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Business Entities ? A Quick Guide
Sunday, 8 February 2009
Critical Business Procedure - Keep All Email Communications
Businesses routinely maintain copies of correspondence and memos. Far to often, however, they do not extend this practice to email correspondence. Email correspondence is no different then your normal paperwork. You must keep copies of all of it to protect your business in any litigation.

Currently, only banks and broker-dealers are obliged to retain e-mail and instant messaging documents for three years under U.S. Securities and Exchange Commission rules. Beginning July 2006, all public companies will also be required to do so under the Sarbanes-Oxley Act.

Notwithstanding these laws, your custom and practice should be to maintain copies of all email correspondence. Email is considered evidence and courts are hammering businesses that do not maintain email records. Judges are often ruling that the failure to maintain and produce email records means the business in question is hiding key evidence.

In the recent Perelman v. Morgan Stanley litigation, a judge’s ruling on the failure of Morgan Stanley to produce email was key factor in the issuance of a $1.45 billion verdict. Based on the failure to produce email records, Judge Elizabeth Maass issued a pretrial ruling that effectively found Morgan Stanley conspired to defraud Perelman in a 1998 deal. Morgan Stanley is not the only business defendant to have this problem.

In the summer of 2004, UBS bank was found by a judge to have “willfully destroyed” email evidence in a discrimination case. UBS was ordered to pay costs and a jury returned a $29 million verdict.

Email Policy

To protect your business, you must have a procedure in place to maintain email communications generated through the business. Failure to keep these records can lead to rulings in litigation that your business willfully destroyed evidence. If this occurs, the judge may issue significant monetary sanctions, automatically find you liable or take other harsh steps that assure a victory for the Plaintiff. As if such developments are not bad enough, there exists a second risk associated with email communications.

Maintaining email communications, however, can have a downside. The problem arises, of course, when a communication contains statements that are damaging to your business. Yes, the proverbial catch-22 situation.

To avoid such disasters, your business must develop a clear policy on email communications and train all employees to comply with that policy. Employees must understand the business environment is not one in which jokes, flippant remarks and so on should be made in email communications.



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Posted by business-entities at 10:49 AM EST
Updated: Wednesday, 10 October 2012 12:13 AM EDT
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Corporate Records ? Shareholder Inspections
You’re conducting business as a corporation and various shareholders have kicked in investment money. Can shareholder inspections of corporate records occur?

Emotional Attachment

With small businesses, emotions can run high. Typically, a person has a great business idea, but need investors to create a pool of cash to get the business going. In such situations, the person has an emotional attachment to the business and thinks it is “theirs.” After all, if it is my great idea, I should control it. This understandable attitude can lead to problems.

When you form a corporation and take on investors, you must be ready to let your baby go. The corporate entity is now the owner of the idea, which means all shareholders have a say in how things are run. The fact that you were the one that came up with the idea is absolutely irrelevant. If this sounds unfair, you may want to consider other ways to raise money instead of selling shares in the entity.

Corporate Records

A corporate entity, including a limited liability company, is a separate “person” for legal purposes. This legal fiction creates a liability shield between the business and your personal assets. However, this also requires the corporation to keep records such as board resolutions, bylaws, articles of incorporation, balance sheets and so on. These corporate records should create a time line and snapshot of the corporate business for each fiscal year.

Shareholder Inspections

In every state, shareholders have a right to inspect the records of a corporation. The scope of the inspection depends upon the particular laws of each state, but typically covers all records in the corporate books, balance sheets and even tax returns. The shareholder must typically make a written request to see the records three to five days prior to the date in question. The lawyer and accountant of the shareholder can also view the records.

Most people react badly to shareholder inspection requests. Upon receiving a request, most will assume a lawsuit is coming and get combative. This, of course, leads to a refusal of the inspection request. Such emotional refusals are a huge mistake and violate the laws of practically every state. Shareholders have the right to inspect corporate records and you cannot deny their request.

