Hanson Legal Business Law

Business Law 

We'll manage the fine print so you can manage your business

Companies are legal entities that we use to organize assets and people towards productive ends.

Companies are created by the law, and are subject to a unique subset of the legal system known as Business Law. Businesses are often the target of litigation (and are the predominant consumers of legal services) because they are the main facilitators for social organization, and therefore subject to an entirely separate degree of responsibility than the individuals who comprise them.

COMPANY  FORMATION

Businesses begin with an idea, typically one that inspires passion or solves a common problem.

The formation of a company, however, can quickly become a struggle; many people do not give full consideration to the logistical complexities of business structure. As a business, it is paramount that you be absolutely focused on whatever service you are providing. Running a company can be difficult enough without the hassle of legal considerations, which may seem like an added burden at times but are essential to incorporate into any business venture at the outset.

Having a clear and concise legal plan in place will help your business make (and commit to) firm decisions regarding both product and policy. The law as it exists now is essentially a history of how several business before you have handled many of the crossroads that you may be facing for the first time, and a comprehensive knowledge of historical business law can serve as a guiding force. The strongest businesses are able to adapt to the legal landscape of the US by creating unique solutions that push the boundaries of what is possible.

FOUNDER/MEMBER  AGREEMENTS

There are many different legal entities for business depending upon the number of initial founders.

 If you are starting a company by yourself, there will obviously be no arguments over how to run the company as you’re the one in charge. This type of business is termed a "Sole Proprietorship", and is the simplest default business entity that does not need to be registered. Starting a business with several founders will increase the complexity of the business entity which range from Partnerships, to multi-member Limited Liability Companies (LLCs), all the way up to Corporations (which can have millions of investors and are governed by a board of directors).

Great things are not often built by one person alone, yet large groups require management which is a responsibility that the owners must take upon themselves. Even having a simple Member Agreement for a one-member LLC can help it operate as a legitimate business, effectively increasing the likelihood of "limiting your liability" should someone attempt to sue you personally for something related to the company. Regardless of how many people are involved, it is essential to have a written agreement in place to establish how ownership is to be divided and managed. In the early stages of business development, many people avoid discussing the gritty logistics of running a business: division of responsibilities, pay, and decision-making.

Joint owners may have very different ideas and expectations of how the business is going to be run. Miscommunication about intentions will eventually turn into disputes later on when there may be real money at stake. It is important to establish a foundational structure for the business in the form of a clear ownership agreement.

If multiple business partners cannot agree on terms, the legal default rule may be that the business is divided between them, or sold off at a low price in order that the owners may still recoup some of their initial investment. When a company is dissolved, owners try to extract value to compensate for their own invested time and money, but find it difficult because there is no clear accounting. Problems arise when multiple people have co-mingled their money, passion, and labor into a communal business entity, but still think and act as individuals as they have not taken to time to learn about proper business management.

CROWDFUNDING,  RAISING  CAPITAL

The state of Oregon recently passed a new Crowdfunding law known as the Community Public Offering (CPO).

The substance of the law is that entrepreneurs are allowed to raise up to $250,000 by selling shares in their company. Historically (since the Great Depression), the law has protected ordinary people from investing in small upstart companies because of the high degree of risk involved. Recently, however, there has been a renaissance of the concept of investment in local artisans and companies. Oregon has responded by allowing some degree of investment. The new law allows a maximum of $2,500 to be raised from any one individual investor and protects them by capping the amount of risk they can take.

When raising capital greater amounts of capital, a separate set of laws apply. When raising funds from a smaller group of "accredited investors", who have either an annual income of more than $200,000 or a net worth higher than $1,000,000 (not including the value of their home), any sale will have to be meticulously documented and registered with the Securities and Exchange Commission (SEC). These types of investors, including "angel" investors, will be significantly stricter about the structure and terms of their contractual investment into your business. As they are putting up more money, these investors will want to verify that your business is perfectly legal, set up with a sound corporate governance, and they typically will want some amount of control to ensure success of the company and ultimately, a large return on their investment. These sophisticated investors can offer allot of money and experienced business mentorship, but will insist on a resolving that potential legal problems are negotiated upfront and that everything is legally sound.

CONTRACT  DRAFTING

Every day, people sign personal contracts without attention or thought, merely skimming several pages of boilerplate material before scratching a signature on the last page.

Typically these are predetermined contracts, and people do not pay attention because they know that they have no power to change the terms; they either must agree or not agree. In the business world, however, contracts are treated as significantly more important because the details establish your entire working relationship with another party, and you have a say in them. Drafting your own contracts can be very empowering. It is important to spell out your terms and what you expect precisely because when something goes wrong, as it often does, you will look to your contract to see if your requirements have been met or how you will resolve the problem. If you do not know what your contract does for you, or how to enforce its terms, it may not be worth the paper that it is printed on and in the worst case, work against you.

The Gold Standard for a contract is that it contains four basic attributes:

  • The contract uses simple language that everyone involved fully understands.

  • The contract accurately captures the intentions of all parties.

  • The contract legally complies with the applicable governing laws.

  • The contract establishes a contingency plan should something go wrong.

