Articles Posted in Business

Published on:

We speak with people weekly who have been mistreated, are angry and want to file a lawsuit. The concept of sticking up for yourself and fighting back  just feels right – and it often is right!  There does come a time when filing could be harmful to you. It is important to know when to file a lawsuit and it is also important to know when not to.  A lawsuit is an important, indispensable legal tool.  It will resolve a dispute where all other solutions have failed.  But lawsuits have limitations.  It is possible to win a lawsuit but still lose because the cost of the lawsuit exceeds any possible recovery.

Below is the analysis we discuss with our Clients before filing a lawsuit:

  1. Is there a good claim? This requires learning the facts and researching applicable law.
Published on:

Like everything else you own, your business is an asset. When contemplating divorce, you will be required to equitably divide your community interests in any assets acquired during your marriage. This includes your business.

However, equitable division does not necessitate that every single item be split in half. Rather, Arizona follows the aggregate theory of community property meaning that each of you will receive a share of the assets which will be equal in value, but not equal in kind.

To determine what will happen to your business you need to consider several things. First, did you make any agreements or plans for this eventuality? Perhaps you and your spouse entered into a pre- or post-nuptial agreement which specifies what happens to the business. Or, perhaps the business itself has agreements in place detailing what occurs when one or more owners divorce. These documents should be reviewed closely.

Published on:

Starting a business is an exciting time. But statistics show that over half of new businesses in the Phoenix, Arizona area fail within a few years. Business writers have commented as to why this happens.   Here are some of the most common reasons why new businesses fail:

  1. Insufficient capital. A new business cannot be expected to turn a profit for at least one year so the owners must have sufficient capital reserves to pay business expenses and also their own living expenses for the first year.
  2. Lack of management experience.
Published on:

One of the most important purposes of incorporating or creating a Limited Liability Company is obtaining the benefit of limited liability.   Losses are limited to the assets belonging to the corporation or LLC.   Personal assets are protected.

This benefit can be lost. The corporate veil can be pierced and the shareholders can have personal liability where two requirements are met.   First, the corporation is determined to be the alter ego of one or more individuals. Second, the observance of the corporate form would sanction a fraud or promote injustice. Arizona Courts have defined “alter ego” as a situation where there is such a unity of interest that there is no separation between the corporation and the person controlling its actions.   This can be found where a shareholder runs the corporation in such a manner that there is a confusion of identities between the corporation and other business activities of the shareholder. Alter ego will also be found where a shareholder misuses the corporate existence to his or her own advantage and treats corporation property as his or her own property as if no corporate identity existed.

Some of the circumstances that may result in personal liability for shareholders can be:

Published on:

Rescission of a contract is a remedy available, which attempts to restore the parties who entered into a contract, to the same state they were in prior to the contract being executed. Essentially, rescission seeks to make it as though the contract never existed. Although in some cases it can be impossible to completely restore the parties, rescission may provide for additional monetary damages in an attempt to compensate for these scenarios.

Rescission is different than a claim for breach of contract. Generally, a cause of action from breach of contract occurs when there is a valid contract, and one or more parties fail to perform. Rescission, on the other hand, occurs when there is no valid contract due to the actions of one or more parties. Consequently, just because there is a subsequent breach of a contract, does not necessarily mean there was fraud to justify rescission. These actions that do justify rescission however include a mutual mistake, negligent misrepresentation, fraud, or a material failure of consideration. For purposes of this article we are going to discuss the remedy of rescission based on fraud and misrepresentation.

The first means of rescission of a contract this article will discuss, is rescission based on fraud. In a case of rescission based on fraud, there are nine established elements that must be proved to establish fraud took place. Those elements are: (1) A representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of its falsity; (7) his reliance on its truth; (8) his right to rely thereon; (9) his consequent and proximate injury.  These elements were set forth in the case of Hall v. Romero, 141 Ariz. 120, 124, 685 P.2d 757 (App. 1984).

Published on:

ARS 33-1022 (A) entitles a garage or repair facility to a lien over a vehicle for unpaid repair charges when the owner and the garage agree on the amount of the charges.

A recent case, Beck v. Hy-Tech Performance, Inc. 1 CA-CV 13-0723 decided January 8, 2015, speaks to what happens where the vehicle owner and the garage do not agree to the amount of the charges.

The Court of Appeals decided that the Garage is still entitled to a lien, but only for the amount of the agreed charges.

Published on:

The decision to start a business is both exciting and challenging for those with an entrepreneurial spirit. This blog has already featured many articles about the different types of businesses; from LLC’s to corporations and sole-proprietorships, as well as some of the positive and negative aspects associated with each. The blog has also featured articles about the steps needed to start a business from the ground up. This article will focus on what to do if you want to buy a business that is already in existence.

