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6 Reasons Why a Limited Liability Company Needs an LLC Operating Agreement

Business owners often (rightfully) decide to form a limited liability company (LLC) through which to conduct their business. LLCs offer many advantages for business owners. However, while these individuals will file the necessary incorporating documents with the state to form their LLC, many of them forget to prepare a critical internal document: the LLC operating agreement. Many states do not require LLCs to prepare or file an operating agreement. (New Hampshire, Massachusetts, and Florida do not require operating agreements, but, for example, California and New York do.) Even if your state does not expressly require an LLC operating agreement, however, business owners should still consider preparing and executing one for several reasons. What is an LLC Operating Agreement? An LLC operating agreement is a contract between the members of an LLC. It sets forth specific terms and guidelines for the operation of the business, the distribution of profits and losses, the addition and withdrawal of members, how the business will be taxed, and other internal issues. 6 Reasons for an LLC Operating Agreement 1) Business Owners Can Avoid Disputes The greatest advantage of an LLC operating agreement is that it allows business owners to set clear expectations and guidelines for their business, and those expectations will help them avoid disputes. Partnership disputes can be nasty, exhausting, and cost a business and its owners a lot of time and money. The benefits that follow, below, all help business owners outline, in as much detail as they want, how they will conduct themselves and their business. The best operating agreements leave no stone unturned and contain few, if any, areas of ambiguity....

5 Things Businesses Should Know About Their Legal Duty to Preserve Documents

Many businesses have policies and practices in place for preserving documents and information. After all, it is good to err on the side of caution and retain important documents, records, and other information. Given the amount of information that is generated today, however, preserving every bit of it indefinitely is impractical. Thus, businesses often implement document retention policies, whereby after a certain period of time, certain categories of documents are destroyed. There are circumstances, however, when a business has a legal duty to preserve documents and other information because it might be relevant to a lawsuit. The actual preservation of information for this purpose is called a “litigation hold” or “legal hold.” What is a Litigation/Legal Hold? A litigation hold, or legal hold, is a process used by a business to preserve forms of relevant information when litigation (a lawsuit or arbitration) is reasonably anticipated or has already commenced. Usually, a business’s attorney will initiate the legal hold with a notice or communication to the business that requests the suspension of the business’s normal document retention or disposition policy as to documents that are potentially relevant to the lawsuit at issue, or otherwise requests that the business stop disposing of such documents. A business will then communicate the same information to relevant employees. Must a Litigation/Legal Hold Be Communicated in Writing? Yes. A business should always ensure the legal hold process is communicated to its employees in writing. Likewise, an attorney should communicate the same to the business in writing. This ensures a business can prove it satisfied its legal obligation to preserve information. Why Does a Business Need...

7 Ways a Lawyer Can Help Your Business

Businesses and people often treat lawyers like plumbers or firemen: you only call when there is a problem. This is an understandable reality: Whether you are starting a business or operating a business on a day-to-day basis, many other tasks require attention (and money), like marketing, sales, staffing, and other administrative matters. The last thing a business owner often wants to think about is a lawyer. Smart business planning, however, should include calling and using a lawyer to prevent problems. A lawyer can help a business protect itself from a variety of problems (like partnership disputes and lawsuits). Businesses often do not realize that spending a little time, effort, and money on an attorney to identify and resolve potential problems could save that business numerous headaches (and a lot of money) down the road. Here are 7 ways a lawyer can help a business protect itself from trouble. 7 Ways a Lawyer Can Help Your Business 1) Incorporation Individuals often incorporate and start their businesses themselves without the assistance of an attorney. While that may be fine for a simple business (such as a single-owner LLC), it may not be ideal for a business that has multiple owners or transacts business across state lines. In these situations, a lawyer can help a business owner choose the right corporate structure (LLC, S-Corp, C-Corp), choose where to incorporate (in your home state or in Delaware), understand whether by-laws or other documents are needed, and – for multi-owner companies – understand the need for an operating or partnership agreement. Generally, the more complicated the business, the more likely an attorney should be...

