BUSINESS ORGANIZATION AND BUSINESS LAW

There are many things to consider when forming a business entity. The attorneys at Skeeters, Bennett, Wilson, & Pike, assist owners of businesses to select the correct entity for their company, to help them form that company, and to assist in the operation of the company. We provide the legal expertise in forming business entities such as S and C corporations, general and limited partnerships, limited liability companies, and not for profit corporations. We also assist professionals in forming professional service corporations.

Without a business plan, a plan of operation, and an exit strategy simply forming the business entity is not enough. We prepare and counsel our clients in asset purchase agreements, buy/sell agreements, partnership agreements, operating agreements for limited liability companies, and dissolution. We continue to represent our clients and give advice to both buyers and sellers when acquiring a business, merging with another business, or selling their business. In addition, we prepare and maintain corporate records so that the company is always in compliance with all state and federal laws. We advise businesses concerning non competition agreements as well as the enforcement of those agreements. We represent shareholders, officers and directors in all aspects of corporate life.

BUSINESS ENTITY BASICS

Before even the most promising business can put down roots and prosper, its owners must make the threshold decision about what kind of legal entity it will be. Different options are available, with each option having strengths and weaknesses.  Legal requirements may vary by state depending on the business form chosen.  Following are some general characteristics of the most prominent business entities.  As the variety of choices indicates, competent legal advice is necessary to make the proper decision.
Sole Proprietorship

The greatest virtue of a sole proprietorship is its simplicity.  From a legal standpoint, the business and its owner are the same.  This allows the proprietor to avoid most of the formalities required for some other business forms.  For example, business income is reported on the proprietor’s personal tax return.  One significant drawback is that a sole proprietor has personal responsibility for all business debts and court judgments.

General Partnership

A partnership is a business run by two or more persons, but the “persons” can be individuals or business entities.  In a general partnership, all partners are “general partners,” which essentially mean that their business fates are closely intertwined.  Each general partner has unlimited personal liability for partnership debts, can incur obligations on behalf of the partnership, and acts as an agent for the other partners and the partnership.  The partners usually share equally in managing the business and dividing the profits, but they may set their own terms for these and other matters in a written partnership agreement.  Tax liability on partnership agreement.  Tax liability on partnership income is “passed through” to the individual partners so that each partner pays taxes on his or her individual share of the profits.

Limited Partnership

In a limited partnership, there are general partners and limited partners.  General partners run the business’s day-to-day operations and have personal liability for partnership obligations.  Limited partners are usually passive investors in the business.  They are not personally liable for partnership debts and the most they can lose is the amount invested in the partnership.  A limited partnership allows money to be raised for the business from the limited partners, but the general partners do not have to share with them day-to-day decision making or comply with requirements for creating a corporation and issuing stock.

In contrast with a corporation, a partnership dissolves and is liquidated upon the death or withdrawal of a partner unless the partnership agreement provides otherwise.  For example, the agreement may allow a buyout of a deceased or withdrawn partner, election of a new partner, and continuation of the business.  As a general rule, a limited partnership continues on unaffected by the loss of a limited partner.

Corporation

A corporation is an entity that is separate from its owners, with its own legal rights and responsibilities.  The owners (the corporation’s shareholders) are not personally liable for debts of the corporation.  The shareholders elect a board of directors to supervise the corporation and the board appoints officers to manage day-to-day matters.  The major drawback for the corporate model is having its income taxed twice: first on the corporation’s income and then on any dividends paid to the individual shareholders.

The S Corporation, a hybrid creature of the Tax Code, has some characteristics of corporations and some of partnerships.  If specific tax rules are satisfied, income in an S corporation is taxed only when it is passed through to the owners.  Also, the owners retain their insulation from personal liability for corporate debts.

