Business Law Mistakes: 10 Ways to Avoid Them

How to Avoid Business Law Mistakes

Article by Joanne Cassidy

As a Houston business lawyer, I deal with a wide variety of issues. Just when I think I’ve “seen it all” a client will surprise me with something he did that produced unintended consequences that were detrimental to his business. The following 10 tips might help you avoid the same mistakes.

1. Form a Texas Entity

If you will be doing business in Texas, form a Texas entity. Do not form the entity in another state just because that particular state does not impose franchise taxes. If you are doing business in Texas, you will be assessed franchise taxes regardless of where your business is incorporated. In addition, you will have to register the company as a foreign entity in Texas and pay the additional costs associated with that filing.

2. Get Your Documents in Order

Prepare bylaws, operating agreements, partnership agreements, stock certificates and organizational consents as soon as the company is formed. Don’t put it off until you need the document for banking or other business purposes. If you get all your documents in order initially, you will save time and money when you are asked to provide them … and you will be asked to provide them.

3. Business Lawyer to Prepare a Shareholder Agreement

Have your business lawyer prepare a shareholder agreement for you. Once a shareholder dies and his spouse inherits his shares, it’s too late. You’re stuck doing business with the spouse. Maybe a shareholder decides to sell his shares to a competitor. Do you really want that person sitting at your board meetings? A good shareholder agreement avoids both of those disastrous circumstances.

4. Understand all the Terms

Make sure you understand and agree to all of the terms of every document you sign. If you don’t want to read all the fine print or if you don’t understand it, ask your lawyer for help. Your business lawyer should make sure you understand exactly what you are agreeing to.

5. Contracts and Other Documents Must Be Tailored to Your Business

Avoid the temptation to cut & paste internet documents together when you need a document. Contracts and other documents must have internal consistency, must reflect the specifics of your agreement, and must be tailored to your particular business.

6. Create an Entity for Each Business

If you have more than 1 business, it is usually best to create an entity for each of them. If one company has difficulties or incurs liabilities, you do not want those liabilities to spill over into the other companies.

7. Change in the Name or Address of the Company

Make sure you notify the secretary of state of any change in the name or address of the registered agent. Check the secretary of state’s website every now and then to make sure your company is current.

8. Alternative Voting Rights or Unequal Ownership Interests

Consider alternative voting rights or unequal ownership interests for any company with 2 or more owners. If 2 people with equal voting rights and equal ownership of a company disagree as to the direction the company should be going, the company goes nowhere. Always discuss voting rights with your business lawyer.

9. Sign all Business Documents

Make sure you properly sign all business documents. If you are the President of the company, add “President” after your name. Always, no exceptions. Otherwise, you may be held liable for company obligations.

10. Effective Means of Collection

If you are a building contractor and have not been paid for a job, consult your business attorney as soon as you suspect there may be a payment problem. There are effective means of collection, short of litigation.

Finally, remember that while many of the situations described in this article can be corrected, all can be avoided. Be proactive in protecting your business. Involve your attorney in your business legal decisions. In the long run, it will save you time, money and aggravation.