BIG CASES DON’T JUST HAPPEN TO BIG, BAD CLIENTS

I.  Size Does Not matter. 

            An understandable, but false, assumption of some potential law firm clients is that a small case will cost less than a big one. After all, if I buy a small coffee I expect to pay less than I would pay for a larger size, so why do legal fees not adjust to the size of the case? 

            Well, first of all, they do in some cases. Legal fees can track the size of the deal in transactional matters; that is, where the parties are negotiating a deal and entering into contracts re same. For example, if the transaction involved the sale of a radio or TV station then the complexity of the work and the downside risk compel the parties to retain experts and do work in a number of areas, e.g. federal and state licenses, legislative and government agency support, appraisal, etc. So, if you are buying or selling  a coffee house then you can expect the legal fees to be much less than if you are buying or selling a semi-conductor company.  But, the cases discussed in this article are not the transactional ones, but dispute and litigation matters. 

            Litigation cases can be incredibly and aggravating “inelastic,” as to the size of the case, i.e. what is at stake. (“inelastic” is a term from economics price theory which means, ceteris paribas,[1] that a change in price will not cause a significant impact on sales. For example, automobile sales may be highly elastic to price changes while changes in the price of sale may not be. If your local car dealer lowered car price by 20% you might be motivated to buy – or try to – but 20% off the cost of salt, say, from $1.00 to 80 cents may not motivate the typical consumer.   

            Phoenix and Maricopa County Arizona – in fact the entire State of Arizona have a large number of small businesses with all types of cases, almost beyond imagination – especially the client’s imagination because the client does not deal with these problems all day-every day. The cases may vary from trying to get paid on an account, say, in the amount of $5,000.00 to comparatively esoteric and complex claims for breach of trade secrets statutes and, perhaps, even a Confidentiality and Non-CompetitionAgreement with key employees, which where enforceable (as they are in Arizona) are extremely valuable to the company and every small business with key employees should have one.[2]     

            Take a $5,000 collection case. In Arizona cases above $2,500 are too large for the  “Small Claims” division where  you have the “parties only” with no lawyers allowed (the “small claims court like the People’s Court). While, in Arizona, cases under $10,000 are still in Justice Court, therefore heard by a Justice of the Peace (which in Arizona may not have attended law school) upon the request of either party the Rules of Civil procedure and the Rules of Evidence may apply. We could write a whole article, if not a book, on the impact of these Rules on the dispute resolution process, but the short version is that applying the Rules of Civil Procedure means that a certain course of conduct must be followed work must be done in preparation of trial. This can include “disclosure statements’ deposition, etc., pre-trial memoranda, etc. etc.. and, applying the Rules of evidence means that a non-represented part can be “lawyered to death” due to the rules against hearsay, authentication of documents, etc. Generally, evidentiary rules require that the person who saw or has first-hand knowledge about the event or document must be in court and subject to cross-examination. This means witnesses may be called, subpoenas issued and discovery requests may be made resulting in more depositions, etc. 

            The point of the above hypothetical is to show that the cost of the case to the litigants is not  a function of the case, but its forum and the Rules that apply.  One can only imagine what happens to the cost of civil action where the case is more complex with many legal claims, parties, witnesses, and documents. 

            Conversely, a large case in terms of “dollar denomination” may be relatively inexpensive compared to a smaller but more complex action. For example, while as discussed, above a small case can get complex and expensive, the cost of a “million dollar” collection case to recover monies due on a promissory note (which can be difficult to defend) can be “inconsequential” (i.e. much, much less) compared to the fees necessary to enforce claims for “tortious interference with contract or businesses expectancy,” breach of fiduciary duty, or misrepresentation claims, etc. (“Claims”)[3] , which many business owners have not even heard of prior to the action.  

II. Conclusion.  

            As shown, the cost of litigation is not a factor of the size of the case but of the type of case, including the kind of Claims and the Rules that apply. So, somewhat counter-intuitively, a $100,000 breach of fiduciary duty case may cost less than a $1,000,000 collection case.

The Law Offices of Donald W. Hudspeth, P.C.
Business Law, Commercial Litigation & International Business Law www.AZBUSLAW.com – 866-696-2033 – TheFirm@azbuslaw.com
“The Business of Our Firm is Business”

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[1] “Ceteris Paribas” is econo-speak for “all other things being equal. You get a lot of ceteris paribas in economic studies. Of course the fact that all other things never are equal is a problem for the real world, not the professors. 

[2] I have written about the value of non-competition agreements in other articles, which are available upon request. 

[3] Roughly, tortious interference with contract or expectancy is the act of attempting to terminate an existing contract and make your own sale to the customer. Many sales persons do not even know this can be seriously unlawfully, with punitive damages awarded, especially where inside knowledge or special, targeted incentives  are offered, e.g. special offer of 20% to existing customers of XYZ company only using as mailing list a confidential customer list of the target company. Breach of fiduciary duty I the highest duty imposed at law, for example, the duty employees and partners owe the company and their partners to act with the highest standard of loyalty, honesty, trustworthiness and integrity.   Employees have this duty? Yep. Who knew?    

