The Christensen Law FirmThe Christensen Law Firm2023-04-26T16:33:10Zhttps://www.rexachristensen.com/feed/atom/WordPressOn Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=481672023-04-26T16:33:10Z2023-04-26T16:33:10ZKey elements of a shareholders’ agreement
A shareholders’ agreement is different for every company because it is dependent on the nature of the business entity, the operations of the company and the class of shares. However, there are key components that you should consider when drafting a shareholders’ agreement:
A preamble that details all the parties entering the agreement
The intention and goals of the agreement
The rights and obligations of shareholders (Examples: veto rights, voting rights, rights to transfer ownership)
A clause on the transfer and issuance of shares, including selling and buying shares
A right of first refusal clause
Dividend payments and distribution of earnings
A restrictive clause on how to eliminate members of the board
An explicit dispute resolution clause is one of the most critical elements in drafting a shareholders' agreement. Through this mechanism, the company can prevent business disputes from worsening simply by following protocol.
Why is a shareholders’ agreement important?
A shareholders' agreement is optional, but it delineates the professional boundaries of the shareholders. If a shareholder no longer has the power to exercise control over their shares, the agreement needs to detail the buying back of those shares, whether optional or mandatory. It protects the company from outsiders, prevents bias and facilitates objectivity. A shareholders' agreement helps govern the parties when disputes arise and relationships deteriorate.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=481612023-04-13T18:29:38Z2023-04-13T18:29:38ZLimited personal liability
One of the attractive features of an LLC is that its members, partners and investors have limited personal liability when it comes to the company’s debts and liabilities. This is because the business is a separate entity from the owners. Therefore, creditors cannot go after the members’ or investors’ personal assets to cover the company’s debts. This feature is actually similar to that of a corporation.
No double taxation
In an LLC, members may choose not to pay the company’s federal taxes directly. Instead, they report the business profits and losses on their personal income tax returns. By doing so, they are only taxed once and avoid double taxation, unlike corporations. This feature is similar to that of partnerships.
These benefits are not absolute
Business owners considering LLC as their entity should know that while the mentioned features are beneficial, they are not totally free from claims. Creditors can go after the LLC’s members if there is fraud or the business fails to meet the legal requirements.
Align your business priority
While many consider an LLC the best option for their Arizona business, it is still best for owners to check their company’s needs, goals and priorities to ensure that they align with the features of an LLC. Otherwise, they might have to continue researching the proper entity for them.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=481502023-03-31T15:57:27Z2023-03-31T15:57:27ZMust-have inclusions
While the terms of a buy-sell agreement depend on the unique facts and circumstances of each case, there are mandatory inclusions, such as:
The reason for the buyout: The document should include the triggering event for the buy and sell. Some grounds could be death, disability, bankruptcy, retirement or simply opting out of the business.
A list of involved owners or partners and their current shares: Like any other agreement, the names of the people involved should be included in the document. Moreover, it is important to establish the fair value of ownership shares to ensure that each owner’s shares are protected during the buyout.
An updated valuation of the business: To put a reasonable price on the shares, it is essential to know the current market value of the business.
Funding instruments: It is crucial to have a sufficient source to finance the buyout to protect the seller’s rights. Funding could be through cash, insurance sinking fund or debt.
Tax and estate planning considerations: The document should also state if the business forms part of the estate planning arrangements of any of the owners and how potential taxes can affect the owners and their successors.
These terms are a top few that pop up when one thinks of necessary terms to include in a buy-sell agreement.
One step forward
Selling one’s business shares requires a lot of time and effort, which can be stressful. However, understanding the importance of a buy-sell agreement and the necessary inclusions is already one step toward reaching one’s goal.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=481432023-03-14T06:54:56Z2023-03-14T06:54:56ZFundamental factors to consider
While considerations for choosing a business entity vary depending on the industry, some essential factors apply to almost all businesses. These include the following:
The number of business owners or partners: Whether solo or two or more, owners can choose to operate a limited liability company (LLC) or corporation. However, solo owners cannot operate a partnership and multiple owners cannot establish a sole proprietorship.
Liability: In a sole proprietorship and partnership, the owners are the same legal entity as their businesses. Therefore, owners would be personally responsible for the company’s liabilities. But with an LLC or corporation, partners can be considered separate from the business and therefore cannot be held personally liable for the company’s debts and other credits.
