Business Law

If I start an additional business do I need a new company?

Cox+logo
Have you ever wondered why some companies that have multiple lines of business have multiple legal entities to operate them?
Why does one company have a holding company that owns 14 different Oklahoma limited limited liability companies?
The answer may be important to your Oklahoma company as you expand and grow.

The General Philosophy

My general philosophy on adding new business is if it is a business that is distinct from the existing business and/or presents new types of liability, the new line of business should be operated under a new legal entity.

Primary Purpose

The primary purpose of this legal separation is to attempt to keep the legal liabilities created by each business separate from the other business. For example, if a separate line of business such as roofing is sued due to an employee accident, if the new business is legally separate from the existing business, it much harder for the plaintiff in the lawsuit to involve the existing business in any way.

 

This is an advancement of the concept of using a legal entity (Oklahoma corporation or Oklahoma LLC) to separate your business from your yourself. A sole proprietor typically incorporates so that the business is operated legally separate from themselves. That is, the legal entity creates a wall of separation between the business activity and the owner’s individual assets. A claim against the business should not normally lead to the liability of the owner.

Key consideration

One thing to consider is whether you new business is simply a additional “line of business” or whether it is a new business with its primary tie to the existing business being common ownership.

A new line of business or new business unit may not require a new legal entity. While a new business very often requires the creation of a new legal entity.

Example from your friend in the the digital age

Cox Enterprises is an example of this type of legal separation for distinct business. Cox Entrprises is diversified media conglamorate that owns newspapers, dealertrack technologies, television stations, radio stations, Cox Communications, Manheim Auctions, Autotrader, Kelley Blue Book,Savings.com and Valpak. Many of the seperate lines of business are owned by separate entities including Cox Media Group, Inc., Cox Advanced Services Oklahoma, L.L.C. and Cox Cable Authorized Retailer, Inc.

A practical example

A business owner could create a new entity for the new business and still use the existing business for branding purposes. You could do this through a basic licensing agreement between your existing entity and the new entity and a shared services agreement. Additionally, you set up a holding company as the entity on top and then operate each business under entities owned by the holding company. You would create two new entities to carry out this plan and then set up one as Entity 1, in which you would own 100%, and then Entity 2 and Entity 3, which would each be owned 100% by Entity 1.

Questions to ask yourself

A couple of questions to ask yourself to determine whether you need a new legal entity:
  • How will new business be connected to the existing business?
  • Will new business use the same name as the existing business?
  • What other ties will the new business have to the existing business?
Posted by Shawn Roberts in Blogposts, Business Law, Oklahoma limited liability company

Tips on law office management for solo and small firm attorneys

While it is somewhat difficult for me to believe, back in 2007 I was actually giving people advice on managing your law office if you were a solo or small firm attorney! I know that this happened because I came across the PowerPoint presentation that is below when I was looking for some other files this morning.

If you are interested in the ideas for management organization in a small office there could be some good material in here.

Posted by Shawn Roberts in Blogposts, Business Law

The Oklahoma Series LLC Part 2 – practical uses

In part 1 of the Series LLC I discussed what the series LLC is and how it works. This post provides information on the tax implications and practical uses for the series LLC.

III. Tax Implications

As you know, federal tax law rather than state law determines the existence of an entity for tax purposes. In many cases, the members of each series of an LLC will be identical. In such cases, it is fairly certain that the series LLC as a whole will be treated as a single tax entity for federal tax purposes. On the other hand, if the series of an LLC has the same members, or identical or similar membership rights, or similar business purposes, each series may be treated as a separate LLC for income tax purposes.

In both cases, however, there should be only one filing with a state’s secretary of state for the LLC (rather than for the individual series). Furthermore, in most cases, there should be only one state franchise (or similar) tax filing.

IV. Practical Uses of the Series LLC

The most obvious use for the series LLC is to hold multiple parcels of real property in liability-segregated cells. Owners of small commercial or residential properties may find the series LLC particularly appealing.  This is especially true in states with high minimum franchise taxes. Forming and maintaining a number of separate LLCs may cost several thousand dollars in the year of formation and several thousand dollars each subsequent year.  The use of a series LLC with each property held by a separate series may save several thousand dollars in startup costs and another several thousand dollars a year in ongoing administrative and state tax costs.