DO’S AND DON’TS ON HOW TO USE GOOGLE FOR LEGAL WORK

A few quick pointers on how to use Google (or Bing or Yahoo, Firefox, etc) for legal information.

Do’s:

1. Do: Use Google for a quick definition of terms. Be aware it is best to have a law degree and several years experience to fully understand the ramifications of the definition. 

2. Do:  use Google for general information about a subject –so that you can know what questions to ask – to become a better consumer of legal work and lawyer services

3. Do: In a stretch you can even use Google to see what types of contracts or documents are used in a given situation, what they look like and the topics they might cover. You might want to call a law office or two to determine which contracts you need so you don’t research the wrong contracts. 

Don’ts:

1. Don’t use general information as legal advice. Here are some of the reasons why:

A. Different Facts Mean Different Results: Any lawyer or law professor can tell you that ONE FACT can change the entire outcome of a case. For example, consider the case that held that McDonald’s was liable for the wrongful death in an automobile accident caused by of its employees who worked too much overtime, even though the worker had volunteered for same. Why? Is a business now required to meddle into its employees’ lives? And, even if we wanted that, realistically, could the business actually know how each of its employees was feeling on a particular day and whether that employee was able to drive normally?  And, what’s “normal” for that employee – or anyone?  The critical fact here was that the employee was a minor and a student.  That one fact changed the outcome. 

B. Your Case is Unique. Your case is not like anyone else’s case. Each case is unique. General rules may not apply. General information is not “advice.” Advice is based on your documents, your facts and your circumstances. Advice is tailored to your specific facts – and that is what you need for something as important as a legal matter. Legal issues can be – and often are – life altering.

C. You are Unique.  Representation needs to be tailored to your personal needs and motivations. For you the case may be in the ordinary course of business, regrettable, but fairly routine. For someone else it may be simply overwhelming due to personal or family health issues. Some clients thrive on legal issues. Others do not. I have had clients walk away from very strong cases with substantial money at stake because the husband was dying of cancer and ill from chemotherapy and the wife was just overwhelmed by that and other personal issues. So the question of what we do is different than what can be done. What will be done depends on the consultation between attorney and client. In short the representation can be tailored to your needs.   

D. Legal Advice is not “One Size Fits All.” Except to help you ask questions, general information may be no more valuable to you in your particular matter than a pair of shoes off the rack may be for a particular size and social situation. The advice needs to be suitable for what you are doing, and also fit you, your circumstances and your objectives.

E. The Law Varies from State to State. Also, as you may have gleaned by listening to the news, legal decisions are not consistent but vary from one jurisdiction to another which means that the law from one state to another may and almost always does vary.  Some states do not even have the same legal claims as others. For example, Arizona is liberal on negligent misrepresentation claims; New York and Delaware are not. In fact contracts are drafted to use or avoid the laws of certain states.  Much of this knowledge would be beyond the interest, knowledge and expertise of many non-business attorneys, let alone a lay person.   

  

F. Lawyers are not Licensed to Practice or Have knowledge of Other State Law: Last but not least, attorneys are licensed by state and are required and only required to pass the State Bar of the state they live in. So, advice offline may not only be accurate for your facts, and in your jurisdiction, but may be given by a lawyer who is not licensed in or knowledgeable about the laws of your state.   

2. Don’t use form contracts from other matters and jurisdictions.

            A.   A Form is Not a Legal Contract for You. For the same reason as online information is not legal advice, an online form is not a legal contract that you just want to use without an attorney’s review. First, it may be the wrong agreement, Second, as discussed above, the contract may not even be valid, as written, in your state. It may and probably will have been written by a lawyer who does not practice law in your state. If it has been written by a non lawyer, it has included all legal advice or questions, to avoid the unauthorized practice of law, if a non-lawyer is giving you legal advice, beware. 

B. The Contract Needs to Be Tailored for You. Moreover, a stock contract downloaded from a website will not tailor to your specific needs. Most of the time to make the contract work, regardless of who buys it, i.e.  whichever side of the transaction buys it, the contract will be written “down the middle” on many key points –but some of those key points may be critical to your interests and should be discussed. Or, worse, the form contract may just eliminate many issues which need to be covered; these issues may arise later at much greater cost and harm, and, unaddressed in any agreement, be litigated by the parties. (Business brokers’ contracts are infamous for this. The broker has no incentive to resolve issues; he or she gets paid on commission of advocacy/ only if the deal is done.) 

C. A Form Contract Ignores the Necessity of Advocacy/ only and therefore Loses the  Benefits. The practice of law is always advocacy; that is, the lawyer and your contract should serve your interests as much as possible. Many times the success or failure of a venture can depend on the strength of the contract and it’s accompanying organizational documents. And, that strength comes from your consultation with the lawyer about the special facts and objectives of your company, its transactions and having a contract written accordingly. For example, consider a simple contract for the sale of a phone. A form contract may lack certain provisions that could have been added to serve your special needs – like the right to repossess the phone if it’s not paid for, and the agreed right of peaceful entry to do so. Obviously, the power to shut down a business by repossessing its phone system is great leverage to get paid.  Alternatively, the contract could have provisions that are directly adverse to you and which need to be removed or modified. A common mistake is to use the contract a lawyer drafted in another deal without having it reviewed and tailored for your deal. It may look okay, but be 180 degrees from what you want.  