If a shareholder seeks to inspect corporate records, you can take a few steps. First, call the corporate attorney and get advice. Second, the corporate attorney may want to be present to make sure only the legally required records are disclosed. This tactic is highly dependent on the laws of each state and involves complex strategy decisions. Regardless, the best option is to immediately contact the corporate attorney and find out your options.

If you obtain money from investors to pursue your business idea, you must understand that it is no longer “yours.” To this end, shareholders have the right to inspect the records of the business.


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Posted by business-entities at 10:49 AM EST
Updated: Wednesday, 10 October 2012 12:16 AM EDT
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Business Entity Mistakes ? Criminal Conduct and Independence
In this age of information, most small business owners understand they need the protection provided by a corporation or limited liability company. Such protection, however, can be lost though certain actions.

Criminal Action

Creating a business entity only protects a business and shareholders from civil liability. Civil liability arises from a body of state and federal law that allows for compensation for alleged wrongs. These wrongs can arise in the form of negligence, contractual breach and so on. If an entity is found civilly liable, it must pay compensation, but no jail time is involved.

Neither a corporation, limited liability company nor any other entity will protect anyone from criminal liability. Claims to the contrary published on various web sites are simply wrong. A person forming a corporation to front for a ponzi scheme or scam to defraud consumers is going to receive no protection from criminal prosecution. If you have any doubts on this issue, simply consider the recent criminal convictions of the Tyco and Enron executives.

Standing Apart

Both corporations and limited liability companies are considered to “stand apart” from their investors for legal purposes. In essence, both entities are considered to be “persons” under the law. This legal fiction is, of course, what gives rise to the asset protection element of both entities. Unfortunately, many small businesses don’t understand this distinction and lose the asset protection when the most need it.

To maintain the asset protection benefits of a business entity, you must treat it as an independent party. For instance, you do not “own” a corporation. Such statements can come back to haunt you when a plaintiff’s attorney presents them in court while arguing the entity is a sham. To avoid this problem, you can simply say you are the President of the business entity or whatever position you hold.

In Closing

Forming a business entity is a necessary step for most small businesses. Once the entity is formed, make sure you follow the necessary formal procedures to maintain asset protection.

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Posted by business-entities at 10:49 AM EST
Updated: Wednesday, 10 October 2012 12:21 AM EDT
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Business Entities ? Filings With The State
Nearly all small businesses should form entities to limit their exposure to civil liability in the form of lawsuits. In forming an entity, certain documents have to be filed with the state in question.

States

To the surprise of some, state law instead of federal law governs business entities. When form an entity, you should look to the Secretary of State for your jurisdiction to find out the filing requirements. Some states provide clear and concise information. Other states seem to enjoy making the process difficult and complex. Regardless, all of them have a web site for the Secretary of State.

Corporations

In most states, forming a corporation requires the filing of articles of incorporation. Articles of incorporation requirements differ by state, but typically require a statement of the name of the corporation, the number of authorized shares, the name and address of a registered agent and the name of the incorporator. The incorporator is typically the person signing the articles of incorporation. Once created, the articles are filed with the Secretary of State, which eventually will approve and return them to you. In most states, there is no need to file bylaws, organization minutes or shareholder information.

Limited Liability Companies

Limited liability companies are simple structures and are the creation of creative politicians in Wyoming. In 1977, Wyoming passed the first state laws authorizing the creation of these business entities. Mirrored after corporations, the filing process is similar to corporations, but with little tweaks here and there.

Whereas corporations have articles of incorporation, limited liability companies have Articles of Organization. These Articles of Organization require pretty much the same information as articles of incorporation. The primary difference, however, is most states require you to use a pre-printed form for the articles. Make sure you check with your state to determine if this is a requirement.

Do It Yourself?

If you are a sole proprietor seeking a business entity, you can handle it if you understand the concepts. If you don’t understand the process, get a professional involved.

If there are two or more people in the business, an attorney should be used for liability purposes. These liability purposes arise when one “owner” takes charge of the filing. When disputes later arise, the take charge owner is inevitably accused of organizing the filing in such a way at to create an advantage.