Limited Liability Company

An increasingly popular form of business entity is the limited liability company (LLC), another hybrid combining some of the best traits of the other entities.  The owners, called members, are not limited in number or type, as are shareholders in an S corporation.  While LLC members generally have the kind of limited personal liability associated with the corporatins, they have flexibility to participate in the management of the business if the governing document called “articles of organization,” so provides.  The earnings of an LLC are given the same advantageous passed-through treatment as are earnings of a sole proprietorship or partnership, thereby avoiding double taxation.

BUY-SELL AGREEMENTS FOR SMALL BUSINESSES
 

The transfer of ownership interests in a small business should take into account all of the considerations that make each business, and especially a family-owned business, unique.  The vehicle for accomplishing the transfer is usually called a buy-sell agreement.  Its name barely begins to describe the buy-sell agreement’s various purposes.  With professional advice, the agreement can be tailored to meet the objectives of each small business, whether the business is in the form of a close corporation, partnership, limited liability company, or some other structure.

By creating a market for the ownership interest of a shareholder who has retired, become disabled, or died, a buy-sell agreement insures that such an interest can be converted into cash when cash is more important than having shares in the company.  Since small businesses often pay out most or all of their profits in salaries, an equity interest in the business would be much less valuable if its owner was not assured of being able to sell that interest back to the business or to other shareholders.

Valuation of the Business

When a triggering event in a buy-sell agreement causes the interest of one owner of a business to be purchased by other owners, or by the business as an entity, a critical issue is placing a dollar value on that interest.  It is difficult to set a market value for shares in closely held corporations, whose stock by its nature has little or no liquidity.  An agreement can set the price for shares according to a predetermined formula, value as shown on the company’s books, an appraisal by a third party, or some other method.  In any event, it is important that the provisions on the valuation and purchase price of shares in the company be kept current.
Orderly Transition of  Ownership

A buy-sell agreement also may serve as an orderly method for maintaining control over the company despite a change in the composition of its owners.  In a family-owned business, this may mean a clause in the agreement effectively keeping the business in the family by allowing remaining family members to buy the interest of a departing owner. For children who decide not to carry on in the business, cash, perhaps generated by life insurance on the senior owner, might be an alternative to inheriting part of the business.

A typical buy-sell agreement for a family business provides that, on the death or departure of one shareholder, the remaining shareholders have the right to purchase his or her shares.  Those participating in the buyout usually acquire those shares in an amount commensurate with their holdings.  An alternative could give the corporation itself the right to purchase the shares.  However, this option may bring into play laws for the protection of creditors that limit the power of corporations to purchase their own shares.  A hybrid approach sometimes used in buy-sell agreements allows the business to buy its own shares, only to the extent permitted by relevant statutes, but the remaining shareholders could then purchase any shares not acquired by the corporation.

Avoid Conflicting Terms

Since one of the triggers for application of a buy-sell agreement is a shareholder’s death, shareholders should avoid conflicts between the terms of the agreement and their estate plans.  When the terms of an agreement and a will cannot easily be reconciled, the odds increase for litigation, rather than the smooth transition for which the agreement was designed.  If a will predates the agreement, it may be necessary to draft a new will that is consistent with the agreement.  A less complicated approach is to amend the will with a codicil providing that business interests are to be disposed of according to the buy-sell agreement.

Consistency between an estate plan and a buy-sell agreement is important not only as to disposition of shares, but also as to voting or management rights in the company.  A shareholder should determine whether his estate or heirs should have such rights, and then be sure that the documents accurately reflect the shareholder’s wishes.  Similarly, a shareholder should consider whether limits on his executor’s voting rights are desirable, so as to avoid the possibility that the executor will act to frustrate the shareholder’s intent.

One purpose of any contract is to avoid future disputes between the parties by establishing rights and duties for future contingencies.  Aside from dealing with the substantive issues raised by transferred ownership, a buy-sell agreement also can head off conflict, or at least help solve it, by providing for a form of alternative dispute resolution or mediation.

