Archive for October 2012

8 ACTIONS YOU CAN TAKE TO PROTECT YOUR BUSINESS FROM LITIGATION

October 15, 2012

No business owner enjoys litigation, and for good reason.  The high costs of litigation, in terms of money and time, can take quite a toll on the health of a business and its owner.  When you own a business, lawsuits are sometimes inevitable.  However, there are some preventive measures and techniques that all business owners, regardless of the type and size of the business, can employ in an effort to avoid, or at least minimize, the risks associated with business litigation.

Litigation in business can arise from various sources, such as:

•    disagreements between partners or shareholders
•    disgruntled employees
•    dissatisfied customers
•    accidents on the premises

Taking the following actions can reduce the likelihood of litigation, and in the event of litigation, minimize the cost to your business and/or increase the chances of your success.

1.    Make sure that all agreements are in writing and signed by the parties involved.  When dealing in transactions between parties, verbal agreements are worth the paper they are written on.  The days of “handshake” agreements are long-gone.  Verbal agreements should be memorialized in writing and exchanged between the parties.  Even if it is not a formal agreement, a simple letter or e-mail that sets forth the essential terms will put you in a better position should litigation ensue.

2.    Be compliant with the law and ensure that all rules and regulations are followed.  That may mean knowing what and when to file important documents relating to the status of your business entity.  If you have employees, be familiar with the labor laws so that you can comply with your obligations as an employer, and post the proper employee notices in the workplace where required.

3.    Do not to co-mingle business operations with your personal affairs.  You took the time and expense to form a corporation, or other business entity, to avoid personal liability.  You must now follow corporate formalities and keep your business separate from your personal affairs.  For instance, maintain a corporate credit card and avoid writing and issuing personal checks for business expenses (and vice versa).  Properly document any personal loans to the business.  When signing business documents, indicate your title as a corporate officer or company member, which will be helpful in connection with defending against a claim seeking to impose personal liability on you.

4.    Have a written agreement between shareholders and partners.  The need for a written agreement between shareholders and partners cannot be overstated.  Many businesses and partnerships develop out of personal relations, when trust between the parties is at its highest level.  However, such relationships become secondary whenever the business faces a financial crises.  Work closely with a corporate attorney to ensure that the agreement between the parties clearly and accurately outlines the duties and responsibilities.  The agreement should contain buy-out provisions to address when and how an owner’s interest can be purchased.  The agreement may include a clause requiring mediation for certain types of disputes since mediation is less formal and less costly than using the courts.

5.    Prepare Employment Agreements and Employee Handbooks.  A major way to avoid employee-related litigation is to have written employment agreements that clearly lay out the rights and responsibilities of the employee, including the terms of compensation.  If you hire an outside consultant on a project, whatever terms of engagement you have agreed to should be documented in writing.  You should also have an employee handbook that explains the employer-employee relationship and sets forth the company’s policies with respect to discrimination and harassment, confidentiality, employee absences, vacation time, sick leave and benefits.  Such policies should be clear and all managers and supervisors need to be familiar with them.  Even more important, these policies must be applied fairly and consistently.  Operating your business in accordance with your handbook may reduce the risk of charges and lawsuits filed by employees.

6.    Do not ignore customer complaints.  Address a customer complaint at the outset and try to resolve the issue before it leads to litigation.  Since disputes with customers are quite common, you may reduce the chances of litigation by having your legal counsel review your sales/purchase orders, invoices and billing statements to ensure that the essential terms and conditions are clearly and accurately stated, such as risk of loss, return policies, and warranties.  If you agree to extend payment terms for a customer, put it in writing, even if it is a short-term accommodation.  Add a provision to your billing statement entitling you to recover costs of collection, including legal fees and costs, in the event of a default in payment.  This may not prevent litigation but will help you to offset the associated costs.

7.    Procure proper insurance for your business needs.  Sometimes accidents occur at the workplace and on the premises, such as a slip and fall, that may result in personal injury and/or property damage.  Procuring the proper insurance policy will help protect your business in the event that it is sued.  Consider having your attorney review your policy(ies) to make sure that they provide you with the coverage sought.  In the event of an incident which may give rise to a claim, be sure to follow to the letter the notice provision in the policy to properly and timely notify your carrier of a claim or loss, which should reduce the likelihood of the insurance company denying coverage.

8.    Involve your attorney.  At some point, your business is going to need an attorney.  That is unavoidable. A good working relationship between the business and its attorney is essential and should not be overlooked.  Corporate counsel may be able to identify potential risks and assist the business in formulating a strategy to resolve issues before they lead to protracted and costly litigation.  Have your attorney periodically review and update your “standard contract” forms, sales/purchase orders, invoices and billing statements.  Work with your attorney to review your contracts, employment agreements, employee policies and handbooks, real estate leases, and insurance policies to protect against potential litigation.  If you are interested in buying or selling a business, consult with a business attorney before you speak or sign anything with a broker.  While many business owners are concerned about the expense of hiring an attorney to provide such services, taking preventing steps with your attorney will help avoid larger problems, and much more costly litigation, down the road.

If you have any questions about what your business can due to reduce its exposure to litigation, feel free to contact us to discuss your specific issues. 

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Selling A Business – The Legal Issues

October 4, 2012

Are you thinking of selling your business? Beyond determining an acceptable selling price, there are quite a few legal issues that need to be considered.
The first issue that you should consider is whether to sell the assets of the business (both tangible and intangible) or the shares of the corporation (if incorporated) that operates the business. For the purposes of this article, I will assume that the business being sold is incorporated. Each of these approaches has certain advantages and disadvantages for the seller:   . . . . .

Click on the link below for more

Selling A Business – The Legal Issues (Newsletter)

SPECIAL ALERT – BEWARE OF NEW CHECK SCAM

October 1, 2012

I have just become aware of a new scam targeting attorneys, which would also be “effective” against any company issuing checks.  Please read the article below so that you do not become the next victim.

The scam is very simple and involves the use of the technology that allows for the deposit of checks remotely (by using a cell phone or check scanner). I will use a real estate closing as an example, but any situation in which a company or person issues checks for any reason has the potential for this abuse.

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The attorney at a real estate closing writes a check to John Smith for $100,000 as a disbursement of a portion of the sale proceeds. The next day, John comes back to the attorney and explains that he needs to pay a debt but his creditor will not accept a second endorsed check. He hands the attorney the ORIGINAL check and asks for a replacement payable to Mary Jones. The attorney, having the original in hand, writes a new check and gives it to John. When the attorney’s bank account statement comes the next month, it shows that both checks were paid against the account.

How could this happen? The attorney has the original check in his hand. The answer: the original check was electronically presented for payment by the original payee just before he asked that it be replaced. Then the scammer deposited the second check into a different account.

How do you protect yourself? Besides the obvious solution of not issuing replacement checks, unless you are 10,000% certain that the person returning the check is completely and utterly trustworthy and honest, you should put a stop payment order on the original check and then wait at least 5 business days before issuing the replacement. This does not even give you complete protection, but I believe it would be difficult for the first presenter of the check to argue innocence if he or she somehow electronically presents a check five days after giving up physical possession.

There may be circumstances under which the risk of loss can be shifted to the bank; however, this is not a situation in which the same check is presented twice for payment. This is a situation in which the maker of the check is tricked into issuing two checks, hence the risk of exposure is likely to the person writing the checks.

If you have any questions regarding the information provided above, please contact our firm.