9 Ways Businesses Can Ensure Their Non-Compete Agreements Are Enforceable

A non-compete agreement is an effective way for a business to protect its intellectual property, client information, and other confidential information. It generally restricts an employee’s ability to work for a competitor or to start a competing business following that employee’s departure from his or her former employer. For a non-compete agreement to be effective and serve its purpose, however, it must be enforceable. These agreements are generally governed by state law. In New Hampshire, the law that applies to non-compete agreements has evolved over time. Certain types of employer-friendly agreements (and the restrictions they contain) used to be enforceable in New Hampshire. But over the past 10-15 years, the law has trended in the other direction and become more employee-friendly. This does not mean, however, that businesses cannot continue to protect their interests. They can certainly do so. They just have to ensure that they take certain steps to craft a non-compete agreement that adheres to recent trends. Below, I identify and explain 9 ways businesses can ensure their non-compete agreements are enforceable. 9 Ways Businesses Can Ensure Their Non-Compete Agreements Are Enforceable 1) The Non-Compete Agreement Should Generally Restrict the Employee From Soliciting Current Clients, Not Prospective Clients New Hampshire courts generally disfavor non-compete agreements because they restrain free trade and markets. However, they will enforce these agreements if they protect a “recognized legitimate employer interest.” Courts have found that a legitimate interest that businesses may protect is their current client base. This makes sense because businesses should be able to prevent employees from taking advantage of the goodwill and relationships they develop with customers and clients....

How to Determine What is a Breach of Contract

One of the more common forms of business disputes is a dispute over the failure to perform certain obligations set forth in a contract, and many businesses and individuals often wonder what is or what constitutes a “breach of contract.” If you entered into a contract, performed your obligations under that contract, and you are experiencing issues with getting the other party to perform its own obligations, you may have a situation where that party has not fulfilled its end of the bargain. What do you do next? This is a question that haunts many businesses and individuals. How do you know what is a breach of contract? Are there any specific steps that need to be taken to make that determination? Should you go back and read the actual contract? How long do you have to do this? Should you talk to an attorney? In this article, I will try and provide a simple step-by-step process that will help you understand what is a breach of contract, and that will help you determine when you have one yourself and what you can do about it. What is a Breach of Contract?   1) Determine if you have a contract This initial step might appear unnecessary, but it is a consideration worth addressing. A claim for breach of contract requires proof of four elements: The existence of a contract; Breach of the contract; You suffered damages; and The breach caused you the damages you claim you suffered. Thus, before doing anything, you should first determine if a contract exists at all. Contracts can be written or oral. But for...

How to Protest and Dispute Government Contract Awards

Protesting and disputing government contract awards can appear intimidating at first glance. If you are a business that either has a contract with the state or federal government, a state or federal agency, or a municipality, or has pursued obtaining a government contract with any of those entities, you have probably been involved in a public bidding (or government procurement) process. This process is where the government issues a request for proposals or request for quotes (otherwise known as an “RFP” or “RFQ”), and then you, the business, submit a proposal for the services or products being requested. What happens if your business submitted a proposal for the contract, but the government declined to award the contract to you, and you believe the process was unfair? For example, a vendor that should have been disqualified wasn’t, or another vendor forgot to submit a critical portion of the proposal, or the government awarded the contract to a vendor whose proposal was not scored properly or whose proposal was more expensive than yours. Fortunately, despite the fact that the party on the other side of this equation is the government, you can protest and dispute government contract awards. In any of the situations above, the government likely violated competitive bidding standards. Here is a simple step-by-step process for protesting and disputing government contract awards: What are Competitive Bidding Standards?   Regardless whether the government contract that was awarded was a state contract or a federal contract, a public bidding process administrated by the government usually must comply with certain standards. These standards are known as “competitive bidding standards” or “public procurement...

12 Reasons Businesses Should Use Arbitration Agreements

Last year, the United States Supreme Court reaffirmed its view that arbitration agreements are valid contracts and must be “rigorously enforced.” This decision means businesses can better manage their legal risk by requiring their employees and customers to enter into arbitration agreements. In this article, I briefly outline the existing law on arbitration agreements, and then I identify and explain 12 reasons why businesses should use them. Download a FREE Guide That Reveals The 10 Things Every Business Needs To Know About Business Law The Law on Arbitration Agreements In April 2011, the United States Supreme Court upheld an arbitration agreement (that included a waiver of the right to pursue a class action) in AT&T’s consumer agreements. In a case called AT&T Mobility, LLC v. Concepcion, the plaintiff filed a class action against AT&T. The case made its way up to the Supreme Court. The Court concluded the plaintiff had to proceed to individual arbitration pursuant to the requirement and waiver in the arbitration agreement. The Court held that the Federal Arbitration Act (FAA) not only favors arbitration, but also disfavors class action proceedings. The Court relied on the FAA and stated that “requiring the availability of classwide arbitration interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Last year, in American Express Co. v. Italian Colors Restaurant, the Supreme Court confirmed what it stated in the Concepcion case. The Court made it clear that, because “arbitration is a matter of contract,” its terms must be “rigorously enforced by courts.” The plaintiffs in that case disputed a rate American Express charged merchants...