Yes, it happens all the time.


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Posted by business-entities at 10:49 AM EST
Updated: Wednesday, 10 October 2012 12:05 AM EDT
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Business Contracts

A business contract is a legal promise made between two or more parties. A contract may be drawn when the associated parties wish to enter into a transaction like buying or selling, performing services, leasing properties, collaborating in joint ventures, advertising, manufacturing, distributing or selling goods, etc. The business contract is considered a surety against cheating by any of the associated parties.

The length of a business contract depends on the number of clauses being mutually agreed upon. It may be of a single page or it may run into a dossier of several pages. Every business contract is legally binding and attracts relevant stamp duties. The general practice is to compose such business agreements in the presence of lawyers of all the parties involved.

The first page of a business contract usually contains the names and addresses of the signatories. A brief description of their jobs can be mentioned along with their names. The date of signing the contract is put up on the first page.

The next part of the contract is called the recitals. This is a very short description of the type of transaction the parties are going to enter into. It is usually no longer than a paragraph. After recitals follow the specifications, in which there is a detailed description of the job the parties are to undertake. This part may run into several pages and it contains a very succinct description of the exact job portfolio. It sometimes contains formulas, diagrams, sketches and graphs in order to better explain the nature of the job.

Payment comes in the next section. A very clear mention is made of the remuneration that one of the parties is to give to the other. Either the exact figure is mentioned, or at least the determining factors are outlined. If time is extremely relevant in the completion of the job, then the sentence “Time is of the essence” is included. Whatever the conditions regarding the payment may be, they are to be put down in the contract.

Apart from all this, there are several legal points covered. It is written in the contract which state jurisdiction will apply in case of a legal suit. Also, the tenure of validity of the contract is mentioned.

A business contract is a very delicate matter. It takes several deliberations between the associated parties along with the involvement of their lawyers to reach a final draft. There are sometimes several negotiations and amendments in the agreement, until it becomes satisfactory to all concerned. Only after mutual agreement are the signatures put down on the document. All concerned parties have to preserve a copy of the contract as long as it is valid.

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Posted by business-entities at 10:49 AM EST
Updated: Wednesday, 10 October 2012 12:03 AM EDT
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Business Entities ? A Quick Guide

Business entities comes in so many types that business owners can easily get confused. Here’s a quick guide that will hopefully shed a little light on business entities for you.

Business Entities

"C" Corporation: A corporation whose shares are held by shareholders. The entity stands apart from the shareholders for legal and tax purposes. The shares of the corporation may be “taken public” and traded on stock markets. Google is an example of a publicly traded “C” corporation.

Foreign Corporation: A corporation doing business in a jurisdiction beyond where it was formed. Microsoft is a Washington corporation. When it does business in New York, it is considered a “foreign corporation.”

General Partnership: A business effort involving two or more people, known as partners. Each partner is liable for all partnership debts and obligations regardless participation and contribution amounts. Put another way, a general partnership provides no protection against lawsuits.

Holding Company: Part of a double incorporation strategy. The sole purpose of a holding company is to own or control other companies. Said other companies typically are exposed to significant liability threats. For instance, many insurance companies use holding companies to suck off profits and limit lawsuit risks.

Joint Venture: A cooperative business effort between two or more parties. It is usually limited to a single business purpose and involves a sharing of responsibilities and revenues. For instance, a database programmer and web site designer might enter a joint venture to provide e-commerce solutions to businesses.

“LLC” - Limited Liability Company: A creation of state law in which one or more individuals form an entity providing the liability protection of a corporation, but the tax benefits of a partnership.

Limited Partnership: A partnership in which the business is managed by a general partner with limited partners supplying capital investment. The limited partners are prohibited from actively participating in the management of the partnership. In exchange, the limited partners liability is limited to the amount of their investment. In pursuing this business entity, the general partner is almost always a corporation.