            D. You May Think You Know What You Are Reading, but You Don’t.  Clients think that because a contract is in English that they can read, understand and negotiate the contract. This assumption is virtually always false. First, legal terms have special meanings, and those meanings vary in the context and may interrelate with other terms in the contract or document.  A lawyer would know to go immediately to the indemnity section if he sees a damages or limitation of remedies section. A non-lawyer justifiably may not know what I am talking about. 

            E. Non-Lawyers Will Not Know What’s Missing. Also, clients often fall into what I call the “documents look OK to me fallacy.”  They read and negotiate only what is in the contract, not realizing that there could be pages of provisions which should be in the contract which would protect them or advance their interests. But the other side doesn’t want those provisions in there because they are adverse to their client, and has no obligation to put them in, and without a lawyer, you won’t even know they are missing. This is common in business sales and other forms of sales agreements. Additionally, clients leave themselves open to huge breach of warranty, consequential damages and punitive damages claims and awards that could be eliminated or mitigated by good drafting. For example, the defective bidding software that cost its purchaser $1.5 million in damages to a defecting the software it under-bid a job which the purchaser then won and had to complete at a loss. When the purchaser sued, its damages were limited to the cost of the software, about $129.95. Reason: good legal drafting. And, no off the shelf contract that I have seen does a good job of analyzing the situation and drafting to maximize the possible benefits and mitigate the possible detriments of the deal. This takes a little time and effort by the client and the attorney but is overall, cost-effective, especially where the cost of the sales or employment contract – or other agreement – is spread over many sales or employees.     

Conclusion.

            Unfortunately, about two out of three new clients come to our firm because they have a problem with their signed contract or legal documentation, too late, they have received the previously unconsidered information that their contract does not have a jurisdictional provision (so they are being sued in Idaho); their contract doesn’t allow for interest in storage fees (so they are paying interest and storage but can’t charge the client for them); the star sales person is stealing clients but there is no confidentiality and non-competition agreement in place this is another example where the law varies: such contracts are almost impossible to enforce in California but if well-written can be very enforceable in Arizona); the LLC does not have an Operating Agreement ( so the members are arguing over how to value the LLC interest in a buyout situation); the company does not have buy-sell agreement setting forth the conditions and terms under which business partners may part company (So money which might have been spent on “business as usual” after or orderly split is spent on unproductive fighting). These are a few examples of some common problems caused by mistaking general information for legal advice and forms for suitable contracts.  

            I could go on, but I’m sure you see the point. As Lincoln said “He who would be his own lawyer has a fool for a client.” And, forgive me if this sounds harsh but you really have no idea what a fool you are making of yourself if you practice do-it-yourself law.  Some of my clients are justifiably proud of their expertise in running their businesses, but make the mistake of believing that their genius allows them to understand what has taken me decades to learn. I can no more run my clients’ businesses than they can practice law. Every day I see matters which could have been handled as brief, inexpensive office visits before the deal, but which later are the subject of time-consuming and expensive litigation. Worse, I see lives ruined because many mistakes are so devastating the client cannot recover.  I know that time and money are always scarce for business owners, but that is the very reason to spend time and money on loss prevention. Having good contracts and legal organization will more than pay for itself – in fact, probably in just one sale or transaction.  

The Law Offices of Donald W. Hudspeth, P.C.
Business Law, Commercial Litigation & International Business Law www.AZBUSLAW.com – 866-696-2033 – TheFirm@azbuslaw.com
“The Business of Our Firm is Business”

        

LEGAL EVENTS AND LEGAL DOCUMENTS

Over the years in my legal practice I have noticed that, much as I would wish, advise, and preach to the contrary, most of my business law clients come to the firm, not because they have recognized a need and seek to avoid or prevent some problem or event from happening, but in response to that problem or event after it has occurred.  In other words, the demand for our legal services is reactive, not preventative.

This response-based, as opposed to prevention-based, approach to legal services has several consequences to and for the firm and the client:

1. Legal matters are handled at the dispute level rather than the transaction level.

2. The cause of the dispute is often due to the lack, or legal inadequacy of, the underlying business formational or transactional documents. And now that the event has occurred the client has at least three problems. 

A. The loss of merits, advantage, even remedy, caused by bad documentation,

B.  The exponentially greater cost of “cure” versus “prevention,” and

C.  Fixing the bad documentation so the problem will not arise again.

Loss of Merits, Advantage or Remedy.