Tax: With corporations, not only will the government tax the company revenue, but it will also require owners to pay taxes for their personal incomes. On the other hand, LLC partners are not subject to double taxation as company profits and losses are reported in their individual tax returns instead.
This list is not absolute but provides a basic idea of factors owners must consider when selecting business entities. Each business has unique considerations that might not apply to others but the three factors we mentioned are fundamental in establishing a business.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=477882023-03-02T18:31:21Z2023-03-02T18:31:21ZWhen starting a business, you have many options to find success. For instance, you could form a business partnership. A business partner could be someone who shares your ambition and helps your business grow to its full potential.
While that may not be enough of a reason to start a business partnership, there are plenty of other benefits. Here’s what you should know:
Access to complementary skillsets
It’s a lot of effort to manage a business. However, by having a partnership, you could have the work divided and done faster. Talking with a business partner about what work they should accomplish could allow you to focus on more important matters. This is especially true when you choose a partner whose skills complement your own since that can make for an easier division of labor.
Having more knowledge and experience
It’s always said that two heads are better than one, but why would that be? Perhaps it could be because by having a partnership, you and your partner would share each of your unique fields of knowledge and experience. For example, maybe you aren’t the best at handling transactions with other businesses, but you’re really good at managing finances – your business partner could be really good with the former skill.
Someone to share the costs
In a business partnership, you may not have to afford every business expense. Instead, you may share the costs of equipment, space, utilities and employee salaries with your partner. In other words, the responsibility to split the financial burden of your business could put less stress on you.
Obtaining a better work-life balance
Many people who run a business by themselves often can’t split their work life and home life. However, having a business partner who can pick up time and manage things while you’re gone could change that. You could place the responsibility of your business on your partner on days you want to spend time with your family.Forming a business partnership often requires a lot of legal knowledge. You may need to reach out for help to ensure a business contract benefits everyone.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=477662023-02-15T20:36:41Z2023-02-15T20:36:41ZAt some point, you may have heard people say that business owners wear many hats. This is a very common sentiment, and it is often said about entrepreneurs. It’s a metaphor, simply stating that they have to take on many different roles within the company.For example, they may be a visionary who knows what type of company they want to create. But they also have to figure out the financial side of the picture, such as determining how to secure financing and whether or not they want to bring on a business partner or an investor. On top of that, they need to consider marketing and getting their company’s brand in front of a local audience. All of that doesn’t even include any of the day-to-day operations of running the business.
Why it can be a problem
This can create some issues, however. For instance, a business owner may be terrific at creating new products or connecting with the local community. But they might feel overwhelmed going through all of the financial details and trying to secure loans. They may not know how to run the office on a day-to-day basis. A business owner who tries to wear too many hats can actively hold the company back, when they would’ve been better off to bring on someone who was more experienced in that niche area to take on those responsibilities. For instance, bringing on a financial advisor could free up more of the person’s energy and attention for the things they do best.In many senses, this also applies to the legal steps that you need to take to start a business. There can be a lot of complex paperwork, and you want to avoid errors. That’s why it can be helpful to work with a dedicated team that focuses on this area of the law.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=477642023-02-06T20:44:42Z2023-02-06T20:44:42ZTaking the leap to launch your own business has been one of the most rewarding things you have ever done. You built a successful brand, have made profits and given others employment opportunities.
With that being said, there are few business owners who run their companies forever. Recognizing when it’s time to move on can be as important as anything else. Is now the right time for you to sell up? Outlined below are some important factors to consider:
Selling as a sign of your success
You started the business as a side project, to earn some extra money and utilize your knowledge and skills. Soon, you were making enough to be able to quit your job and focus fully on the company. Now, the business continues to expand. This was never your intention and you’re finding the expansion a little overwhelming. Going global was not your ambition, but it looks like that’s the way things are heading. If you’re content with what you have done, then there is no shame in passing the company on to someone else. Another party may have the drive and vision to take what you started to the next level, giving you a fair price to step aside.
