appropriate government agencies. 2. Terms that heavily favor the landlord. It’s likely that the landlord uses a lease has been drafted to favor the landlord and contains language that burdens the tenant with a long list of significant obligations, expenses and liabilities. For example, many landlord leases contain broad remedies the landlord can self-execute if you default on the lease while limiting the landlord’s liability or your recoverable damages if the landlord defaults. Another issue to watch for is when landlords use a standard form that contains generic terms that are not appropriate for your particular business or industry. An attorney can often negotiate a more balanced agreement that is specific to your needs and operation. 3. Get all promises in writing. In your conversations, the landlord or leasing agent may agree to certain things that are important to you, but if those points aren’t included in the written lease you sign and a dispute arises later, you have no recourse. Don’t rely on verbal assurances. An attorney can craft the appropriate language for points you need added to the lease. Be wary of a landlord who objects to your attorney reviewing their lease or who insists there is no room for negotiation. In our experience, even landlords who have a “take it or leave it” attitude become more reasonable and cooperative after they receive an attorney’s comments on the lease. Contact BrewerLong Today for A Commercial Lease Review Commercial leases are complex. An experienced contract attorney knows which lease terms are standard, which can be negotiated and which should be added to the landlord’s draft to limit your costs and liabilities, reduce risks and facilitate a smooth landlord/tenant relationship. To schedule review of a commercial lease, call our office at 407-660-2964, contact us online, or email Calla Portillo at calla@brewerlong.com.

if-you-get-sued-michael-long-brewerlong

What Should You Do if You Get Sued? When you own a business, getting sued is not a matter of if, it’s a matter of when. The more successful you are, the greater the chances that someone will file a lawsuit against you or your company. That’s why you need to know what to do before you hear that dreaded phrase: “You’ve been served.” First and most important: Don’t panic. Stay calm and take purposeful and immediate action. Here’s what you should do—and you should do it immediately (the same day if possible) after you are served: Read the lawsuit. You need to know who is suing you and what they allege you did or did not do. The summons will tell you the exact number of days you have to respond to the lawsuit so you know what your deadline is. Call your attorney. Even if you believe that your insurance company is going to handle your defense (more about that later), your own trusted legal advisor should be notified and kept advised as the case progresses. Put your insurance carrier on notice. Let your commercial insurance agent/broker know you have been served with a complaint. He or she will give you instructions on how to notify the insurance carrier and may assist directly in placing the carrier on notice of the claim. Important! Regardless of the nature of the claim or claims alleged in the complaint, never assume that your insurance doesn’t cover that type of claim. Notify your carrier even if you think it’s an uninsured risk because you could be wrong. Let your insurance carrier tell you whether some or all of the claims asserted against you are covered under your policy. Designate a Point of Contact Once you have contacted your attorney and placed your insurance carrier on notice of the claim, you should designate an individual within the company to be the primary point of contact for all things related to the lawsuit. Your internal point of contact should be a C-level or department-head person who reports to the CEO. This person should have the necessary authority as well as the time and ability to deal with the lawsuit. It should not be the CEO; the CEO needs to stay focused on running the company. Preserving Evidence Upon receipt of a complaint, meet with all of your department heads—particularly your IT department head—and put procedures in place to securely preserve all data which might in any way relate to the lawsuit. Contact a business litigation attorney if you’re unclear on any detail about your obligations and the process for preserving evidence. The failure to preserve data can have significant negative implications for you in the litigation. Insurance Coverage A standard insurance policy issued to business entities will protect them against liability claims for: Bodily injury (BI) and property damage (PD) arising out of premises, operations, products, and completed operations Advertising liability Personal injury (PI) liability Risks related to contracts and business relationships with partners are usually not insured. You may choose to purchase additional coverages such as employment practices liability, which provides coverage to employers against claims made by employees alleging discrimination (based on sex, race, age or disability, for example), wrongful termination and harassment, as well as other employment-related issues, such as failure to promote. The terms of your policy dictate whether claims or losses are covered. When it comes to lawsuits, there are two significant components to insurance: Providing a legal defense Paying any damages. Upon receipt of your claim, your insurance carrier will take one of three