Partnership by Estoppel: A partnership created by operation of law when two or more people pursue a business goal and hold themselves out to the public as such. This business entity is prevalent as it is the automatic designation for two people doing business who fail to take any steps to designate a business entity. In this entity, each partner is completely exposed to liability risks.

"S" Corporation: Similar to a “C” corporation, this entity provides solid asset protection for shareholders from business liabilities and debts. The primary difference is the entity can be taxed as a pass through entity and is limited to 75 shareholders.

Sole Proprietorship: A business owned and controlled by one person. The designation provides no protection from business liabilities. It is taxed on the person’s personal tax returns on schedule “C”.

Each of the above entities provides certain advantages to a business owner. If you consider the particulars of your efforts, you should be able to get an idea of which one is best for you.

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Posted by business-entities at 10:49 AM EST
Updated: Tuesday, 9 October 2012 8:06 AM EDT
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Courtroom FEA: Does FEA apply to my case?

Many attorneys hire metallurgists to study failures across many industries. Similarly, finite element analysis is regularly applied to a vast array of products. As discussed in previous issues of Courtroom FEA, FEA applies when something bending or breaking is an issue.

The following collage presents some of the industries that FEA is applied to. The blue text lists some of the products the author has experience with (collage available at www.finiteelement.com/newsletter/CourtroomFEA_Vol03.html).

FEA is a fairly recent discipline which allows the numerical solution of governing physical equations over complicated geometric domains. The method is regularly applied to the structural analysis of designs with complex geometries.

The part being analyzed is divided into many small regions called "finite elements". The physical behavior within each element is understood in concise mathematical terms. Assemblage of all elements' behavior produces a large matrix equation, which is solved for the quantity of interest, e.g. the deformation due to a maximum loading condition. Additional quantities, such as stresses, are then computed.

Commercial FEA packages are usually used, to insulate the user from the substantial programming required to perform even a simple analysis. Still, obtaining accurate results from any package requires an experienced analyst. FEA can, and will, deliver incorrect results to the inexperienced user, who will then make important design decisions based on this false information.

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Posted by business-entities at 10:48 AM EST
Updated: Tuesday, 9 October 2012 8:24 AM EDT
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Courtroom FEA: But my expert has hand calculations
Hand calculations are good.

It is very important that design engineers do hand calculations. It is very important that engineering expert witnesses do hand calculations.

For everything but the simplest of part geometries, hand calculations of stress are generally rough estimates. Often they are only in the ballpark of the true maximum stress levels. Sometimes they are only in the ballpark of the average stress levels, and miss the highest stresses entirely.

In the span of 50 years, finite element analysis has gone from esoteric research topic to widely available, widely applied mature technology. In the 1980's, FEA required extremely expensive mainframe computers, very expensive FEA codes and highly trained analysts, and was still implemented at many large corporations. In the 1990's, Unix workstations provided distributed FEA processing and FEA packages went mainstream, lowering entry costs. A seat of hardware and software still cost many tens of thousands of dollars, and highly trained analysts were still required, and still FEA spread to thousands of companies. In the 2000's, lower priced FEA packages run well on medium to high-end personal computers, and FEA usage continues to grow. Highly trained analysts are still needed to consistently obtain accurate results, a fact unfortunately ignored by too many in the industry.

Why does FEA usage continue to grow when all of these companies already have hand calculations? Because, when applied correctly, FEA works. It delivers accurate stress estimates for parts with geometry too complicated for hand calculations alone, which describes most of today's parts. Accuracy means that localized stress concentrations can be removed. Accuracy means one less uncertainty, meaning that a lower factor of safety can be considered--resulting in lower weight, lower cost parts that are still stronger and have longer life cycles. Accuracy means that an expert witness can pinpoint areas of concern, and can often nail down the why's and how's of a part failure. As discussed in previous issues of Courtroom FEA, this will often point the finger at the responsible party, be it designer, manufacturer or end user. Accuracy can mean reduced lab testing by concentrating the investigation on the suspect areas. Accuracy means credibility.