How to Respond to a Third-Party Subpoena for Documents

In litigation, a party will often use a third-party subpoena to obtain documents from individuals, businesses, or other entities that are not parties to the lawsuit. Many individuals and businesses have received a third-party subpoena and wondered whether they should respond, how to respond, what, if any concerns they should have, and what, if any, precautions they should take. The following guidelines and steps explain how to approach responding to a third-party subpoena for documents, and highlight issues you should consider when responding. (In a future article, I will address some additional considerations for responding to a third-party subpoena for testimony.) 1. Initial Steps to Take When You are Served with a Third-Party Subpoena for Documents When you are served with a third-party subpoena for documents, there are several critical steps you should take to ensure you will comply with the subpoena and its corresponding requirements. a. Consider Engaging an Attorney If you are a business and do not have an in-house legal department, or if you are an individual and do not have an attorney, you should consider engaging an attorney. An attorney will help guide you through the process, including many of the items and steps in this article. For instance, an attorney would be helpful if the subpoena requests a large number of documents. An attorney will also help you understand whether you have any legal exposure you should worry about. It is not uncommon for a party in litigation to use the subpoena process to obtain information regarding a non-party for purposes of determining whether it should file a lawsuit against that non-party. There is...

How to Navigate the New Hampshire Tax Abatement Process

New Hampshire’s heavy reliance on property taxes – which are among the highest in the United States – often produces significant tension with respect to the New Hampshire tax abatement process. Every year, residential and commercial property taxpayers file tax abatements in the hopes that they can reduce their property tax burdens. Not surprisingly, municipalities will typically find reasons to deny tax abatement applications or ignore them altogether. The New Hampshire tax abatement process is a very mechanical procedure with specific requirements and deadlines. It can be complex and confusing. These difficulties often dissuade many taxpayers from submitting a tax abatement application altogether. Those who do submit an abatement application without the assistance of an attorney often receive denials and do not know or understand the basis for the denial or how to address or challenge it. Taxpayers can, however, take advantage of this annual opportunity to reduce their tax burden. To do so, they must gain an understanding of how the New Hampshire tax abatement process works, how to determine if a property is over-assessed, how to address an over-assessment, and what to do if the municipality denies an abatement application.  The following information will hopefully simplify the New Hampshire tax abatement process and help taxpayers navigate its many twists and turns. Overview of the New Hampshire Tax Abatement Process Under New Hampshire law (RSA 76:16), municipalities may abate property taxes and interest accrued on such taxes “for good cause shown.” “Good cause” can be established by showing an error in the assessment value of the property, a disproportionate assessment, or other grounds (such as poverty or an inability...

5 Reasons A Business Should Sue A Former Employee Who Violates A Non-Compete Agreement

Many businesses require their employees to sign a non-compete agreement or covenant not to compete either upon their hiring or as a condition of continued employment.  A non-compete agreement generally places certain limitations or restrictions on a former employee’s ability to work for a competitor or to start a competing business following that employee’s departure from his or her former employer.  There are often specific guidelines on how these non-compete agreements must be presented to employees.  (In New Hampshire, for example, businesses must present their employees with the non-compete they are required to sign either with an initial job offer or an offer of a change in job classification.) When an employee leaves his or her employer and takes a job with a competitor in violation of his or her non-compete agreement, a business often believes it has a difficult decision to make: sue the former employee and spend money on attorney’s fees, or save the money and risk that the employee harms the business’s interests by working for a competitor. This choice, however, does not have to be perceived as a no-win situation. Rather, a business should use these situations as opportunities to protect its interests and bottom line.  Although it may sound harsh to sue an individual who is merely looking for a job, or seek a temporary restraining order or injunction preventing that person from working for a competitor, the reality is that today’s market is a competitive, cutthroat environment.  A competing business will look for every advantage possible, including poaching an employee whose talent will strengthen its performance and whose absence might weaken his or her former...