Just a few of many examples of the loss of merits, advantage or remedy are: 

A.  The failure to have a well drafted key person employee confidentiality and non-competition agreement (in states like Arizona which allow same). The consequences or benefits of having same can be huge, e.g. my printing company client who weathered the Great Recession only to have his six year star sales person leave and do $1,116,000.00 in business in six months with the business clients because the company had an expired, do-in-yourself confidentiality agreement (only).[1]

B. Potential liability under a defective software program for lost profits of $1.5 million when by law the consequential damages remedy could have been limited to the cost of the software, $139.95.  

C.  Business owner termination and separation disputes, known in the trade as “partnership disputes” (although the owners may be in fact corporate shareholders or LLC members) which can last a year and cost, say, $50-100,000.00 to litigate whether a buy out of the existing “partner” will occur at all and another six months to a year, and $50-$100,000.00 more to hire experts and litigate the price.  And this agony can be easily and cheaply avoided by having a “shareholders agreement” (for corporations) or “buy-sell agreement (in general) that deals with dissociation issues (typical causes for buy-out would be divorce (purchase from ex-spouse), disability, death, and sometimes termination of employment). Our firm typically charges $1250-$1500 base fee for such documents. Many law firms with bigger clients may charge $5,000 and up, but at anywhere near these prices the documentation is a much better bargain than the event.  

Litigation versus Prevention.

As noted in the above examples, the cost of bad documentation can be extreme, especially if the cost of litigation is added to the loss. For example, in the case of the expired confidentiality agreement, we tried to “bootstrap” that agreement into a non-competition agreement by focusing on the statutorily as well as contract protected customer list and proprietary information, but this argument failed at the trial level – after the client spent more than $100,000.00 in attorneys’ fees, and to my knowledge the client lost on appeal by an appellate firm. The point here is that some problems just cannot be fixed after the fact and the cost to attempt to do so can be astronomical.

This is not to say that good documentation prevents or eliminates bad events or “misconduct.” An employee or partner or other contract party who is going to “act out” may do so regardless of what the contract says. However, this firm reviews and advises employees, business owners and contract parties before they leave or take a certain action under a contract so they can know what to expect. Sometimes this changes the outcome.   In any case, good documentation creates or adds to clarity and certainty which can bring the matter to a close more quickly at less cost. So, good documentation may not only prevent the harm but reduce the cost of dealing with the harm.

Fixing the Organizational or Contract Problem.  

As we have been discussing, it is a much better idea “to close the barn door before the cows get out.” This is such common sense that it is difficult, frustrating and “saddening” to me as a business lawyer to see the great harm and costs that could have been prevented. But, in the event a negative incident occurs the client should not stop or limit the law firm representation to just the matter at hand, but also should have the firm fix the underlying documentation problem; that is deal with both the event and the documents –put yet another way to fix the problem and its cause. 

“Overstating and oversimplifying…” (if you meet with me you will hear me say that a lot) most small business, and many national business documents are crap, either in general or under Arizona law. Clients often go Online to obtain legal advice and legal forms, or just as often use their old employers’ or someone else’s form. (but “Who says the document is good just because they use it?)  Overstating and oversimplifying again, they typically get neither advice nor good documents. They do not get “advice” because advice must be tailored to specific client facts and needs (one fact can change everything) and they do not get a good contract because, among other things, the law varies from state to state. In the attempt to make one size fit all, it may not fit any client well.[2]  

Conclusion.    

You can save your business and yourself time, money and aggravation by thinking proactively. Now, when you don’t have legal problems is the time to have your legal “audit,” “check-up,” or “review” – whatever you want to call it.  Planning for security and growth is fun; dealing with problems aggravated by poor planning is not.  This is particularly important in the predatory world we live in today, where competitors, contract parties, and customers may want you to make mistakes so that they can capitalize on your errors and omissions. 

So, call us. Let’s get your legal house in order.

The Law Offices of Donald W. Hudspeth, P.C.
Business Law, Commercial Litigation & International Business Law
www.AZBUSLAW.com – 866-696-2033 – TheFirm@azbuslaw.com
“The Business of Our Firm is Business”

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[1] Clients appear to think that because law is in English that they know what they are doing. They almost never do and lose great benefits, both proactive and protective. 

[2] I have written on this topic in my article on “Dos and Don’t’s on Using Google for Legal Matters.

Asset and Liability Protection for Your Business or Rental/Investment Property

If you purchased real estate as part of a business purchase, if you inherited real estate, if you are retired and own properties you want to turn into rental properties, the organizational engineering you do is not just to save on taxes.  The cheapest form of insurance you can buy may be the limited liability you gain when you keep your property in a limited liability company (“ LLC”) or limited partnership  designed to protect you from the liability associated with property.

Forming an entity to hold your property is not just an attempt by an attorney to get paid for doing legal work.  Look up the name of any apartment house or other piece of investment property in Phoenix or in Arizona online at the Corporation Commission; then, once you have the name of the entity which owns the property , search for properties held under the name of the entity at the Assessor’s Office.  These days, almost always, the property is held by an LLC.  Why?  Apart from tax reasons, the biggest reason to put an investment property into an LLC is to separate it as an asset from your other property.

