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2014 Essentials of Business Law

Presented on March 6-7, 2014 in Houston, Texas

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What Every Young and Growing Business Needs to Know About Insurance

Starting and growing a new business necessarily means taking on risk. But that risk can be significantly reduced through purchasing—and taking advantage of—the proper insurance. Each business presents a unique set of exposures and financial circumstances. For instance, young businesses have different needs than established ones, and requirements vary significantly from industry to industry. Moreover, even the same company can have vastly different needs as time goes, necessitating risk management plans that can adapt as the business grows and changes. While the specific coverages and limits that a business needs will vary, though, one critical thing remains the same: Policyholders must have a working knowledge of their rights and responsibilities. If they fail to understand what coverage they have purchased—and the conditions required to actually obtain coverage—a valuable investment is lost.

Bankruptcy 101

The United States Constitution grants Congress the power to establish “uniform laws on the subject of bankruptcies throughout the United States.” U.S. Const., Art. 1, § 8, cl. 4. Federal bankruptcy laws are codified under title 11 of the United States Code, which is commonly referred to as the “Bankruptcy Code.” Congress’s stated goal of enacting the Bankruptcy Code was (i) equality of distribution among creditors and (ii) orderly rehabilitation or liquidation. H.R. Rep. No. 95-595, 95th Cong., 1st. Sess. 16, 177-78, 220 (1977).

Conflict of Interest: Who is Your Client

What is a "conflict of interest," and why is everyone so hyper about it? Licensed lawyers are given some very special powers. When we become attorneys, we become officers of the courts of the state granting the license and of the courts affirmatively “admitting” us to their respective bars pursuant to that license (e.g., federal courts).

Conflicts of Interest - Who's Your Client? - Advice to Corporate Counsel

These are the presentation slides.

Drafting Governing Documents

One of the very first steps in the lifecycle of a business is to form the business entity. The first decision will be to determine which type of legal entity will be the best fit for the business. Once the type of entity has been selected, the governing documents for that entity will provide the framework for the ownership, management and corporate governance structures of the business. This article provides an introduction to the types of entities available in Texas, the steps required to form a legal entity, and certain drafting considerations in connection with preparing an operating agreement for the entity.

Governing Persons and Owners in Action: Liability Protection and Piercing the Veil of Texas Business Entities

Sole proprietors and partners in a traditional general partnership enjoy no protection from the debts and liabilities of the business. The various business entities that provide some type of liability protection do so under slightly varying approaches. These variations are discussed in the paper.

Governing Persons in Action: Overview of Fiduciary Duties, Excupation, and Indemnification in Texas Business Organizations Code

Statutory developments beginning in the 1990s have impacted the analysis of fiduciary duties in the business organizations context. The duties of general partners are now defined by statutory provisions that delineate the duties without referring to them as “fiduciary” duties and specifically provide that partners shall not be held to the standard of a trustee. Whether limited partners in a limited partnership have fiduciary duties is not well- settled, but the Business Organizations Code (BOC) clarifies that a limited partner does not owe the duties of a general partner solely by reason of being a limited partner. While the fiduciary duties of directors are still principally defined by common law, various provisions of the corporate statutes are relevant to the application of fiduciary duty concepts in the corporate context. Because limited liability companies (LLCs) are a relatively recent phenomenon and the Texas LLC statutes do not specify duties of managers and members, there is some uncertainty with regard to the duties in this area, but the LLC statutes allude to or imply the existence of duties, and managers in a manager-managed LLC and members in a member-managed LLC should expect to be held to fiduciary duties similar to the duties of corporate directors or general partners. In each type of entity, the governing documents may vary (at least to some extent) the duties and liabilities of managerial or governing persons. The power to define duties, eliminate liability, and provide for indemnification is addressed somewhat differently in the statutes governing the various forms of business entities.

How To Raise Capital Through Exempt and Limited Offerings

Protecting investors and ensuring efficient capital markets is one of the main purposes of the federal securities laws. Disclosure is one of the primary means through which these two objectives are achieved. This contrasts against the merit-based approach to regulating the capital markets, in which regulators evaluate the suitability of securities offered to the public. While a disclosure-based regime provides market participants with more autonomy, it also relies on their aptitude for discerning worthwhile and legitimate investment opportunities from mere lemons. More importantly, the success of a disclosure- based regime depends on the extent and quality of the disclosure. The securities laws mandate disclosure in a variety of circumstances. For instance, companies whose securities are listed on a national securities exchange must periodically disclose quarterly and annual information with the Securities and Exchange Commission (the “SEC”). This provides investors and analysts information upon which to make or recommend investment decisions. Also, when a company reaches a certain size in terms of its total assets and has a class of equity securities held by a certain number of persons, it too must disclose periodic information even if its securities are not listed on an exchange.

