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No Business is too Small to Need Corporate Counsel

30 Jul

All businesses, big or small, should have “corporate counsel”.   While it is not necessary for most business to maintain in-house counsel, as their needs are irregular, it is unwise to utilize an attorney only when a dispute arises.

There are numerous reasons why a business or business owner who waits until a problem has arisen before contacting an attorney is at a distinct disadvantage.  This author has addressed this, and a variety of inter-related issues, in more detail in the full article, which you can find here: No Business is too Small to Need Corporate Counsel.  The full article addresses common misconceptions and failures made by a business in some of the following scenarios:

1)     Self-help business formation, filing Articles without an attorney and failing to have proper entity structure or formalities;

2)      Overlooking the importance of member/shareholder transfer restrictions and the value of a “Buy-Sell Agreement”;

3)     Failing to establish the rights, responsibilities and obligations of each owner/member, resulting in costly disputes; and

4)     Failing to maintain the “veil” between corporate and personal liability.

If you are a business owner, or you know a business owner, you should read the full version of this article, and forward it to anyone who you may believe would benefit from reading it.  Should you need to speak with an attorney, information about Brad Boyd and the Thomsen Nybeck firm can be found here: http://www.tn-law.com/Attorneys/Brad-J-Boyd.shtml.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  Brad has worked with a wide array of small and mid-size businesses through all stages of the business life-cycle, from formation, to ongoing operation, to shareholder disputes, work-outs, and sale or dissolution.

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Wait a Second Before Choosing Who Prepares Your Minutes

22 Jan

If you own a business registered with the Minnesota Secretary of State, you my have received a recent mailing that appears to be a “Notice” or “Disclosure Statement” from the State of Minnesota advising you to get your annual meeting minutes prepared. See example here: Mailer: Annual Meeting Disclosure Statement. The company behind the mailing, the Minnesota Corporate Minutes Company, is using these mailings to present an offer to prepare Minutes of Directors and Shareholders Meetings (for a corporation) or Minutes of Member and Governor Meetings (for a limited liability company –or LLC) for a fee. However, it’s important to know the company is a commercial enterprise that is neither affiliated with the State of Minnesota nor is it providing legal representation. I have had multiple clients contact me confused about their obligations and asking me what they need to do with this “notice.” Fortunately, they contacted me before sending their money or turning over potentially sensitive business and personal information.

The mailing requests, among other things, the identity of officers, directors, and even shareholders, including their names, email addresses, and/or mailing addresses. This information, once turned over, is subject to use for whatever means Minnesota Corporate Minutes Company may wish. Despite requesting personal information about anyone involved with the business, the mailing contains no indication of a privacy policy or a limit to the soliciting company’s permitted use of the information. The requested information is the kind of data advertisers and marketers often purchase so they can target their efforts at certain groups, such as a list of confirmed business owners and operators in Minnesota. We are not aware of information suggesting that Minnesota Corporate Minutes Company has sold or intends to sell the business or personal information it receives. But in general, if you are the officer or manager of a business, and you turn over information about your company’s shareholders to an entity with which you are not familiar, with which there is no attorney-client relationship, which is not a government agency, and which has no bounds on its ability to use that personal information, you have the potential to face some tough questions from those shareholders, or worse.

The mailing does highlight important statutes relating to a corporation’s or limited liability company’s obligations to maintain books and records. It also refers to the concept of “piercing the corporate veil,” which means a court may decide to hold the owners of a company personally liable for the debts or obligations of that company if it has not observed the proper corporate formalities. Maintaining updated books and records, complete with meeting minutes, is one of those formalities. Moreover, this article is not intended to comment on the propriety of having another party prepare your meeting minutes or advise you on what they should contain. Nevertheless, businesses and business owners should fully understand with whom they’re sharing information, and of the other purposes to which that information may be put without the business or business owner’s knowledge or further consent.

Business owners can receive guidance on how to prepare annual meeting minutes from their lawyers, or they can have their lawyers prepare the minutes for them. Like many things, there are proper ways to establish and maintain a business identity and to protect the business owners from liability, but there are many mistakes that can be made along the way –any of which could be very costly to the business and its owners. In addition, your business lawyer has professional and ethical obligations to ensure the confidentiality and proper handling of your company’s information, and that of its owners. If you have any questions about a notice or offer that your business receives, or maintaining the protections against personal liability that your company was intended to provide, it usually pays to consult with a lawyer before acting on it.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group, and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance. He has been included in the annual list of Minnesota’s Rising Stars for several years, and has been quoted in the Minneapolis StarTribune, Minnesota Lawyer, Habitat Magazine, Yahoo!Finance.com, Bankrate.com, MSN.com, HOALeader.com, and elsewhere on issues involving construction litigation, community associations and real property issues . He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Business owners – review your year now

29 Nov

Making an annual review or “check-up” part of your corporate routine

Now is the time, as the calendar year comes to a close, to have a business “check-up”.  This is particularly important in small to mid-size businesses, as they do not always have routines and practices where such check ups are automatic.  Large corporations have the benefit of deeply-entrenched and well established corporate policies, routine practices, and risk management procedures.  For many publicly-held companies and those with enough employees to have “mid-level-managers”, the corporate books and risk management oversight are often being tended to by specific employees within the company, in addition to outside advisors.