actions: Advise you that the claim is covered and the insurance carrier will provide a defense. Advise you that the insurance company believes that the claim may not be covered under your policy and they are going to reserve their rights to deny coverage later, but they are currently going to provide a defense. Advise you that the insurance company is denying coverage for the claimed loss and that they are not going to provide a defense. Once you have a statement from your carrier on the status of coverage, you will know what you are facing. The Value of Business Counsel with a Knowledge of Insurance Coverage As counsel who has experience in business litigation and insurance coverage, we can be a crucial resource to you from the moment that you are served. Having a knowledgeable attorney involved in the communications with your insurance carrier can influence the carrier’s decision in close cases. Additionally, if you find yourself with a limited amount of coverage, we have had success in getting insurance carriers to assign us as litigation counsel. That way, you can utilize the insurance dollars to defend, and maybe settle, the claim up to the amount of the coverage, and then transition to the self-paid defense of the claim with counsel that you know and trust. We can also assist you with understanding and evaluating your various layers of insurance coverage in advance of a claim. This is a service we routinely provide our clients. We’ll help you be sure you have the right coverage in the right amounts to cover both defense costs and damages. We’ll evaluate coverage limits, overlapping coverage, excess coverage (which picks up the cost of risks you’re not otherwise insured for), deductibles and more. Even though you may have a knowledgeable, trustworthy agent, it’s worth having someone who knows what’s happening in the legal world take a look at your situation. To schedule an insurance coverage review, call our office at 407-660-2964 or email Calla Portillo at calla@brewerlong.com.

A STRONG BOARD OF DIRECTORS CAN DRIVE YOUR COMPANY’S GROWTH

These 10 points will help you build a Board that can take your company to the next level. Representative Democracy.  The primary purpose of the Board of Directors is to represent the shareholders, to protect their investments, and to ensure that they receive an adequate return.  Directors are elected by the shareholders to serve terms of one or more years, concurrently or staggered, as provided in the Bylaws. The Big Picture.  The Board of Directors is the highest governing authority in a company.  It is generally the Board’s job to hire, oversee and approve compensation for the Chief Executive Officer and other executives, to approve payment of dividends, and to recommend for or against major transactions affecting the shareholders. One Director, One Vote.  Actions and decisions of the Board of Directors generally require the vote of a majority of the directors.  The Bylaws might require a supermajority or unanimous approval for certain decisions.  The Board may hold live or telephonic meetings (at which minutes must be kept), or they may sign written resolutions in lieu of a meeting. Caring Souls.  Directors owe a duty of care to the company and shareholders.  They must act in an informed and deliberate manner.  Directors should have a good working knowledge of the business, its plans, and potential problems.  The Board should avoid not only haste but the appearance of haste. Trust But Verify.  In exercising their duty of care, directors may rely on information and advice provided by company executives, managers, and employee, as well as outside experts, such as attorneys, CPAs, and investment bankers.  But directors should actively question and test the information and advice they receive. Always Be True.  Directors also owe a duty of loyalty to the company and shareholders.  They must make decisions based on the best interests of the company, and not any personal interest.  Directors must first offer to the company any opportunity to that is related to the business of the company. Cured.  A director has a conflict of interest when he or she has a personal interest in a transaction to be approved by the Board.  The conflict may be “cured,” and the transaction upheld, provided the conflict is known to the disinterested directors of shareholders who approve the transaction. Inside Out.  Directors who are also employed by the company are known as “inside directors,” while independent directors are known as “outside directors.” In some sense, inside directors always have a conflict of interest (their paychecks).  For this reason, it’s good practice for the Board to have a majority of outside directors (this is generally a requirement for publicly traded companies). Committee Time.  Especially when the Board of Directors has a large number of members, it is often more effective for directors to act and make decisions in committees made up of a small number of directors.  Committees are created to focus on specific topics, like executive compensation or finances.  A committee of independent directors can be used to approve decisions for which inside directors have a conflict. Personal Judgment.  Directors are not personally liable for losses suffered by the company or the shareholders, provided they have met their duties of care and loyalty.  Even if the directors’ decisions turn out to be unsuccessful or unwise, the directors are generally protected under the so-called business judgment rule.