Why an LLC rather than a corporation?  For one thing, putting real estate into a corporation can have extremely negative tax consequences.  But, more generally even for non-real property investments, e.g. your business itself, LLCs are now commonly used because they are easier to form and operate.    Fifteen years ago, corporations were the rule, and LLCs were the exception.  The IRS barely recognized LLCs, and didn’t really have a separate category for them on their forms.   Most people opted for corporations.  But LLCs, while they retain the same limited liability protection as a corporation, do not have the rigid structure and yearly responsibilities of a corporation.  You need to file an annual report every year for a corporation, and have minutes (i.e. typed records) for each annual and special meeting as well.  Also, with a corporate structure, there may be ego problems because someone needs to be the President, and someone needs to be the Secretary.  In contrast, An LLC is run more like a partnership, with members rather than shareholders, and, if desired, a Manager(s) rather than officers.  Overall, an LLC has fewer requirements to keep it running from year to year and more flexibility. 

Today LLCs are widely accepted.  In fact, so many people have formed or are forming LLCs they are now widely accepted as valid entities.  And, the IRS forms have been revised and now acknowledge the existence of an LLC as a valid business structure.   So, today, most of the entities formed, and certainly many of the entities formed to hold properties, are LLCs.

Why use an LLC to separate a piece of real estate from your other assets?

 To answer this, consider this question: What happens if the value of the property drops lower than the mortgage?  If you need to divest yourself of the property, you may be responsible for the deficiency. But, if you are fortunate enough to own the property in an LLC  - and not to have signed a personal guaranty – then you escape personal liability.  In any case, whether you have a corporation or an LLC, it soon establishes trade credit with vendors, and you, the business owner, do not have personal liability for any debt which accrues.  Also, either an LLC or corporation can shield its owners from personal liability for accidents or bodily injury on the property.      

What if you have multiple properties, e.g. restaurants?

Keep in mind that if you put all your properties into one LLC, then have a problem with one property, the other real estate assets held by that same LLC are also in peril.  One of many possible examples: Someone is injured on one of the properties owned by the LLC.  With medical costs as high as they are, many choose to attempt to recoup their medical expenses by suing the property owner for negligence.  These types of lawsuits may drag on for years, at great expense, which is why many property owners try to settle out of court, whether they believe they have legal liability for the injury or not.  The consequences in the case of a judgment are serious:

A.  If the owner of the property is you, personally, whatever judgment they get applies to you and all of your other properties, your bank account, family jewels, future earnings, etc. And this judgment stays on your public record and leaves you subject to execution or garnishment of your property until paid.  

B.  If you have three properties, and all three properties are in the same LLC, the total value of all three properties is in peril because you have “all of your eggs in one basket.”  

C.  However, if each property is in a separate  LLC, then for each claim against the LLC, only the value of that single property held by the LLC is in peril, because that is all the LLC owns.

Obviously, “C” reduces your liability the most.  You can be sure you are safe from catastrophic losses by isolating liability for each property in its own LLC.  In fact, it is not uncommon to have a trucking business as a corporation, and then the “rig” itself in a separate LLC – again, to separate liability in case of claims against one entity or the other.

Note:  We are talking here only of business property.  We are not recommending that you put your personal residence into an LLC because in some states this will cause you to lose your homestead exemption, i.e. some level of equity which the creditor cannot have.  Often, this protected equity is enough to make it unfeasible or unlawful for a creditor to take your home.

Forming an LLC is only one piece of what we call “organizational engineering.”  Another important part of owning an LLC is the Operating Agreement” which sets forth the ownership percentages, what percentage of ownership interest has been disbursed for each member, and the contribution each member made to get this percentage, and the voting rights and management authority of the members and managers.  Here, we are talking about Money and power, so, this is obviously very important and often overlooked. 

Please feel free to call or e-mail us for more information on this and other business law issues, or visit our website for more information.

The Law Offices of Donald W. Hudspeth, P.C.
Business Law, Commercial Litigation & International Business Law
www.AZBUSLAW.com - 866-696-2033 - TheFirm@azbuslaw.com

"The Business of Our Firm is Business"

How to Form an LLC in Arizona




 How to Form a LLC in Arizona

For many self-employed Arizonans, forming an LLC is the best choice for their business. Likewise for many sole proprietorships, partnerships, and other small businesses. LLCs—limited liability companies—offer protection from legal liability and simplified tax procedures. Even though Arizona LLC law makes the process of forming a LLC relatively simple, it is less than half the battle—you will still need an Operating Agreement, appropriate permits and licenses, and a federal tax ID number.
At The Law Offices of Donald W. Hudspeth, we put our personal experience as small business owners and our decades of work as Arizona LLC attorneys to work for you. We will guide you through every step of the process, ensuring compliance with federal and state laws, and getting your business off the ground without a legal hitch.