Intellectual Property 101

Intellectual property, which refers to any creation of the mind, can be the most valuable asset of a company, especially in this information age in which assets are generally of an intangible nature. Intellectual property, however, is only valuable if protected, using government-granted legal rights that grant limited monopolies to its creators. This article will focus on the concept of intellectual property, the identification of primary intellectual property types, the basics about protecting those types of intellectual property, and the legal remedies for violation of such rights.

Knowing Your Rights: What to Do When the Government Pays You a Visit

There are events in life that we just as soon not experience. Undoubtedly, that list includes a visit from a not-so-friendly federal law enforcement agent looking to indict someone. The agent announces he/she is investigating a crime and has arrived to interview people, search every nook and cranny of your home, office and belongings, and seize and take away whatever he/she deems relevant.

Operational and Transitional Issues for LLCs or Tax Topics Business Lawyers Can Master

Effectively representing clients in the formation, operation and termination of their LLCs requires both a good working knowledge of state law principles and federal taxation principles. Routine issues of formation, operation and dissolution all have federal income tax effects that can be mastered in their basic format by general business lawyers. The purpose of this paper is to discuss and link the state and federal law issues that commonly arise in the one hour client conference all “general” practitioners have with their clients, and to permit that generalist to more effectively deal with a tax specialist.

Shareholder Agreements: Tag Alongs, Drag Alongs and More

Clients that are starting a new privately-held business often carefully consider the form of entity they will use, the capital structure and the tax implications. However, clients may be reluctant to spend time and money on agreements that will govern the potential termination of their business relationship. At the time of formation, the owners are excited about doing business together and may not want to discuss sensitive topics such as whether an owner will be kicked out of the business if the owner becomes disabled and what price will the owner receive for his or her equity interest. On the other hand, clients that have been through the cycle of business ownership before may focus intently on the terms of any shareholders agreement because they have experienced the difficulties of exiting a business relationship.

The Affordable Care Act Overview - Understanding Healthcare Reform to Counsel Your Clients to Navigate Through the Morass

The Patient Protection and Affordable Care Act (PPACA), commonly called the Affordable Care Act (ACA) may be the most significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965. ACA was enacted with the goals of increasing the quality, affordability and availability of health insurance through online healthcare exchanges, now called Marketplaces.

The Basics from the Secretary of State's Office

One of the first hurdles a practitioner must overcome is the secretary of state’s review of the business entity name selected by the client. The availability of an entity name remains the most frequently deliberated, and heavily contested, reason for rejection of a filing instrument.

What to Do When Someone Wants to Buy the Business

Imagine that your long-time client calls you and gives you a piece of exciting news – he has decided to sell his business, and has an interested buyer. You have watched the business grow, through the years assisting with capital raising, contract drafting, and litigation. Although the business’s cash flow has provided much over the years – it has put food on your client’s table, sent his children through college, and provided employment for a number of people – most of the earnings of the business have been plowed right back into it, fueling growth in the good times and keeping heads above water in the tough times. Now the time has come for your client to monetize the value of his life’s work. He, and perhaps you, have visions of drawing up a simple agreement, receiving a handsome check, and riding off into the sunset. The reality is that a long and potentially hazardous journey is just beginning. What do you do now?

What to Do When Your Client Gets Sued or Sues Someone Else

Terry Trevino served 10 years in the U.S. Army as a medic. When he got out of the service, he started ProStaff, a health care staffing company that focused on the federal government. Over the course of a decade, he built a business that was creating $35 million in revenues each year, resulting in gross profits of approximately $4.5 million per year. Terry started and built his business without any outside equity financing – by saving profits and a succession of conventional financing from factoring of accounts receivable to a bank line of credit. The company was also beginning to achieve the size that would be of interest to an acquirer. Terry faced a difficult choice because his company was near the end of the time frame in which it could claim preferential status in bidding for federal contracts. Any acquirer would be concerned about the company’s continued ability to maintain or improve on its performance. On the other hand, many similar companies fail to survive the post-preference era. Not only is the preference gone, but post-preference companies tend to team with companies that still have the preference and are therefore only eligible to perform a maximum of 49% of a contract. That fact alone reduces the revenue opportunities for such a company. At the same time, Terry’s company was solid financially, having audited financial statements, a line of credit with a major bank and a top notch executive team including a CFO, General Counsel, and Business Development VP. Given all of the considerations, Terry decided he wanted to sell now. Terry held 67% of the issued and outstanding stock and two other individuals held the remaining 33%. These were early employees who worked for reduced or no pay in the early days of the company.