What you need to know before including stock options in your employee incentive program. A Range of Options. Stock options are just one form of employee incentive, all of which are intended to encourage key employees to make the company successful.  In evaluating the alternatives, there are two important questions:  What will incentivize the employees?  How much ownership should the employees have?  Don’t Believe the Tax-Free Hype. Incentive stock options (ISOs) are popular because they are believed to be tax-free for the employees.  They’re not, in most cases.  When ISOs are exercised, the “spread” (the difference between the exercise price and the fair market value of the stock) may not be subject to ordinary income tax, but it is subject to the alternative minimum tax (AMT).  Also, when the stock is sold, the employee must pay capital gain taxes on the difference between the exercise price and the sale price. Through the ISO Hoops. To avoid ordinary income tax on the grant and exercise of ISOs, specific requirements must be met.  At the time ISOs are granted, the exercise price cannot be less than the stock fair market value.  ISOs must be exercised within ten years of being granted.  After exercise, the option stock cannot be sold until two years after the date the option was granted and one year after the date the option was exercised. The Trigger Trap. Often the event that triggers the exercise of ISOs is a sale of the company.  But exercise-and-sale as part of a company sale means that the employee cannot satisfy the two-year-from-grant and one-year-from-exercise holding requirements.  As a result, the employee must pay ordinary income taxes on the difference between the option exercise price and the stock sale price.  Plain Vanilla Options. Options that are not intended as ISOs are called non-statutory options (NSOs).  Generally, the employee pays ordinary income taxes on the value of the options at the time they are granted, and the employer gets an immediate deduction for the same amount.  There is no required time limit on when NSOs can be exercised, and there are no holding requirements. Restrictions May Apply. An alternative to options is restricted stock.  Key employees are given company stock directly, but there are restrictions on voting rights, sharing in profits, or whatever the employer decides.  However, the tax laws applicable to S corporations only permit restrictions on voting.  Like NSOs, the employee generally pays ordinary income taxes on the value of the restricted stock at the time it is granted, and the employer gets a deduction.  Tax Timing. Ordinary income taxes on NSOs and restricted stock can be delayed if they are subject to substantial risk of forfeiture.  For example, restricted stock may be forfeited if the employee’s employment is terminated.  The restricted stock would not be taxed until it becomes vested.  However, the employee might choose to pay the tax early, by making an 83(b) election, if the stock is expected to go up in value. Real, Live Stockholders. Employees who exercise options or receive restricted stock are real stockholders.  They are entitled to view the company books, to vote on directors and significant transactions, and they are owed fiduciary duties.  The employer can impose some restrictions, but some stockholder rights by law cannot be limited. A Ghostly Alternative.  Another alternative is “phantom stock.”  Phantom stock is not actually stock at all.  Instead, it is a promise to pay bonuses based on increases in the value of the company stock.  Phantom stock avoids the complexity of ISOs and the stockholder rights of options and restricted stock.  On the other hand, phantom stock may not incentivize employees as much as would stock ownership.  If the name phantom stock isn’t scary enough, they’re also called stock appreciation rights (SARs).

Before you sell stock in your company, understand these 10 issues: The Other SEC.  Whatever you call it—stock, units, interests—outside investment in a business is a security.  The sale of any security is regulated by Federal and state law.  This doesn’t mean that you have to “go public” through an IPO just to sell your stock, but it does mean that you have to worry about securities regulations.  Ignore them and you might face civil or criminal penalties. Compliance Made Easy.  The sale of stock does not require full-blown (read: costly) registration with the SEC if you comply with one of the private placement exemptions.  These exemptions put limits on the total offering price, the offering duration, the number of investors, and/or the information required to be given to prospective investors.  For each of the exemptions, no general solicitation or advertising is allowed. The In Crowd.  It’s always a good idea to limit the offering of stock to “accredited investors.”  Accredited investors can presumably take care of themselves because of their net worth (at least $1 million for an individual) or their annual net income (at least $200,000).  How do you know if someone is an accredited investor?  You ask, usually by having prospective investors fill out a questionnaire. Stick to the Script.  At the heart of securities regulations is concern over what promises are made to potential investors.  It’s important that your sales pitch is in writing, which is often called a private placement memorandum (PPM).  The PPM includes all of the good and bad information about the stock being sold.  What’s the Plan?  Your PPM should go into as much detail as possible about the company’s plans for using funds raised from the sale of its stock.  This is important from a marketing standpoint (no one will give you money without a good plan), and it is also important for full disclosure.  To provide some comfort for the initial investors, PPM’s will often state a minimum amount that must be sold, or else their investments will be returned. Bespeak Caution. An important part of the PPM is the Statement of Risk Factors.  This is everything that could go wrong with the investment.  