Arizona LLC basics

Start by running a name search to make sure you are not trying to incorporate your LLC under another corporation or company’s name. Although this seems simple enough, beware: Arizona deems certain words indistinguishable from other words, such as property, realty, and real estate. These rules are not explained on the Arizona Corporation Commission’s website—to simplify the process, you may want to involve an Arizona LLC lawyer from the beginning.
Once assured that your business name is unique, go to the Arizona Corporation Commission’s website and follow their instructions for filing form LL0004, but be prepared. To file these Articles of Organization, you must disclose:

• A designated name for the LLC
• The location of its registered office
• A statutory agent for service of process in Arizona
• Its date of dissolution (if its existence is to terminate within a certain time frame)
• A statement indicating if management will be exercised by managers or members
• Names and addresses of each manager or member who is responsible for management

Arizona LLC formation

Once approved by the Arizona Corporation Commission, you must publish your Articles of Organization in the county where your business is located. But the Articles of Organization are nothing more than a bare-bones skeleton of your business. To flesh out your business, you need an Operating Agreement signed by each member of the LLC. The Operating Agreement should cover things like banking arrangements, start-up capital and additional member contributions to the LLC, payments, salaries, accounting records and practices, the rights and duties of members and managers, and dozens of other issues that each business should address in writing.
Where the LLC has two or more members then the Operating Agreement is key because it sets forth the ownership, management authority, and satisfies the Internal Revenue Code. With LLC's "contract trumps statute" so negotiating and having this agreement is important.
Additionally, depending on what sort of business you create, you may need state or municipal permits and licenses.

LLC attorneys in Arizona

At The Law Offices of Donald W. Hudspeth, we take you through the LLC formation process from beginning to end. As Phoenix business lawyers, we understand the issues new businesses face, and can help you avoid pitfalls and problems from the very beginning. If problems do arise, we are experienced business litigators and will fiercely advocate your interests.

Call us: 602-265-7997, toll free: 866-696-2033 or contact us online to arrange a consultation and build your business on a solid legal foundation from the very start.

  The Law Offices of Donald W. Hudspeth, P.C.

Business Law - Commercial Litigation - International Business Law  

www.AZBUSLAW.com

"The Business of Our Firm is Business"



Arizona Business Partnerships

The Law Offices of Donald W. Hudspeth are prepared to help with all business-related matters, no matter what form your business takes. We will help you decide whether a partnership is the right legal structure for your business and, if so, which type of partnership. And we can assist you with any other partnership issues, from disputes between partners to tax matters to partnership dissolution.
Arizona recognizes three chief forms of partnership: general, limited, and limited liability.

Arizona general partnership

A general partnership forms whenever you associate with at least one other person to run a for-profit business. Regardless of whether you intend to form a partnership or file documents with the Arizona Corporation Commission to that effect, co-owning a for-profit business with one or more other co-owners creates a general partnership. Under a general partnership:

• You may—and probably should—have a written general partnership agreement specifying the rights and responsibilities of each partner, but you do not need one.
• The partnership is a distinct legal entity, and may own property and incur debt in its name. Property owned by the partnership belongs to the partnership, not to the partners individually.
• Arizona law does not restrict the number or type of partners. A corporation or other business entity may be a partner.
• The partnership is liable for the acts of each partner in the ordinary course of business, and each partner is jointly and severally liable for all obligations of the partnership. 

Generally general partnerships are not a good idea because you may be completely liable for the acts of your partner even if you had an agreement with your partner that he/she/it would not do the act in question. So, except for joint ventures between entities partnerships are not as commonly used.

Arizona limited partnership

To form a limited partnership, you must file a Certificate of Limited Partnership with the Arizona Secretary of State, specifying:

• The name of the limited partnership
• The office address of the partnership
• The name and address of the agent for service of process
• The name and the business address of each general partner
• The latest date, if any, on which the limited partnership must dissolve
• Any other matters the general partners determine to include

You must also check that the name of your limited partnership is unique from other Arizona business entities or trademarks before filing. Under an Arizona limited partnership:

• You do not need any written agreements other than the Certificate of Limited Partnership to form a limited partnership, but Arizona business partnership lawyers strongly recommend that you create a general partnership agreement, specifying the rights and responsibilities of each partner.
• Arizona law does not limit the number of partners or what sort of entity can become a partner, but does require that limited partnerships have at least one general partner and at least one limited partner. Limited partners generally contribute seed money as an investment, but have little—if any—control over day-to-day operations and business management.
• General partners are liable for the obligations of the partnership. Limited partners are not, unless they have taken over management or operational responsibilities. 

Arizona limited liability partnerships

Relatively new to Arizona, limited liability partnerships are intended to combine some of the liability protection of a true corporate structure with the intimacy and administrative ease of a partnership. Under a limited liability partnership:

• You must file a Statement of Qualification specifying: the name of the limited liability partnership, the address of the partnership office, the name and address of the partnership agent for service of process, and that you are applying for status as a limited liability partnership.
• The limited liability partnership is a separate entity for most legal purposes—it can own property and incur debt—but not for tax purposes. Such a partnership does not pay taxes on profits and losses on its own, but instead distributes profits and losses among all the partners.
• Partners are not liable for the obligations of the partnership, except to the extent that they have already invested in the partnership. 

