Business litigation and disputes can range from a customer disagreement to a copyright lawsuit, and can seriously impact a business.
Terms of Employment: Generally, the terms of employment include how long the employee will be employed. For freelance or contract positions, this might mean for a specific amount of time or until a project is complete; for more traditional employment, this often means indefinitely or until either party terminates the employment relationship. Employee Responsibilities: One of the most varying parts of an employment contract is the section detailing employee responsibilities. This is because every job is different; therefore, the expectations for each position differ. For example, a construction contractor’s employee responsibilities aren’t the same as a salesperson’s responsibilities. Employee Benefits: Benefits can range from health and life insurance to disability pay and retirement plans. Sometimes, employment benefits include purchasing and/or owning stock in the business. Employment Absence: Most often, employment absence includes factors such as sick days or personal leave and vacation time. Dispute Resolution: Such resolutions might include methods such as mediation or arbitration to solve disputes between an employee and employer. Nondisclosure Agreements: These agreements prevent employees from sharing a company’s business secrets, such as trade information or client lists. Ownership Agreements: Simply put, an ownership agreement means anything produced by the employee while employed by the employer becomes property of the business. Assignment Clauses: Similar to ownership agreements, assignment clauses basically mean any patents obtained by the employee during his or her employment are assigned to the business. Employment Opportunity Limitations: Many employee contracts include clauses that prevent the employer from limiting the employee’s potential future job prospects should the employer terminate him or her, or should he or she decide to leave the job. Termination: Each employee contract should clearly define all possible grounds for termination.
Foregoing a contract This is the first and most dangerous mistake. Far too many business owners believe they can rely on a handshake and someone’s promises. Unfortunately, that’s not the world we live in, and there is far too much at stake for you to neglect the use of contracts in your business dealings. This is where a knowledgeable attorney comes in. Skipping the contract means there is no accountability to any deals or agreements you make. Sure, verbal agreements are allowable, but they are extremely difficult to prove. If your vendor stops delivering essential widgets to your business, it is hard to show that the vendor had a legally binding responsibility to do so. Without a written contract, there is nothing holding the vendor to their word. A contract is not a guarantee that your business will avoid all legal issues, but it is a valuable safety net that is necessary to mitigate costly risks and liabilities. Going it alone As the facetious saying goes, “Everybody’s an expert.” We live in a time where the internet has connected us to information and knowledge that was much more difficult to acquire in the past. Need an employment contract? Simply Google it and fine a template and fill in the blanks yourself, right? Unfortunately, a poorly executed contract or a contract which is not unique to your specific needs can be just as damaging as not having a contract at all. Contracts are FAR too important to take a cookie cutter approach. There are nuances to every deal which must be properly analyzed and accounted for by a skilled business attorney like those at The Campbell Law Group. Don’t fall into the trap of trying to save a buck or two on your contracts by doing it yourself. You’ll likely spend thousands more when your contract is exposed to legal challenges. Ambiguity For contracts, always keep it specific. This is a good rule of thumb in almost all cases. Vague and ambiguous terms are not a contract drafter’s friend. Judges do not appreciate vagueness either. If you are referencing a singular transaction, be as specific as possible. Judges are not in the habit of throwing out contracts because the contract was too specific, but they will certainly give an opposing party leeway if aspects of the contract could have easily been misinterpreted or understood to mean more than one thing. Again, an attorney will know how best to describe terms based on your unique situation. Excluding vital terms If you are inexperienced with drafting contracts, it is easy to leave out vital clauses and wording which may seem insignificant to the untrained eye, but is actually a lynchpin in a contract’s effectiveness. Of course, these type of necessary inclusions will vary based on your goals in drafting the contract, so always have an attorney review the circumstances of your situation and then help you build a contract to suit your needs.