Another use for the series LLC is to facilitate an equity compensation program in a business with multiple divisions. With each division segregated into a separate series, the LLC can give the key employees of each series some sort of equity interest tied to that series only rather than equity interests in the entity as a whole. This rewards employees at productive divisions and protects them from the potential downside of other divisions.

Finally, a series LLC could be used to facilitate the combination of business operations of distinct businesses.  For example, rather than undertaking a traditional merger, two companies wishing to join forces might form a series LLC, with each company contributing its assets to a separate series, or with the owners of each company contributing their ownership interests to a separate series. The LLC agreement and series agreements could be drafted to determine exactly which rights and responsibilities are shared and which are maintained separately. The series LLC provides a unique and very flexible framework for this sort of business combination.


Posted by Shawn Roberts in Blogposts, Business Law, Oklahoma limited liability company

The Oklahoma Series LLC – Part 1: one LLC with the protection of 50 LLCs

 

 

The Oklahoma series LLC is a relatively new way for the more efficient and effective management of assets.  You can create one limited liability company and get the benefit of having multiple limited liability companies.  Below is a post 1 of 2 explaining the Oklahoma serial LLC and how you might be able to use it.

I. The Legal Reason

Segregating “dangerous” assets and businesses into separate entities away from other assets, especially “safe” assets, is always a good idea from an asset protection point of view. For example, an individual who owns a gas station and a rental home should not own both within the same entity.

In the best case scenario, every distinct business or major business asset should be segregated into a different limited liability entity.  Ideally, someone with 25 rental properties would have 25 separate LLCs, one for each property. However, this is not always practical because of administrative costs and government fees that must be paid for each LLC. What can a business owner in this situation do to protect their assets from liabilities unrelated to those assets in a cost-effective way?

II. The Oklahoma Series LLC

A. The Act
The series LLC may provide an answer. The Oklahoma LLC Act (the “Act”) provides for the creation of separate protected “cells” (‘series’) within one limited liability “container” (the series LLC) without the need to create separate entities, thus avoiding the inefficiencies associated with multiple related entities.

The Act provides that the liabilities of a particular series are enforceable only against the assets of that series. The Act also provides that classes or groups of members can be established, having whatever rights the LLC agreement says they have.  The combination of these two provisions allows a series to function in many ways as a separate entity for practical purposes. The series LLC concept is similar in function to segregated portfolio companies and protected cell companies designed for the mutual fund and captive insurance industries in a number of offshore and onshore jurisdictions.

The Act allows an LLC agreement to designate series of members, managers or LLC interests that have separate rights and duties with respect to specific LLC property or obligations. So, each series can be tied to specific assets and can also have different members and managers.

Most importantly, the Act provides that debts, liabilities and obligations incurred, contracted for or otherwise existing with respect to a particular series are enforceable against that series only, and not against the assets of the LLC generally or any other series of the LLC.

B. Obtaining Protection
In order to obtain inter-series liability protection, each series must be treated separately and the public must be put on notice of the liability limitation by the inclusion of the series limitations in the LLC’s Articles of Organization filed with the Oklahoma Secretary of State. Records must be kept for each series and the assets of each series must be held and accounted for separately. The separate holding and accounting required may be in the LLC’s records, so long as separate and distinct records are maintained for each series.

 

Check out Part 2 of this series on “series” right here.

Posted by Shawn Roberts in Blogposts, Business Law, Oklahoma limited liability company

The issues to consider from the employer’s side in a severance agreement

04-02426 Long-time Ryan employee Earl Prudden

Have you ever had to terminate an employee?

Did you know that offering some severance pay and getting a severance agreement can protect your business?

Employees are terminated. When it happens, both the employer and the employee need to know what issues to be thinking about.  One thing to consider is a severance agreement.

A severance agreement typically means that a terminated employee is going to receive money that they were not already entitled to receive in exchange for waiving claims they have against the employer.

This mind map covers some of the issues an employer should be thinking about when drafting and signing a severance agreement with an employee.