Arizona business partnership attorneys

Located in midtown Phoenix, Arizona, The Law Offices of Donald W. Hudspeth are easily accessible by light rail or car. Our business lawyers in Phoenix have helped thousands of businesses over the years, working with business owners throughout Arizona on their legal needs. Our practice extends to other states and countries, including Canada, China, Japan and Great Britain for corporations and LLCs. Contact Us for additional information regarding how we can help you with your legal business matters.

The Law Offices of Donald W. Hudspeth, PC - www.AZBUSLAW.com
Business Law - Commercial Litigation - International Business Law
www.AZBUSLAW.com - TheFirm@azbuslaw.com

"The Business of Our Firm is Business"

Dissolving a Business in Arizona:



 Dissolving a Business in Arizona

At The Law Offices of Donald W. Hudspeth, we put our 30-plus years of Arizona business law experience to work for you to make dissolving your business as quick, painless, and profitable as possible.

Dissolving a partnership

Before you take steps to dissolve your partnership—general, limited, or limited liability—get state and federal income tax advice, and make sure you fully understand the financial ramifications of shutting down your business. If you are a partner in a general partnership, or are the general partner in a limited partnership, you may be responsible for some of your partnership’s debts even after dissolution. On the other hand, if your business still has assets after you have paid off all creditors, the government will view any dividends of the dissolution as income and tax them as such.
Next, get an agreement to dissolve or terminate the partnership in writing, if you are a partner in a multi-member partnership where not all the partners are close family. The written dissolution agreement should include details about payment of final expenses, the timing of the assignment of assets, who gets what, when the partnership will cease activity, and when the partnership will notify the Arizona Corporation Commission.
Finally, pay off all creditors with remaining partnership assets before you file Articles of Dissolution with the Arizona Corporation Commission. Arizona law does not permit partnership members to make further payments to themselves and leave creditors out in the cold when dissolving a partnership.

Dissolving a corporation

If your corporation has not issued shares or commenced business, the majority of initial directors or incorporators may simply dissolve the corporation by filing Articles of Dissolution with the Arizona Corporation Commission. If the corporation has already commenced business, Arizona corporate dissolution becomes a bit more complex.
Once shares are issued, the board of directors may propose dissolution to the shareholders. The board must notify each shareholder—regardless of voting rights—of the proposal and the shareholders meeting which will vote on the issue. Unless the articles of incorporation or the board of directors require otherwise, a majority vote for dissolution is sufficient for the board to proceed to dissolve the corporation.
Article of Dissolution must be published, and all fines and fees paid, before the Arizona Corporation Commission will consider the corporation dissolved. Dissolved corporations do not cease to exist, but continue to function only to the extent necessary to wind down their business. This includes collecting outstanding debts, paying off creditors, disposing of properties that will not or cannot be distributed to the shareholders, and distributing remaining assets to the shareholders according to their interests.
Dissolution can be as easy as signing forms (if all the owners do it) or as difficult as a long divorce. If “partnership” dispute arises, early legal counsel is important. Unilateral dissolution or removal of one member by another is not legal effective and may give rise to legal claims.

Protect yourself from personal liability and work with expert Arizona business lawyers

Located in midtown Phoenix, The Law Offices of Donald W. Hudspeth serve the business community throughout Arizona. Many of our Phoenix business law attorneys have personal experience as small business owners or high-level private sector employees, and we draw on our personal experience every day to make sure we fully understand the goals and interests of our clients.

If you are thinking about dissolving an Arizona corporation or partnership, call us: 602-265-7997, toll free: 866-696-2033 or contact us online to arrange an initial consultation about how to proceed.

The Law Offices of Donald W. Hudspeth, P.C .

 Business Law - Commercial Litigation - International Business Law

www.AZBUSLAW.com

"The Business of Our Firm is Business"

Arizona Personal Asset Protection Attorneys:

  Arizona Personal Asset Protection Attorneys
As a business owner, proactive personal asset protection may be essential to protecting your hard-earned assets against situations and events beyond your control. At The Law Offices of Donald W. Hudspeth, we have the business savvy and legal experience to evaluate the risks you face and the best methods for legal asset protection. Without submitting to unnecessary pessimism or hardship, you can still protect your most valuable assets from creditors and lawsuits.

Determine the risks

If you own a small business, does the corporate, company, or partnership structure put you at undue risk of paying for the mistakes of others? What sort of lawsuits are most likely to result from the type of business you run? Is your business especially risky, like a whitewater rafting or skydiving concern? If your business regularly invites customers onto your premises, are the premises currently safe and regularly maintained? Is your business at undue risk of insolvency if one or two key customers go into bankruptcy or chose another provider?
The Arizona personal asset protection lawyers at The Law Offices of Donald W. Hudspeth will help you evaluate all of the risks created by your business type and business structure, and take cost-effective steps to minimize them while keeping your business healthy and growing.