Why are they selling? This is perhaps the single most important question to ask yourself before signing on the dotted line. The motivation behind the sale could be very telling about the business’s future prospects. If the owner is selling because he or she is looking to retire, then that might be okay. Conversely, a sale due to pending legislation that could impact the business or some other negative factor probably doesn’t bode well. This type of sale might mean that the owner is looking to get out before the price plummets. How did the owner arrive at the asking price? The price is another tell-tale sign of whether the sale would be a good investment. If the price seems too good to be true, it probably is. Inquire into the reason behind the price and the methods used to reach the valuation. Will there be problems if a new owner takes over? Ownership transitions can have an especially large impact on a small business. Large businesses with more established consumer bases and systematic practices are oftentimes better able to adjust to changes in leadership, but a small business may have a much more difficult time adapting to the changes. In some circumstances, you may be able to request that the previous owner assist with the transition, but other times this may not be possible. Be sure you are well-aware of the implications your takeover of the company will have on its ability to conduct business as usual. Is the market overexposed with the type of business? Buying businesses in your industry to avoid extra competition can be a extremely beneficial decision. If you are looking into a new venture, you might want to consider the market. Whether the business is physical or online, competition could erode the profitability and success of a business. For instance, taking over a pizza place in a sea of pizza shops may not be wise. Conversely, taking over the only Mexican restaurant in a sea of pizza places may be a better option. Be sure to consider the implications of both the company’s existing market, and any new potential markets. Will there be any other downsides to the purchase? In order to buy the new business and make it profitable, you may have to put in more effort than you expect—not every existing business will be a perfect turn-key operation. For instance, properties are often grandfathered in following new zoning ordinances. When businesses change owners, that privilege may disappear. In order to open, you might have to put a lot of money into the business for it to be up to code. Make sure there are no outstanding ordinances or regulations that would eat into profits and make the purchase less desirable than it may have seemed at first.
Minority shareholders have little say in major decisions Shareholder disputes can come up when minority shareholders feel left out. They may feel that they have almost no ability to influence big decisions, or that the majority shareholders are ignoring their interests. Your agreement can include a voting clause to balance the rights of shareholders within the majority and the minority. You can stipulate unanimous consent, meaning a single shareholder can disrupt the efforts of the majority; or a supermajority vote, which would require a specific fraction or percentage of votes. You can also add clauses to specify the rights of your minority shareholders, such as their employment terms, salary and withdrawal rights, to avoid confusion and minimize minority shareholder oppression in the future. Conflict of interest Problems can arise when a shareholder appears to have conflicting interests. For example, they may become involved in an another enterprise that competes with yours. Your shareholder agreement can specify that the company’s interests come before the shareholder’s personal interests or any other duties that the shareholder may have outside of the Company. If the language is clear enough, you can prevent a serious dispute and/or reduce any potential litigation cost in the future if the non-abiding shareholder does not comply with the shareholder agreement. A shareholder isn’t pulling his or her weight When a shareholder, director, or executive neglects to fulfill his or her fiduciary duty, other shareholders can rightfully become resentful. They may feel that the other shareholder does not contribute enough time or effort to your enterprise. Your shareholder agreement legally binds each participant to certain duties. It can specify exactly what is expected of each shareholder, including how many hours per week they must work, or it can simply include a general statement requires binds all shareholders to devote their best efforts to the company. A disagreement can’t be resolved Sometimes shareholders will not be able to resolve their dispute, whether it’s because of irreconcilable differences, diverging visions of what’s best for the company, or allegations of misconduct. A shareholder agreement will need provisions for this. You can provide for a compulsory buyout, allowing either party to buy out the other, along with a formula for the buyout price. Your agreement should also include an arbitration clause to avoid the long and expensive court process.
Agreements and Contracts Aren’t Always the Same A court will look at your document to determine whether or not it is enforceable. Most importantly, they will want to determine if the agreement is a contract. To be a contract, there are specific requirements it must meet. One being that a party must extend an offer and the other party accepts that offer in the agreement. There must also be a bargain or exchange in promises, whether it is monetary, service, products, etc. Also, the terms must specify that they will use the court to enforce those terms. Enforcement and Fighting Breach Defenses Once the court has decided your agreement is a contract, they will then decide if it should be enforced. There are plenty of reasons a judge will decide not to enforce a contract. These decisions are designed to protect people from entering into unfair contracts. If the contract was overbearing, unfair or the party signs the contract without adequate capacity, then the court may choose to not enforce it, regardless if it is a legal contract or not. Contract Breach Defenses If the other party breaches your contract, then they may have a valid defense for doing so. Any type of threat, coercion or false statement made to the other party can be grounds for a legally acceptable breach. The courts look at business contracts carefully as well as the situation in which they were signed to determine whether or not the other party had a right to breach. The court will likely look for: -If the party signed under duress, meaning that they were threatened with serious actions unless they entered into the agreement. -Undue influence – the person was persuaded to sign into an unfair transaction due to the other person’s relationship to the signer. -One party misrepresented the facts, such as not disclosing information they had a legal duty to disclose.