Since you’ll want your business plan to be as glowing as possible (you’re trying to make a sale remember), the Statement of Risk Factors is an essential dose of reality.  If an investor later complains about the investment, you can point to the Statement of Risk Factors.  Widgets for Sale. Your stock is a product, and your goal is to sell it.  You need to design that product with care.  Is the stock voting or non-voting?  What rights will the investor have to distributions?  What rights will the investor have upon the sale or liquidation of the company?  The design of the stock is in the Owners’ Agreement, which can include different designs for a number of classes of stock.  Me First.  A common design element for stock offered for sale is a preferential return.  Investors want to know that their dollars aren’t going straight into your pocket.  One way to assure them is to promise that they get first dibs on the company’s profits, either from operations, the sale of the company, or both.  Stock with these rights is often called preferred stock.  Be careful:  It’s a no-no for S corporations. Me Too.  Another concern of many investors is that soon after they buy their stock, the company will sell new, improved stock (with better preference rights, for instance) or sell the same stock cheaper.  To deal with these concerns, you might include preemptive rights in the offered stock.  Preemptive rights allow the stockholders first dibs on any new classes of stock the company sells in the future. Pace Yourself.  Don’t sell more stock than is absolutely necessary.  Each time you sell new stock, you have to give away more of the company profits and/or control of the company.  If you give away too much in the early rounds, you won’t have anything left when you need it.  Venture capitalists, especially, demand a lot.

Selling a business can be lucrative but it’s complicated. Consider these points and contact a business lawyer for help today. 1. What are You Selling? Early in the negotiations, buyer and seller must agree on what is being bought and sold—company stock (or other equity interests) or business assets. Ordinarily, the seller would prefer to sell the company stock, because that will make unknown company liabilities the buyer’s problem (subject to seller’s indemnification commitment). However, the seller might favor a sale of business assets because getting the cooperation of all the stockholders and option holders might be difficult. 2. Don’t be Coy Be open and honest in responding to the buyer’s due diligence investigation requests.  Every company has taken shortcuts along the way which it might not want to disclose, but the consequences for misleading a buyer are much worse.  Expect to put a lot of time and work into responding to due diligence, have a good Non-Disclosure Agreement, and let the buyer have at it. 3. The Straight and Narrow Avoid general, open-ended representations and warranties in the sale agreement.  Certainly, there are some issues for which seller “should know,” and reps about these issues are just about risk allocation.  But whenever you can get away with it, the seller should keep its reps and warranties as narrow and focused as possible.  “To seller’s best knowledge” is a welcome (if rarely accepted) qualifier. 4. Run Out the Clock The seller should expect to indemnify the buyer for costs or losses resulting from the inaccuracy of seller’s reps and warranties. However, the obligation to indemnify the buyer should not go on forever.  The seller should limit the time period for its indemnification as much as possible.  Often, different indemnification periods will be appropriate for different potential liabilities. 5. Taxes as Usual Sale of the business will likely result in a lot of taxes.  There’s capital gains tax on the sale of the stock or business assets, which could be quite high if basis is low.  The seller is responsible for his or her own capital gains taxes, but responsibility for other taxes is negotiable.  The seller and buyer should agree on responsibility for sales taxes, documentary stamp taxes, or intangibles taxes, if they apply. 6. Delayed Gratification The seller would probably love nothing more than getting a big check at the closing table, but the buyer might insist on holding back part of the purchase price.  This might be because an accurate value for the business cannot be determined until all the numbers are in for a given period.  Holdbacks are sometimes reasonable, but the seller should insist that the money is placed with an impartial escrow agent. 7. Something for Nothing Remember how happy your employees were when they got those stock options?  Don’t expect them to remember now.  Unless they’ve completed the “incentive stock option maneuver” perfectly, your employees are going to have a big tax bill on the exercise and sale or redemption of their option stock.  And they won’t be happy if they have to wait on a holdback either. 8. Unbind the Ties Most business owners, when the business is growing, are required to personally guaranty every bank loan, trade credit, and other obligation of the business.  The seller must be sure to negotiate a release of all of those personal guaranties as part of the sale.  If a creditor refuses to release the seller, the buyer should at least indemnify the seller for liability resulting from the personal guaranty. 9. Trust But Verify Often buyers will want to pay part of the purchase price in installments over a period of time.  Now the seller needs to be the cautious trader.  The seller must conduct its own due diligence investigation of buyer’s ability to pay.  The buyer’s obligation should be documented in a promissory note (on which doc stamp taxes are paid) and secured by the purchased stock or assets. 10. A New Hat Buyers often insist on the seller continuing to work or consult for the business for a period of time.  This requires a separate agreement between the buyer and seller, which should be fully negotiated and documented at the time of closing on the sale.  Especially watch out for non-competition restrictions.

