Corporate Law: 10 Common Business Legal Issues

Being a corporate lawyer in Houston is fascinating.  I work with clients in all industries. Every industry is unique.  Every business is unique.  In the life of a corporate lawyer, every day is different.  Having said that, there are certain legal issues that, sooner or later, almost every company must address.  This article describes that business commonality.

1. Choose the Type of Entity

A business owner must choose the type of entity he will create for his company.  What form is preferable?  Maybe a limited liability company is best suited for a manufacturing or retail company.  Maybe a physician group would benefit from a professional limited liability company.  Maybe a limited partnership is preferable for a business owner who expects to have investors but needs to firmly control all the operations of the company. How to choose the type of entity.

2. The Business Must Have a Name

Choosing a name is not always as easy as it sounds.  First, the name cannot be the same or nearly the same as another entity on file with the office of the secretary of state. Should the name reflect the name of the owner?  Or maybe, the name should be the same as the telephone number of the company.  Perhaps the name should evoke an image of the products the company sells or the services it performs.

3. Hire Employees or to Use Contract Labor

The company must decide whether to hire employees or to use contract labor.  Although contract labor is very attractive to a lot of companies, the business owner must be very careful to properly categorize all who furnish labor to him. In addition, he should consider contracts for both employees and independent contractors in order to protect trade secrets and other valuable interests.

4. Office or Warehouse Space

Unless the business is conducted out of a home, companies must have office or warehouse space.  That means finding the space, with or without a realtor and negotiating the lease. The space should be large enough to meet the needs of the company but not so large that the company is paying for space it does not need or is not using.

5. Acquire Needed Equipment

The company must acquire the equipment it needs to run the business.  That may be office supplies and a computer or two or it could be hundreds of thousands of dollars’ worth of equipment.  How should the equipment be acquired?  Should it be purchased outright or leased?  Should there be a maintenance contract? If purchased, should the business self-finance the purchase or is it preferable to get a loan?

6. Interests that Need to Be Insured

The company will likely have interests that need to be insured.  A professional may need professional liability insurance, while a manufacturer may need products liability insurance.  Most leases require specific types of insurance with stated limits of liability. Finding a knowledgeable insurance professional is a must.

7. Employee Incentive

As the company grows, the business will want to retain the employees who are helping the company succeed. That may mean offering key employees an equity ownership interest in the company or an incentive plan such as phantom stock entitlements.

8. Shareholder Agreement

As the company becomes more valuable, the owners have a greater interest in protecting against death, divorce or disability.  If there is no shareholder or member interest agreement in place, it is not too late to create one.

9. Business Records

The business owner must keep all business records up to date. Expenses must be thoroughly documented. Corporate records should reflect all major business decisions, how they were made and by whose authority they were carried out.  If errors have been made, they should be corrected as soon as they are discovered.

10. Exit Strategy

Finally, the business owner should devise an exit strategy.  That may consist of bringing family members into the business, grooming key employees to take over, selling the assets and terminating the company or selling the company as a going concern to an outsider.  In any event, it is important to maximize the value of the business and that can be done only through careful planning.

Experienced Corporate Lawyer

An experienced corporate lawyer can help a business owner guide the company through its life cycle of formation, growth and development and eventual ownership transfer or termination.  Having worked as corporate counsel to numerous companies, I know that it doesn’t matter whether the business is based in Houston, Dallas or some other Texas locale or whether it is a product, service or professional services company, there are certain similarities among all companies and those issues must be addressed for the company to be successful.