Your own ambitions
Of course, you may have the ambition to build a multinational company. While your current business is successful, it’s a niche market that is quite small and localized. There are plenty of potential bidders out there looking for successful small businesses. Selling up could provide you with some capital as well as the time to move on to your next global venture. If you are considering selling up, then you want to make sure that you maximize the price of the business. Having legal guidance behind you will help ensure that you don’t get short-changed. ]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=477612023-01-17T23:30:13Z2023-01-17T23:30:13Zsilent partner invests in a business in exchange for a share of the profits. However, they typically don’t participate in deciding the direction of the business or in the day-to-day operations, as opposed to the general partners. Depending on what kind of involvement is negotiated and codified, they may be asked for input and help beyond providing capital if they understand the industry the business is in.
Silent partners are also known as limited partners
That’s a common title you see for someone who is essentially a silent partner. A silent, or limited, partner can be someone who believes in the general partners and their vision for the business enough to invest in it and let them run it as they choose while they spend their days relaxing at their home in Sedona or hitting the links in Tucson – or running their own business.
Because their partnership is limited, so is their financial risk. If things go bad, typically, the most they can lose is their investment.
Silent partners play a different role than venture capitalists
Often, new or expanding businesses look for a venture capital firm to give them the capital they need as well as professional guidance. A venture capitalist, unlike a silent or limited partner, typically requires input into the business. Further, they most often invest in industries where they have experience and contacts, so their participation can be a benefit to everyone.
Drawing up the partnership agreement
Whether your business is considering bringing on a silent, or limited, partner or you’re weighing the option of such a partnership for yourself, it’s crucial that all parties agree on how the relationship will work. It’s also essential to detail how profits will be divided and how losses will be handled. Having experienced legal guidance as you negotiate the partnership agreement is necessary to help ensure a smooth and successful relationship.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=477592023-01-06T03:08:48Z2023-01-06T03:08:48ZDebt is something that can keep people from taking risks and making business decisions, simply because they worry about having to pay back that debt if the business doesn’t pan out. The amount of money needed to start a business might be so great that the individual knows they could never pay it back on their own.
But would you even have to do so? If you take out a business loan and things don’t go as planned, can the creditors come to you and ask for you to personally cover the money that you borrowed?
Did you start an LLC?
This question is why it’s so important to think about the different types of corporations you can form. If you started a sole proprietorship, for instance, then you certainly may have to pay off the money that you borrowed. That money is still in your name and you are responsible for the debt. You would either have to pay it off or you may have options to use bankruptcy to eliminate that debt.But if you started a limited liability company, then you can take out loans in the name of the business. Your company is then responsible for paying back these loans on the set schedule, but you are not personally responsible. If the business goes under and cannot afford that debt, your creditors are not going to come take your savings, your house or any of the other assets that you own. The LLC creates a level of division between you and your company so that you don’t have to worry about this type of financial risk.
Setting it up
Because it’s important to know that you set up your company properly and that you are financially protected, be sure you are aware of exactly what legal steps to take.]]>On Behalf of The Christensen Law Firmhttps://www.rexachristensen.com/?p=477572022-12-27T00:59:19Z2022-12-27T00:59:19ZAlmost all jobs in the construction industry begin with an estimate for the work to be done. The client then decides if they will hire you or another contractor. If you are hired, you should have a contract ready for your client to sign.
The purpose of a construction contract is to protect both parties from possible issues. You must include specific terms and conditions to protect your business if the client tries to claim you did not meet your
1. Include information about both parties
You must identify both parties in the contract and the project or work being done. Include as much information as possible so the client won’t return later, claiming you did not do what you said you would.
2. Set clear payment expectations
Include the payment schedule and expectations in the contract. Include when the first deposit should be paid and all subsequent payments. Include deadlines in the contract is crucial to use the document if your client fails to pay as stated in the signed contract.
3. Include dispute resolution methods
Litigation is costly, which is why you should take steps to avoid it. To do this, include resolution methods in the contract. Consider alternative dispute resolution like mediation, which can help prevent costly litigation. Also, be sure all the resolution methods are included in the contract so you can enforce these if an issue arises.
Creating an effective construction contract
Creating a contract with the above information will help you protect yourself and your business. Be sure to have the contract signed before any work is done. Include the terms as discussed to avoid potentially expensive litigation related to the project. ]]>