Ready to hire? Keep these ten points in mind before you begin the Florida background check process: 1. Brushes with the Law An employer who obtains a satisfactory criminal history check on a job applicant is presumed to not have liability if the person later commits an intentional tort (a civil wrong that causes someone else to suffer loss or harm resulting in legal liability for the person who commits the tortious act). Criminal history record checks may be obtained from each county in Florida and from the Florida Department of Law Enforcement. Separately, employers can also check a job applicant’s name against the outstanding warrants and sexual offender databases. 2. Spanning the Twitterverse Facebook, LinkedIn, Twitter and other social media sites may provide a trove of information about job applicants. There’s no law against searching social media sites. However, these sites are likely to contain information—race, religion, sex, marital status, etc.—which cannot be grounds for non-hiring for many employers. 3. Sue Happy An employee who is involved in numerous civil lawsuits may not be ideally suited for the job. Employers may check the civil court records of each county in Florida to determine whether a job applicant has sued or been sued in civil court.  4. Credit Checks in the Red Federal law requires employers to obtain written consent before obtaining a job applicant’s credit report. If the employer decides not to hire the person based in part on the credit report, he or she must be provided with a copy of the report. 5. Making the Grade Federal and Florida laws make student education records confidential. However, employers can require job applicants to provide school transcripts or verification of enrollment. Degree or enrollment verification is available through most schools or third-party providers like National Student Clearinghouse. 6. It Stays in the Exam Room Medical records are generally confidential under both federal and Florida law.  Employers can ask applicants questions about their ability to perform specific job duties, but employers cannot ask for medical records. 7. Right to be Bankrupt Bankruptcy records are a matter of public records, so it is possible for employers to determine whether a job applicant has declared bankruptcy.  However, federal law prohibits most employers from discriminating against an applicant because he or she filed for bankruptcy. 8. Got Hurt and Can’t Work Employers should be concerned about abusive workers’ compensation claims, which can increase employers’ insurance premiums. Workers’ compensation claims are public records in Florida. Employers that obtain the necessary release form can search for job applicants on the Division of Workers’ Compensation Claims Database. 9. License to Drive When job duties involve driving, Florida employers should require job applicants to provide written consent allowing the employer to obtain the applicant’s driving record. Without consent from the applicant, an employer may only obtain a driving record to verify information provided by the applicant. 10. Cannot Tell a Lie In most cases, federal law prohibits asking job applicants to submit to a lie detector (polygraph) test. There are a few exceptions when hiring for specific positions, such as armored car drivers and pharmaceutical distributors. 