Protect yourself from risks you cannot avoid

Every Arizona asset protection attorney knows that some risks are simply unavoidable: no amount of careful planning on your part will prevent a key client from going bankrupt or a clumsy customer from tripping and suing. But you can take steps to prevent all of your hard-earned assets from disappearing.

• If you run a sole proprietorship, general partnership, or limited partnership, consider reorganizing your business as a limited liability company, limited liability partnership, or corporation. The limited liability and corporate structures prevent creditors and plaintiffs from successfully pursuing your personal assets in almost all circumstances.

• If you do not own a home, consider buying a moderately-priced home. Arizona allows debtors to retain $150,000 of equity in their home if they declare bankruptcy. If you buy a reasonably-priced home, or do not pay off your mortgage or home equity loan in full in order to keep your equity in your home at $150,000 or below, your home will not become available to creditors if your sole proprietorship or general partnership goes into bankruptcy.

• For other or larger properties or accounts, consider transferring assets to someone you trust. Creditors and successful plaintiffs cannot take what does not belong to you—consider transferring assets to your spouse or to your children before any problems arise.

• Depending on the risks your business creates, consider increasing your insurance coverage to cover more or all of a court award or settlement if you are sued.

• Finally, speak to an Arizona personal assets protection attorney about the possibility of creating an irrevocable trust or a LLC to shield your assets against all eventualities.

Asset protection is one of our most popular practice areas, but like estate planning, it needs to be done before you need it. Once you have notice of a lawsuit or legal claim any transfer of assets, even for an otherwise legitimate purpose, may be challenged as a fraudulent transfer and make a bad situation worse.

Work with a business-minded attorney who knows personal assets

The Phoenix business lawyers at The Law Offices of Donald W. Hudspeth know business law inside and out and can help forecast liability and insolvency risks that face your industry generally and you specifically. Our Phoenix business law firm can help you protect your personal assets in Arizona from business-generated risks, leaving you free to concentrate on running your business and living your life.

Contact us: 602-265-7997, toll free: 866-696-2033 or email us online to arrange an initial consultation with an expert Arizona personal assets lawyer.

The Law Offices of Donald W. Hudspeth, P.C.
Business Law - Commercial Litigation - International Business Law

www.AZBUSLAW.com

"The Business of Our Firm is Business"

International Business Law: Starting or Buying an Arizona Business

Donald W. Hudspeth, Esq.


 International Business Law: Starting or Buying an Arizona Business

With a few exceptions, Arizona does not impose a citizenship or even a residency requirement on non-citizens seeking to start or buy an existing business in Arizona. At The Law Offices of Donald W. Hudspeth, we offer complete business services to non-citizens who are purchasing or starting a business in Arizona. We will draft your initial purchase contract or operating agreement, ensure that your business complies with all Arizona and federal laws on an ongoing basis, and passionately advocate for your interests in court should business litigation arise.

Investing in Arizona

As its economy recovers from the housing bust, Arizona is ideally situated for foreign investment, especially from partners in Canada and Mexico. Arizona participates in the CANAMEX Corridor Coalition, promoting safe and secure trade between Canada, the U.S., and Mexico. Arizona is increasingly competing with Florida as a winter retreat and retirement location for Canada’s fabled snowbirds. And Arizona’s large population of documented Mexican immigrants promises a ready pool of consumers to any Mexican company looking to open an Arizona branch, even as Mexican corporations generally continue to increase their holdings in national and regional U.S. businesses.

Arizona international business attorneys

As an experienced Phoenix business law firm, we are more than ready to help international clients who want to invest in the growing economy of our state. We will help you decide which type of Arizona business—corporation, partnership, sole proprietorship, limited liability company—best matches your current resources and future business goals. We will ensure that you and your business comply with all Arizona and federal laws, including maintaining an in-state agent and satisfying federal and state tax laws.
If you are unfamiliar with American business models, an international business lawyer will work with you to make sure you understand the reason for each step we take on your behalf or recommend to you. We will treat your business as our own, and do everything we can to ensure that it prospers. And if you do decide to use your business investment in Arizona as a springboard to U.S. residency or citizenship, we will refer you to top Arizona immigration attorneys to guide your application through the U.S. Citizenship and Immigration Services.
International contracts must specify the forum (e.g. arbitration in London) and the law (CISG). There are no courthouses in the middle of the ocean, so if you do not specify these you may not be able to enforce the contract.

Work with a skilled Arizona business attorney with an international bent

At The Law Offices of Donald W. Hudspeth, most of us were businessmen before we became attorneys. As business lawyers in Phoenix, we know how to nurture a small business, how to foresee legal difficulties before they arise, how to steer our clients clear of avoidable legal obstacles, and how to prevail in court if such obstacles prove unavoidable.

Call 602-265-7997, toll free 866-696-2033 or contact us today to arrange a consultation on any issue related to Arizona business.

The Law Offices of Donald W. Hudspeth, PC 
Business Law - Commercial Litigation - International Business Law

www.AZBUSLAW.com

"The Business of Our Firm is Business"