LABOR AND EMPLOYMENT LAW

The area of labor and employment law is ever changing. Our law firm represents both businesses and individuals and provides numerous services for our clients in the area of employment. We conduct seminars and training for the employees of our clients. We assist our clients in all aspects of complying with the various state and federal regulations including Affirmative Action, Equal Employment and Opportunity, The American Disability Act, The Family Medical Leave Act, as well as Title VII. We prepare personnel and employee handbooks as well as other preventative law services to a wide range of business clients.

EMPLOYMENT DISCRIMINATION-DEFENDING A HOSTILE ENVIORNMENT CLAIM

It has been well established by the United States Supreme Court since 1998 that an employer may defend against a hostile environment claim by showing that it exercised reasonable care to prevent and to promptly correct harassing conduct. As to the first prong of the affirmative defense, the courts have generally held that having and disseminating an anti harassment policy is sufficient. As to the second prong, the courts generally find it sufficient if the employer investigates a complaint of harassment and takes appropriate corrective action.  Once on notice, an employer is required to conduct an investigation: first, that it take temporary steps to deal with the situation while determining whether the complaint is justified; and, second, that it take permanent remedial steps after the investigation is complete.  The employer’s action not only seeks to solve the present harassment allegations but also puts other employees on notice that the employer considers harassment allegations seriously.  Such notice to other employees serves the goal of preventing future incidents. The investigative process can also protect and clear accused employees that are not guilty of harassment.

COMPREHENSIVE EMPLOYMENT POLICY

The increasingly complex statutory and regulatory requirements imposed upon employers make it imperative that written policies be promogated and maintained in order to avoid fines for noncompliance an exposure to liability from lawsuits. Many Federal laws, and an increasing number of State laws, require employers to maintain written policies. Furthermore, it is no longer sufficient to simply pass out cookie-cutter policies to be effective. Workplace policies must be precisely tailored and contain specific provisions required by the location of the workplace, the type of business involved, the number of individuals employed, and a host of other considerations. A properly drafted and implemented policy can be a valuable tool for employers. Employers may be able to avoid liability for discrimination claims if a written policy  sets out that discrimination is prohibited and grievance procedures for resolving those discrimination claims are set out in the policy. Employment policies in addition to prohibiting discrimination and harassment, should include provisions covering wages and hours, benefits, leave, workplace safety, workplace conduct, and discipline. Many employers are now considering policies covering Internet and e-mail use, record keeping, drug and alcohol use, and immigration law compliance.

In the area of employment discrimination, our firm represents both plaintiffs and defendants in discrimination and harassment hearings and lawsuits, wrongful discharge, non competition agreements, and employment injury claims to include workers compensation.

COMMERCIAL BANKING AND CREDIT UNION LAW

The attorneys at Skeeters, Bennett, Wilson, & Pike, provide legal services to financial institutions including banks, credit unions, mortgage companies, and finance companies. The representation spans a wide array of areas to include development of forms for lenders, loan modification agreements and forbearance agreements, uniform commercial code matters, consumer credit compliance, and sales and purchase transactions. We also assist our financial institutional clients with their real estate needs whether it be purchasing or leasing real estate. In addition, our law firm has a collections department which handles collections for local, regional, and nation financial institutions in the courts in all parts of Kentucky. We assist our financial institutions with their loan transactions and advise them and represent them in working out solutions to their debtors financial problems. We value our relationships with our financial institution clients and stay abreast of the various changes taking place in this very dynamic area of the law.

TRADEMARKS AND COPYRIGHTS

To bring a full array of services to our corporate clients Skeeters, Bennett, Wilson, & Pike, assist our clients in protecting their intellectual property. We counsel our clients in matters of trademark, copyright, trade secrets, and licensing and franchise matters. We help authors and song writers publish their works. We help our clients obtain, register and maintain trademarks and copyrights in both state and The United States Patent and Trademark Office.

Although we do not practice patent law, we assist our clients in obtaining competent patent attorneys concerning their inventions. Protecting our clients intellectual property rights is a high priority for both our clients and our firm.