FEA has internal checks that a good analyst needs to apply to verify the results. Hand calculations provide a rough estimate of the results, and the hand calculations and FEA had better match within their accuracies. If not, something is wrong with one or both of them, and the analyst had better correct that. Once they do match, hand calculations are an external check of the detailed FEA results. Hand calculations are good.

But they aren't good enough in a high stakes courtroom battle.


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Posted by business-entities at 10:48 AM EST
Updated: Wednesday, 10 October 2012 12:09 AM EDT
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Finding a Bankruptcy Attorney in New Hampshire

People living with debt that they can't handle have a few options to choose from. They can contact a debt or credit counsellor and try to work out a debt settlement plan. If this don't work, bankruptcy is the ultimate option.  Unfortunately there may come a time in your life where unforeseen events may force you into declaring bankruptcy as a way to get your financial life back in order and regain your footing.  Finding a bankruptcy attorney that understands your situation and circumstances is crucial to help your case and help you understand the law and how it applies.  In New Hampshire there are a number of lawyers who specialize in this area and picking the right one takes some research.

Bankruptcy attorneys work to understand and represent you to the court.  A good lawyer will always look at your entire financial situation and suggest filing for bankruptcy only after all other options have been exhausted.  You should be very cautious of any lawyer who suggests filing without first looking at the facts and figures.  Remember, this decision will affect your credit for 10 years until it ages off your credit report.  Combined with the cost and potential loss of property it is something that takes an experienced lawyer who understands that each case is different and will offer counseling to the client instead of rushing to court.

An unexpected illness is the number one reason that most people go bankrupt.  It doesn't take much, especially if you lack insurance, to drain your bank account and send your finances into disarray.  You should never look at having to file for protection from creditors as a reflection of you.  All one has to do is look at large companies such as Enron to see that companies use and abuse the system for their benefit - therefore you should not feel ashamed to use it for a legitimate reason.

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Posted by business-entities at 10:46 AM EST
Updated: Tuesday, 9 October 2012 8:11 AM EDT
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FBI and FCC Seek Control of Software Industry
With government agencies, one often has to try to guess what they are hiding. A close look at a FCC policy document released at 9 p.m. on a Friday may shock you.

Controlling Software

The Federal Communications Commission has issued a policy paper that sets free speech back a few thousand years. Yep, the FCC is taking the position that computer software companies must first get approval from the FBI before they will be allowed to put software products on the market. Think about that for a minute and cringe.

The ostensible reason for Big Brother’s power grab is, once again, the pursuit of terrorist and bad, bad people. You see, Brother wants to make every software company put a backdoor in their systems that lets Big Brother access your computer on the sly to keep an eye on you. No doubt, many evil people use Adobe and Microsoft products!

Big Brother Out of Control?

Obviously, everyone is interested in catching terrorists and bad guys. The idea of giving the FBI carte blanche power over the software industry, however, goes way beyond such concerns. Let us consider a practical example.

What if construction companies had to seek approval from the FBI before building homes? The ostensible reason would be to make sure the FBI could place cameras and wire taps in every home to monitor and stop terrorist activities. Surely, nobody could disagree with such a noteworthy goal. On the other hand, how would you feel about having cameras in each room of your home?

For a counter argument, government apologists claim that the FBI would watch the computer activity of only a small number of people because the FBI doesn’t have the manpower to do anything else. This argument is so much nonsense. “Watching” computer activity doesn’t require manpower. It is a technical function carried out by a software program. The FBI already has such programs, including the controversial green lantern program. If it didn’t, why would it want this power?

FBI monitoring programs run automatically. They continually accumulate data, which can be accessed when needed. This data collection can be used in thousands of different ways by hundreds of different agencies. For instance, what if the IRS audits you? What is to stop it from accessing your computer data and looking at all of the sessions you performed online banking? Nothing. The IRS and FBI work hand-in-hand on numerous prosecutions.

The United States is supposed to be the land of the free. Just don’t assume as much when using your computer.

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Posted by business-entities at 10:46 AM EST
Updated: Tuesday, 9 October 2012 8:19 AM EDT
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