Personal guaranties are common with business loans. Before you sign, know these ten facts about personal guaranties: This Time, It’s Personal.  A personal guaranty is a promise to be personally responsible for the obligation of another person or company.  The person or company to whom the obligation is owed—usually a lender—can enforce the obligation against the guarantor just like the original obligor. Would You Loan Money to a Teenager?  No, neither would a bank.  Unfortunately, banks look at your new business and see a teenager.  Lenders want an “adult” to co-sign for their loan—often the owners of the company.  Keys to the Gate.  If the limited liability aspect of your corporation, LLC, or LLP is a wall between your business activities and your personal wealth, a personal guaranty is the key to the gate.  Personal guaranties make sure that you are “all in.”  Good for the lender, bad for entrepreneurs looking for a fresh start. It’s Your Problem.  Banks often require a number of people to personally guaranty the same obligation.  These guaranties are usually “joint and several,” meaning that the bank can enforce payment of the whole amount against one of the guarantors.  It’s up to that poor guarantor to go after reimbursement from the other guarantors. Ties that Bind.  You can dissolve your marriage or your business partnership, but that has no impact on the personal guaranties made by the parties.  As a result, you may still be responsible for your ex-spouse’s or your ex-partner’s debt.  You can ask the lender to release the personal guaranty, but it’s not likely to happen. Changes.  Often, a change in the circumstances of a guarantor triggers a default under the obligation.  So if the uncle who guarantied your loan dies, becomes disabled, or files for bankruptcy, you could get a demand for full payment from the lender. Beyond the Grave.  Personal guaranties survive the death of the guarantor.  This means that, after the death of the guarantor, the guarantor’s estate might still be liable under the guaranty.  Remember to give the lender notice in a probate administration. Bankruptcy Protection.  Liability under personal guaranties can be discharged through the personal bankruptcy of the guarantor.  That’s a good “out,” but the consequences of a personal bankruptcy are far-reaching. Pawn Kings.  To avoid having to make a personal guaranty, you have to convince the lender that your business is good for the money.  The most common way of doing this is through the pledge of other valuable collateral—just like a pawn shop.  It helps to have a good credit history, too. No Guaranty.  Personal guaranties are great for lenders, but they’re no slam dunk.  A lender seeking to enforce a personal guaranty has to track down the guarantor, sue him or her personally, prove that the guarantor is liable for the debt, and then enforce the judgment against the guarantor’s unprotected assets, whatever they are.  It’s a long, costly process, and the guarantor is likely to fight it every step of the way.

Even small, simple operations have plenty of moving parts. Use these ten key points to keep your company running smoothly, protect your assets, and avoid litigation. The Must-Have.  Don’t go into business with others unless you have an Owners’ Agreement.  You can’t see the future, and you can’t be certain that you and your business partners (or their spouses or heirs) will always agree on everything.  Why So Formal?  Company formalities are important to limiting your personal liability for the company’s obligations.  Have separate company bank accounts, separate company financial records, separate company e-mail addresses, and whatever else needed to clearly separate the company’s life from your personal life.  If you don’t respect this separation, the courts might not either. This Time, It’s Personal.  Lenders and financing companies almost always require the owners of a closely held business to sign personal guarantees.  This means they can sue the company, the owners, or both.  Do what you can to limit personal guarantees.  If you leave the company, understand what happens to your personal guarantees (and try to terminate them). Get Secure.  Unless you get paid in full at the time goods or services are delivered, get security for future payments.  Security might take the form of an escrow deposit, a personal guarantee, a bank letter of credit, or a pledge of the purchased goods or some other collateral.  Whatever the security, have a written agreement that clearly states your rights in case of nonpayment. Business Straight-Jackets.  In many cases, restrictive agreements are enforceable (provided they are reasonable in duration and geography).  Know what restrictive agreements apply to you and the people you hire.  Use restrictive agreements yourself to ensure that the person you hire today isn’t competing against you tomorrow. Protect the Good Stuff.  You don’t have to be the latest dot-something tech company to have valuable intellectual property.  IP may include your name, slogans, website, plans, and just about anything else you (or someone else) has thought of.  If someone else develops your IP (that web designer, for instance), make sure the creator assigns all the rights to you. What’s in a Name?  Not much, when it comes to “independent contractors” or “employees.”  Whether a person is an employee (which requires tax withholding and other administrative burdens) or an independent contractor (which doesn’t) depends on what he does and how he does it.  If you can tell a person how, when, and where to do her job, she’s probably an employee. The Tax Man Cometh.  Collecting taxes and delivering them to the taxing authority is a big deal.  Employment taxes you withheld and sales taxes you collected are not yours, they belong to the government.  The government will get them, with penalties and interest (or worse!) if they’re late. Fresh Stock for Sale!  Selling equity (stock, units) in your company may seem like a great way to raise capital.  It’s also a great way to have financial investors and security regulators looking over your shoulder.  Don’t sell equity if there’s a better way, and there’s probably a better way. Here’s the Catch.  Even if you have the right written agreements, it costs money to enforce them.  Your agreements might provide that legal fees and costs go to the prevailing party (most of them should), but you won’t get that until the end (and only if you go to court).  Litigation is always an expensive last resort.