Business Law Articles

Business Law Tips

1. Agreements Among Principals - Whenever more than one person runs a business, an agreement specifying the respective rights and obligations of the parties is essential. Frequently, business owners fail to think about how a death may effect the future of their company. In the business context, not only death, but disability, retirement or the desire of a co-owner to sell his or her interest may have a drastic financial impact upon the continued successful operation of the business for the remaining co-owners. Instead of ignoring these issues until they occur, it is wise to address them while the business and its co-owners are healthy and the means to lessen their impact are available. A properly written agreement will clearly and concisely set forth a step-by-step procedure for each of these contingencies so that the business and the particular co-owner (or his or her estate) can overcome these hurdles as easily and painlessly as possible.
2. Loan/Credit Agreements - Many businesses, after thoughtful reflection, either out of necessity or as a result of a sound business plan, enter into a loan or other financing arrangement with a lending institution. Unfortunately, however, the same careful thought process employed in that initial decision is abandoned when the time comes to execute the various loan documents. Such documents set forth the binding terms and conditions of the financing product which will guide the business and the lender for many years. These documents are not secondary to the actual funding, and should under all circumstances be treated as a significant, if not predominant, aspect of the entire transaction. The loan documents should be carefully reviewed by a competent professional in advance of their execution. In addition, the terms and conditions they recite can and should be negotiated to the fullest advantage of the business.
3. Leases/Real Estate Ownership - Most business people place due emphasis upon various projections which guide them and their business for future events. Many businesses afford little or last-minute consideration to the impact that increased lease payments or a relocation can have upon the business. The time to negotiate a new term of an expiring lease is obviously not when there is only a month or two left on a lease. Any delay in addressing a lease renewal will only favor the landlord who has now been unintentionally given leverage in the negotiating process. Furthermore, leases, similar to loan documents, are binding long-term documents that should be carefully reviewed and negotiated by a competent professional. Aside from leasing, there are advantages to ownership of the premises where your business is conducted. Although many people, believing that the costs are prohibitive, shy away from considering the purchase of real estate for business use there are many creative avenues in which this can be done within a variety of budgets.
4. Trade Secrets/Proprietary Information - Businesses have both tangible and intangible assets. While tangible assets such as machinery, equipment and inventory are certainly valuable to a business, intangible assets such as internal pricing procedures, manufacturing processes or formulae and customer lists are just as valuable, especially to a competitor. Those employees entrusted with these trade secrets or proprietary information may not be employees forever or may be enticed to make damaging disclosures of this information at some point in time, or even during their employment. To guard against this, all businesses which would be adversely effected by such an unauthorized disclosure should have those employees sign a confidentiality and non-disclosure agreement to identify the trade secrets or proprietary information that must not be revealed. The agreement should also recite under what circumstances, if any, that same may be revealed, as well as the consequences for doing so in an unauthorized manner. Such an agreement is also a necessity for any business contemplating a sale of all or any substantial portion of its assets in order to prevent a prospective purchaser from utilizing any trade secret or proprietary information reviewed during an assessment of the business.
5. Invoicing - Any business issuing invoices for goods or services which it sells or provides should protect its interests in case of an inevitable non-payment, claim of defect, or claim of non-performance by a defaulting customer. In order to hasten or hopefully avoid potentially lengthy litigation, a business can engage in the simple preventative task of including terms and conditions on its invoices setting forth the circumstances of the transaction and what the obligations are of the customer regarding issues such as: returned checks, interest on overdue amounts, legal and collection fees, inspection obligations, returns, and other matters. Taking these steps at the inception of the transaction may limit or remove certain defenses to the non-payment of an invoice by a customer, and thus avoid or simplify any litigation to collect the sums due and owing to your business.
6. Accounts Receivable - It is important that a business issue regular invoices and/or statements of account to a customer and especially to one that is delinquent. A delinquent customer that retains regular statements without objection may be held to have waived any defense to the collection of the debt in any subsequent litigation.
7. Government Filings - Whether your business is a partnership, corporation or limited liability entity, there are certain legal filing requirements with various State and local officials that must be met in order to qualify for recognition as a particular form of business entity. The failure to comply with these requirements may nullify any intended choice of business entity which could have disastrous results down the road. In addition, many businesses, once properly qualified as to their particular form of business entity, may nevertheless fail to update important information with the applicable official agency (eg. change of address, change of agent for receipt of legal process, etc.). Unfortunately, this minor ministerial act has all too often resulted in businesses incurring extensive costs. For example, a company might have to request a court to vacate a default in a law suit which could have been timely defended had the business merely updated its information so that it could have received timely notice of the existence of the law suit.