 

[gview file=”http://shawnjroberts.com/wp-content/uploads/2012/07/Preview-of-“Drafting-a-Severance-and-Release-Agreement-employer-side”.pdf”]

Posted by Shawn Roberts in Blogposts, Business Law

One piece of boilerplate language to watch out for in the written agreement

Maintenance man at the Combustion Engineering Co. working at the largest cold steel hydraulic press in the world, Chattanooga, Tenn. This press can shape steel plates several inches in thickness  (LOC)

Do you routinely cruise through the standard language that seems to appear in almost every form contract?

If you do, there is one piece of “boilerplate” you need to pay attention to.

It is called “boilerplate” because it is so standard in written agreements that people don’t even pay attention to it usually. This language is usually the last few sections of the contract, it is typically copied from contract to contract and are rarely reviewed or even paid attention to. But there is one clause in the standard boilerplate that you should always take a look at and consider:

The choice of law and the choice of forum.

The choice of law is the language in the contract through which the parties agree which states law is going to be applied to any disputes. The choice of form is the provision in the contract in which the parties agree where, and what state or city, any disputes will be heard.

If both parties to a contract are from the same state and the contract provides that the state’s law will control, it probably isn’t that big a deal. But when the parties are from different states the choice of law and choice of form can mean the difference between being able to legitimately pursue a dispute and being overwhelmed with cost and logistical issues effectively prevent you from being able to raise any defense.

Pay attention to these provisions and if you can try to have them line up with where you live and work.

Posted by Shawn Roberts in Blogposts, Business Law

5 critical elements to consider before signing a business contract

I have drafted, reviewed and analyzed hundreds of business contracts through working as an attorney with small business clients. Below are some of critical points which emerge time and again in my work.

1.  Is the compensation clearly defined? Not surprisingly, this is often the key element in a business contract.  Whether it is an employment agreement, creative design agreement or for shared services, each party is critically concerned about how it will be compensated.  A fuzzy definition or incomplete description of the compensation structure often leaps up to cause problem during the agreement.

2. How could this contract affect me or my business after it is over? Although the end may be far off, it will likely come at some point sooner or later. When it does, your business will need to continue to operate without the agreement in place and without the assistance of the party to the agreement. Clauses in a business contract that restrict the use of the  not sure of this word?, who you can contact, or that require your business to come up with a large sum of money at the end of the contract are often onerous. I have found it very valuable to run contract provisions through the filter of “how would this affect my business if I had to live with it for five years?” Will any fee be required from either party in the contract? Will property have to be returned by one party to another under the contract? Will there need to be services provided following the contract termination to allow a smooth transition?

3. Is the method to end the contract clear and subject to execution? If circumstances, other opportunities or simply the passage of time required that the contract end, it is critical for both parties to be clear about how the termination will occur.  The contract needs to contain clear standards for how it can be terminated and what the consequences of termination will be. I have seen far too many contractual relationships end up in court because there was not a clearly defined method of terminating the agreement when one side felt the need to do so.

4. Are you legally capable of doing what the contract requires? You would be amazed how often I have seen businesses or individuals run into contractual issues because they were required to do things they simply could not do. For instance, providing a certain product in a specific quantity, paying certain sums of money at certain times and completing design and development work in a fixed time frame. While the excitement of getting the “big contract” is understandable, take a few minutes before signing the agreement to make sure you can realistically perform the contractual obligations.

5.  Does the contract contain performance milestones that can be quantified and measured? Clear and specific milestones for what each party has to do to perform under a contract are essential. When obligations are not clear, it allows for a party with bad intentions to create trouble and also simply creates issues even with parties that have good intentions. In those situations where payment is conditional upon performance, it is critical that both performance and measurement of performance are written into the contract.   In construction contracts clear deadlines and performance milestones are generally included, however, it is my experience that these types of guidelines do not end up in many other contracts.

Do you have any good stories where one of these items played out in your business?

Posted by Shawn Roberts in Business Law

Why do I require a retainer fee?

Maceration of Money

Have you ever wondered why an attorney asks you to pay a retainer fee to get started? I lay out my reasons below. To learn more about the trust account, see *** at the end of this post.

1. It tells me I have a client.
Committing with your words and signature to me representing you is substantial. But more substantial is a commitment with your money. The retainer usually approximates one or two month’s billing. A person’s unwillingness to put up this amount of money is usually a sign of lack of committment on the case.

