Lana Zolon & Associates will guide you through the formation of your business and help you set up a proper business structure that will endure. Our services include:
- Certificate of Incorporation and corporate bylaws
- Partnership agreements
- Negotiating business agreements, loans and financing
- Joint ventures
- Mergers
- Sale of Assets
- Real Estate transactions
Lana Zolon & Associates will help you protect your business from 10 common mistakes:
1. You do not have all of your agreements in writing
Did you know that most of your verbal agreements are not enforceable? This means that if your counterpart to the agreement breaches its promises to perform or to adhere to the agreement, you most likely have no remedy, even through our legal system. When entering agreements, you most likely intend to perform your part of the bargain and you expect the other parties to do the same. However, you must always remember to think through all possible scenarios that might occur during the life of the agreement and try to prevent your business from severely suffering from a breach by the other parties. This is especially true for business partners, who always run the risk of having diverging views of how to run their business. Business partners must agree at the inception of the business on how they will act in case their business must be re-organized, dissolved, bought out, etc.
2. You do not have clear expectation and rules for your employees
The most effective way to manage your business and your employees without you getting in trouble with the law is to provide your employees with education on what the laws and rules of the industry are. Employees must know that their employment with you is “at will” (unless you have entered a contract for service), which means either of you may terminate it at any time without any liability. Also, it is extremely important to educate your employees that the following conduct is not only unacceptable but also illegal: discrimination, sexual harassment and any type of illegal activity.
3. You have not seen an attorney yet
Setting up your business involves much more than simply filing a certificate of incorporation with the NY Department of State and paying the appropriate fee. Every business has issues that requires a thorough review by an experienced attorney. Very often, new business owners fail to think through such things as: what happens to the investors’ rights and shares in cases of dissolution and liquidation, shareholders’ liability, state and federal taxation, intellectual property rights, workers compensation, disability and liability insurance, etc.
4. You do not know the Law
Ignorance of the law will not excuse you, especially if you are a business owner. As a business owner, you must have a basic understanding of the following:
- Basic contractual rules
- Copyright, patent, trade secrets
- Employment laws
- Securities laws (in case you want to raise capital)
- Rule and regulations pertaining to your line of business
5. You do not keep your business records
Most business owners believe that business records include invoices, bills and lease agreements at best. But they don’t know that the law requires them to keep documentation for much more than that. Failure to comply with the law may cause issues with various governmental agencies, most notorious one the IRS. Worse than that, business owners may expose their personal assets to potential liability by failing to present proper records of their businesses. The most commonly ignored documentation requirements are: minutes of the Board of Directors and shareholders meetings, certificates of stock issuances and stock transfers.
6. You have never defined the rights and responsibilities of the partners in you firm
Most small business are founded by family members or friends who believe they can trust each other unconditionally. Then, something happens: drop in earnings, death of a partners, major life changes such as an illness or a divorce. All of this may significantly impact the business and the relationship of the its owners. The following are very important scenarios, which most business owners tend to ignore:
- Time, effort and capital contributions of each founding person
- Business continuity plan in cases of financial and natural hardship and/or disasters
- Some business owners dying or leaving the business
7. You have formed a General Partnership Instead of a Limited Liability Entity
Under NY State laws, the partners are each responsible for the debts and obligations in general partnerships. This means that the partnership assets as well as your personal assets are not out of creditors’ reach and may be subject to a judgment. In many instances, business owners would be better off to have formed their business as a corporation, or a limited liability corporation or partnership.
8. Commingling Business and Personal Assets and Liabilities and Undercapitalization
So you have formed a corporation, probably with a primary purpose of protecting your own assets from the company’s liability. However, you must know that simply because your business is incorporated does not guarantee that your assets are safe. There is an exception to the general rule, legally called “piercing corporate veil”. Under this exception, a creditor of the company may seek and get access to the assets of the shareholders. The exception applies when the corporate does not have existence on its own other than for the personal needs of its shareholders. The two most common factors that may point to such scenario is where the personal and business assets are commingled (ex: one bank account used for business and personal banking) and undercapitalization from the inception (ex: shareholders fail to invest enough money to cover prospective liability).
9. You go into litigation without considering alternatives
Often times, business owners go straight for litigation if they believe that they or their business was somehow wronged. What they don’t consider is the cost of litigation, which can easily drive bankruptcy into insolvency, bankruptcy or worse, complete ruination. You should first and foremost consider alternatives to a litigation such as dispute resolution, such as mediation or arbitration. Also, although your sense of justice might get hurt, you should always consider a reasonable settlement offer, and conduct a cost-benefit analysis of it in comparison to a litigation.
10. You disregard the Intellectual Property laws
Simply ask yourself the following questions:
What happens if a well-trained employee leaves your company for a competitor?
Are your logos and products registered for a trademark, and, if not, what happens if a competitor uses them?
Do you have trade secrets, and, if yes, are they protected?