When Work And Personal Life Collide

The character of property (community vs. separate) has a profound effect at death on the design of the estate plan, the effectiveness of the estate plan, and how you implement the estate plan. During life, the character of property effects business and asset protection planning.

The Risks of Cloud Computing

Although storing and manipulating data on remote servers via the Internet is not a new technology, it has recently been refashioned into a new service offering, generally referred to as “cloud computing.” The pervasive use of cloud computing presents new challenges to lawyers, their clients, and to forensic examiners. For lawyers and clients alike, cloud computing offers many economic benefits. However, recent state legislation and current disciplinary rules impose a duty on the lawyer to maintain the security and the integrity of information stored on the cloud. Lawyers also need to counsel their clients to ensure that their contracts for cloud-based services do not unnecessarily put the client at risk. For forensic examiners, new tools and procedures are needed to identify, collect, preserve, analyze and present electronically stored information (“ESI”) that is not within the control of the data custodian. This paper presents identifies various issues related to cloud computing, such as benefits, security, e-discovery, forensics, service contracting and the like.

FLSA Wage and Hour and Texas Payday Act

The Fair Labor Standards Act (FLSA) is the federal law passed in 1938 to regulate minimum wages, maximum hours, overtime pay, equal pay and child labor standards in employment. 29 UCS § 201, et seq. Its purpose was to protect the country’s workers from substandard wages and oppressive working hours and labor conditions. It was to ensure that each employee covered by the Act would receive a fair day’s pay for a fair day’s work and be protected from the evil of overwork as well as underpay. Barrentine v. Arkansas /Best Freight System, 450 U.S. 728, 739 (1981); Williams v. Cigna Fin. Advisors, Inc., 197 F. 3d 752, 758 (5th Cir. 1999). The FLSA casts a wide net. In general, its provisions apply to all employers and cover all employees who are not specifically exempt and who are either (1) engaged in interstate commerce or in the production of goods for interstate commerce, or employed by an enterprise engaged in such activities. The United States Department of Labor (DOL) is responsible for the administration and enforcement of the FLSA and related statutes. Within the DOL, the Wage and Hour Division of the Employment Standards Administration (WHD) has the authority for administering and enforcing the FLSA. In addition to issuing rules, regulations and interpretations of the FLSA, the WHD conducts inspections and investigations to determine compliance.

Before the Cloud Turns Dark and It Begins to Rain

This paper begins with an identification of the ethical issues that require greater awareness and operating skill for attorneys. This requirement then leads to both real and hypothetical examples of technology’s impact on legal ethics and business practices in the legal industry. An overview of the Cloud computing industry follows with discussion of the range of services available through the Cloud. This paper then explores statutory protections and failings, contractual provisions, and case law uncertainty in identifying and protecting interests of Cloud providers, landlords to Cloud providers, lenders to every enterprise associated with the location and equipment used in the Cloud, Cloud consumers, Cloud consumer’s clients, software vendors, and the role attorneys take in representing these parties. This paper concludes with an examination of ethical issues facing attorneys and other professionals in their representation of clients and their firms’ own use of the Cloud.

Business “Divorces” in the Downturn

You hear about it in the news every day. Small businesses are struggling to keep their doors open. The economic stress has taken its toll on many businesses and many business owners. Due to the downturn, many business owners simply want to go their separate ways. That’s where you come in. When a client comes to you for legal advice on how to end their business, you need to be prepared to provide advice on the steps that need to be taken to get that done.

7 Deadly Sins of Opinion Letters

Although the classic Seven Deadly Sins 2 do not ordinarily impact the process of drafting an Opinion Letter for the closing of a transaction, the dramatic title of this article is appropriate since it will focus on seven issues that arise in the negotiation and drafting of Opinion Letters that can present significant difficulties for practitioners and their clients. An Opinion Letter can appear in many types of transactions from a settlement agreement, to a divorce decree, a bank loan, or a merger. An Opinion Letter can appear in a variety of formats, ranging from simple one pagers to a 25- page long-form preferred by the public M&A practitioners with an astonishing array of disclaimers, carve-outs and attachments (not to mention the volumes of support documentation and affidavits). Specifically, this paper will address seven topics regarding Opinion Letter that may assist the drafter in improving their clarity and predictability, while limiting the risk of unexpected consequences to the drafter of the Opinion Letter.