2. Its tells you you have an attorney.
Retainer money is not mine. It belongs to the client and it goes into my attorney trust account. That is a bank account required under Oklahoma law where attorneys have to put any money they receive that isn’t theirs. After I earn the money and in accordance with our written fee agreement, I can transfer money to my operating account and it becomes mine.
All this being said to make the point that taking a retainer is serious business. One of the quickest ways for an attorney to become an “ex-attorney” is to monkey around with trust account money. If I take your retainer money, I am compelled to be serious about your case.

3. It shows the sincerity of your belief in your case.
Actions speak as loud as words or a signature on a retainer agreement. You being willing to put up money, even money you might get back, tells me not only that I have a client, but that I have one who is serious about the case.

4. It increases the chances I am going to be paid for my work.
I can do a lot of work in a month. In some cases I may spend 40 hours or more working on a case. That is a lot of billable time. Since I only bill monthly, I will have done all the work, provided all the benefit to the client but not yet have received anything. Usually clients pay in this scenario. However, having the money to cover the bill in my trust account means that I will not be giving away a month of free work. Think of it like this at whatever your job is: Would it be okay if your employee skipped paying you for one period? Would that have any impact on your financial situation?

A couple of qualifiers. I don’t usually worry about retainer fees in estate planning work or general business matters. Litigation is the area where the retainer fee is most critical. Also, if I have successful track record of a client paying for my services, there is rarely a need for a retainer on new matters.

***What money goes into a trust account?***. Travis Pickens, the Ethics Counsel at the Oklahoma Bar Association, provided this answer:

Unearned legal fees, unincurred expenses, and third-party monies in connection with the representation. This typically means, for example, retainers (until the monies are earned), flat fees (until the monies are earned), filing fees, deposition and expert witness expenses. Settlement proceeds on a check to you and your client(s) or others may also go into the trust account for distribution.

Posted by Shawn Roberts in Blogposts, Business Law

3 reasons you need a buy-sell agreement in your Oklahoma small business

Would you want to be in business with your business partner’s spouse?

How about running your Oklahoma business with one or more of your business partner’s children?

If these situations concern you, read below to find out how to avoid them.

The phrase “buy-sell” is popular but often misunderstood.  A buy-sell agreement, or shareholder agreement as it is sometimes called, controls how ownership interests in a company are transferred.  A buy-sell agreement sets terms on how a business can sell her ownership interest if she leaves a company for any reason and protects the people who remain as owners.

It is particularly important for small Oklahoma companies to have written buy-sell agreements because often there is no independent way to value an ownership interest.  With a publicly traded company or actively traded privately-held company, there are some benchmarks, with a small company there is no standard.

1.  You should choose your business partners. You make plans to go into business with one or two other people.  You choose these people for many positive reasons.  What if one person leaves the company and sells her interest to a stranger who has money?  That stranger could become your business partner, for better or for worse.

2. The time when someone leaves a company is not the time to be hashing out value. Partings are rarely pleasant.  This holds true when one of a handful of business owners leaves the business.  Emotions may be running high and logic may be throttled.  Trying to determine a buy out strategy and value at this point is thorny and fraught with difficulty.  Don’t do it; set the strategy and mechanism for calculating the value while everything is peachy.

3. It protects your family. Death and disability are often reasons for needing to transfer a business interest.  The departing owner is often not capable of operating or negotiating at this point (obviously not capable in the case of a death).  The owner’s family both needs and deserves to be paid value for her interest.  If there is not a buy-sell agreement in place, my experience has been that the surviving owners are not overly eager to pay out compensation.  It’s not right, but far too often its reality.  You can prevent this by having a buy-sell agreement in place that dictates how a business compensates the family in case of death.

Take of advantage of the opportunity of good health and good relations to put a buy-sell agreement in place; this benefits all the owners.

 

 

Posted by Shawn Roberts in Blogposts, Business Law

The Oklahoma Non-Compete Agreement in 10 [simple] slides

Have you ever wanted to know the basics of Oklahoma non-compete law but didn’t want to read 20 blog posts?

Oklahoma non-compete agreements are a frequent topic on this blog. I have written thousands of words about non-competes and related issues.

It occurred to me that since not everyone has time to comb through thousands of words, I could distill the main non-compete issues into a simple presentation. Check out the slide show below.


Posted by Shawn Roberts in Blogposts, Business Law, Oklahoma non-compete