It’s no surprise that starting a business is challenging and risky, however if your business is successful the upside potential is major. For those less willing to take on the risk, another option might be to purchase a business that has already proven to be successful. The tradeoff for this added security of course, is that purchasing an existing business comes with a higher price tag. This is a major investment and a smart purchaser will protect their investment by ensuring the transaction is completed via a thorough sales agreement.

Buying a business can be a complex transaction. There are multiple issues that a purchaser needs to be aware of. This is true for any purchaser, but especially important to a first time purchase who may not have experience in the nature of purchasing a business, or is purchasing a business in a new field. For any particular business there are important focus areas strongly tied to future success that should be addressed. Some of these can include the purchase of good will, the formation of a new entity and simply purchasing assets, the future liabilities, and the overall purchase price to name a few. Each business will have different answers depending on the specifics of the business you are looking to acquire. However, the answers are important, not just from a purchase standpoint but also future considerations such as tax consequences and profitability.
Continue reading

Published on:

The first thing to consider is what type of business do you want to have. There are there major categories of business, with some additional subcategories (which won’t be discussed here. The first is the sole proprietorship. In our previous blog article we discussed the pros and cons of a sole proprietorship versus an LLC. For additional information refer to that blog.

Another major business type is a corporation. Corporation is formed when papers are filed with the ACC. Among others, the first papers that must be filed are the Articles of Incorporation. The articles must include key information about the corporation such as name, address and contact information. In addition, the Articles must provide a statement of the nature of the business the corporation will be involved in. Along with the articles a Certificate of Disclosure for Business Corporations must be submitted as well. In addition to the articles there are other requirements that must be met. For instance, a corporate records book must be set up. In addition to the record book a corporation should set up by laws. Corporations must publish the articles of incorporation within a set period of time after the ACC has approved the application. This was discussed more extensively in our previous blog on how to form a corporation.

A third major business type is the LLC. Formation of an LLC is governed by Arizona Revised Statute § 29-631. LLC’s allow for management directly by the members, however, members can also opt out and allow a more centralized style management, similar to a corporation if they choose. An LLC is formed by filing the Articles of Organization with the ACC. The articles must include certain information such as the name, address and statutory agent among other things. LLC will be registered with the city they are doing business in and apply for any additional business licenses or other licenses that may be required by Federal law for tax purposes. Once an LLC is formed it generally can continue as long the members want to. This was discussed more thoroughly in our blog How do I form an LLC.
Continue reading

Published on:

The discussion between an LLC and a sole proprietorship focuses primarily on four major areas: liability, asset protection, tax consequences and costs. To determine which entity is best for your business a short introduction on each area is necessary.

The main benefit of an LLC is that it provides “corporate shield” protection to protect an owner of a business from personal liability for business dealings. It requires business to be started by taking specific actions. No specific action however, is required to start a sole proprietorship.  Therefore, for the discussion between a sole proprietorship versus an LLC, a sole proprietorship does not provide liability protection. An LLC has the exact same corporate shield as a “traditional” corporation.

In the event of a lawsuit, the person who formed the LLC is usually sued personally along with the LLC or corporation. This is where it will be important to have followed to correct formalities to start and continue to run the LLC. If this has not occurred, the person bringing the lawsuit will claim the LLC is not valid, and they may be allowed to “pierce the corporate veil.” If this happens the LLC and the person who started it will both be liable, as if it had been a sole proprietorship.
Continue reading

Published on:

In many ways, business partnerships are like a marriage. There is a courtship phase, the wedding, and then the on-going marital relationship. During the course of the marriage, there will be disagreements and arguments along the way, and the successful marriage will figure out how resolve those issues in order to stay married. Those that do not figure this out will end up separating and/or divorcing.

The best way to know what will happen to your business if you and your partner disagree is to address as many issues as the outset as possible. This is done via a partnership agreement (or if in an LLC in an operating agreement, or if a corporation, in a shareholder agreement). Codifying these agreements ahead of time when each partner is still happy and agreeable with the other is just common sense. It forces the partners to think ahead, anticipate potential problems, and their resolution. Some of the issues you should address are performance expectations, buyout provisions, profit distribution, startup capital, sale of the business, expansion, and adding partners.

However, since you cannot possibly think of every problem that will come up, you should also provide a formula or mechanism for handling a disagreement. This can take many forms. Perhaps you will have an advisory board you can refer the dispute to. Perhaps you have informal business mentor who can assist. Or maybe you will want to agree to some kind of formal mediation or arbitration process to get the matter resolved.
Continue reading