People can have very unrealistic expectations, and the best way to reign them in and provide practical solutions to common problems, is by dictating your terms in the contract. The contract establishes exactly what is expected of all parties (and is designed to reduce the risk of at least one party) , so if results turn out differently than what was agreed upon, you can refer back to the contract to ensure that everyone delivers on their commitments. Contracts, however, can get complicated very quickly, so it is important to work with an attorney who is versed in Contract Law and how your industry does business. A talented contract attorney can assist you in the creation of your contract, educate you on all the contract terms, and execute your contract with the involvement of all parties.

SECURE  TRANSACTIONS  (COLLATERAL)

One of the core practices in the business world is securing financing, or providing financing for others who need it to grow their business. 

Whenever something is sold on credit or a loan is offered, some form of collateral is almost always included in the transaction to ensure that payment is made. Financing can be a tricky business as it is can be highly regulated, and it takes a good deal of caution and knowledge to safeguard against running afoul of the law.

There are many types of secured transactions that are applied to people's lives on a daily basis. One of the most common forms is taking out a mortgage on your home. Mortgages are a form of financing, and when a mortgage is secured, an "interest" is recorded on the deed to the property to insure payment of the loan. Certain types of interest may bring different rules into play; for instance, if the collateral is a business interest (such as company stock), then government securities regulation may be applicable. A security interest can be taken in almost anything which has value to the entity extending the credit (vehicles, inventory, etc.), so long as it is agreed upon by both parties and the interest is recorded in the legal fashion.

The simple relationship of securing collateral to ensure payment of a loan is the very backbone of finance, and has a long history of success. Modern forms of secure transactions, however, may be significantly affected by the nature of the collateral and the terms of the transaction itself...different legal scenarios will apply depending upon what is given and why. If you are considering securing financing, or the financing of others, it is important to research all the intricacies of the trade ahead of time. In some cases, your interest in the collateral could be worth little to nothing if someone outside the scope of the transaction has a priority interest in the same asset.

PURCHASE / SALE  OF  BUSINESS

There are many reasons why a business might be bought or sold: it can be directly profitable, it can be leveraged to buy-out competitors (essentially co-opting them into allies), it can break into or establish new markets, ensure future supply of materials, update a company's technology, or expand services into a higher tier of offerings.

Regardless of intent, the logistics of purchasing or selling a business can be as varied or complicated as the reasons for doing so in the first place.

 

Whether or not a business can be sold depends upon its degree of control over its assets. There are multiple facets of business ownership that can become stumbling blocks when it comes time to sell, such as contractual employee agreements, intellectual property rights, and how real estate is held. Documentation asserting absolute ownership of all these moving pieces is necessary in order to sell them to a potential buyer. Proof of ownership of the business will also need to be established, as well as appraisal of all business assets included in the transaction. There may also be more delicate concerns, such as the transfer of key employees to new contractual obligations.

When a business is considered for sale or purchase, there is typically an offer of engagement from the interested party. This offer is used to keep confidential any financial details while the possibility of a sale is explored. These sensitive details include how any future sale would be structured and an estimate of what the ultimate price might be. There are many different types of sale (asset sale, majority stake stock sale, profit-sharing agreement, etc.) and it can be a lengthy and complicated process to establish all the finer points.

EMPLOYEE  CONTRACTS / POLICIES

There comes a time in every company's lifecycle when it needs to reassess its focus, when it begins to have to manage not only its customer expectations, but also its employees.

Regardless of how established an employee relationship is, it is important to clarify the boundaries of employment in a contract or company policy that spells out what can be expected from both sides of the exchange. Fundamentally, the perspective of the employee differs from that of the employer in that the employer's livelihood depends upon the business itself thriving, whereas the employee's livelihood depends upon the continuation of their employment. This may not seem like a significant difference because many times these priorities overlap, but it can create conflict in numerous circumstances. The best practice is to set clear, professional expectations between employer and employee.

A great corporate policy is one that accomplishes your goals in preventing unwanted behaviors, complies with the law, and doesn’t feel overly restrictive to your employees. Often, the most effective and successful corporate strategies are reward-based instead of punitive, but these types of systems take careful deliberation to apply to individual business cases. In addition, it is to be expected that your employees are enduring their own struggles in their personal lives, and will eventually need some form of accommodation to mold personal and professional time into functional structures. It is important to define a policy which anticipates employee needs in advance, rather than have to discipline or make exceptions on an individual basis.

BENEFIT  CORPORATIONS

For a long time, the only defined business structures in Corporate Law have been For Profit and Non Profit organizations.

One of the latest innovations, which addresses the need for a middle-ground between the two, is the Benefit Corporation. A Benefit Corporation is a compliment to the already existing business entities,, but similar to a Non Profit, pledges to further some societal good (whether it be social or environmental). The important distinction of a Benefit Corporation is that it is evaluated for its progress toward furthering some societal benefit and tested against a third-party objective standard. It is important to note that, unlike a Non Profit, a Benefit Corporation does not receive any taxation benefit to assist them in their funding, because for all practical purposes they are still a class of For Profit business.

Benefit Corporations exist for the select few businesses that believe in making a promise towards the societal good, instead of a mere good intentions as has existed in the past. They are held to their promises by a requirement to annually report their progress to the State. It is the hope of Benefit Corporations that this stringent mission, along with the obligation to report on it, will attract the investors and customers who believe in their cause. The choice to become a Benefit Corporation should reflect the beliefs of the company and all who are associated with it.

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