However, over my years of assisting clients with formation, organization and ongoing operation of small to mid-size businesses, I’ve realized that small business owners often tend to the fires that are burning, rather than the sparks that may ignite a fire.  Small businesses are often so focused on the details of day-to-day business, that it’s easy to overlook the big picture.  They may not see a problem arising until the fire has grown to a size that it cannot be easily contained.

Nearly every individual knows that an annual check up with a doctor and dentist is prudent.  Most small business owners probably know that a regular check-up with their accountant and their attorney may also be prudent, yet they aren’t always as diligent about getting it on the calendar.  Outside of those businesses who use an accountant for tax preparation or ongoing advising, many business owners fail to check in with an attorney or accountant regularly.  As a result, sometimes they miss the “spark” that may ignite the fire of a problem within their organization.  Far too often, it takes a lawsuit, shareholder dispute, breach of contract, or other controversy for a business to look at its internal records, contracts, and policies, only to find obvious deficiencies once it’s too late to correct them.

What kind of “check-up” should you do?

Rely on your accountant and attorney to help you identify what you may want to review in an annual or more regular check up.  Small to mid-size businesses may find that key issues to review include (but are not limited to) the following:

  • Maintain good standing.  Verify that your entity is in good standing with the Secretary of State, and that it is authorized to do business in other states in which it transacts business
  • Contract review.  Review contracts and vendor agreements to ensure the entity is meeting its obligations to others, and that others are meeting their obligations to your entity
  • Lease and real estate status review.  Verify that any leases your company has entered do not expire or renew within the next year.  To the extent they do, identify an action plan for how those will be renewed, amended or what the company intends to do when they expire.
  • Corporate record updating.  Review your “major actions” taken during the last year.  Did you hire employees, lease new space, take on new members/owners or take other action that should be properly documented by a written action or resolutions?   If so, your attorney can help you address these changes appropriately in your company records.
  • Employment and personnel matters.  Does your company have employees or independent contractors?  If so, do you know how recently you have updated your employment agreement, policy manuals, and independent contractor agreements?  If you can’t remember when they were last updated, it’s probably been too long.
  • Risk management review.  Does your company anticipate litigation or have any unresolved or outstanding issues which may be better handled proactively than re-actively?  It’s easy for companies to wait until the last possible moment to address potential controversies, when in fact that is sometimes the least successful approach.

Ultimately, businesses of all sizes should be proactive in their use of legal counsel just as individuals should be proactive in their use of doctors.  Diagnosis and prevention of problems can often be infinitely less expensive, less disruptive, and less challenging than “treating” a problem.  Allocating the time and relatively small expense of regular check-ups can be invaluable when it comes to risk reduction and  cost savings when compared against the clean-up required if a company runs on auto-pilot until a problem arises.

Consider the month of December as an opportune time to check in with your company’s legal counsel to address these issues and more.  If your company does not have counsel, now may be an opportune time to get that resolved.  Mark the issue on your calendar for follow-up, before the pace of day-to-day business takes you to the next issue without getting a proactive plan set into motion.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  Brad has worked with a wide array of small and mid-size businesses through all stages of the business life-cycle, from formation, to ongoing operation, to shareholder disputes, work-outs, and sale or dissolution.

Finally a break in the real estate industry

30 May

Last week the United States Supreme Court decided a case which refines a commonly debated interpretation of the Real Estate Settlement Procedures Act (“RESPA”) by lower courts.  RESPA is a Federal law that plays a significant role in how real estate brokerage companies (among others) conduct day-to-day business.  It has myriad prohibitions, restrictions and disclosure requirements that are applicable to such “settlement service providers” as title companies, mortgage lenders, real estate brokers and more.  Generally, it prohibits referral fees and unearned fees by settlement service providers in connection with a federally-related mortgage, imposes restrictions and requirements on “affiliated business providers”, mandates certain disclosures to increase transparency of transactions for consumers, and more.

Until this month, the issue of how RESPA impacts “administrative fees” charged by real estate brokers and agents was a controversial and often debated real estate brokerage issue, nationwide.  There was a split in how the decisions in various cases across the country interpreted Section 2607(b) of RESPA.  That section provides:

“[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service […] other than for services actually performed.” 12 U. S. C. §2607(b)

The various split in decisions and HUD interpretations addressing this issue left some unanswered questions as to whether a real estate brokerage would find itself in hot water when charging an “administrative fee” or similar charge in addition to a commission, if the real estate broker could not readily identify what service was being rendered pursuant to that admin fee.

The United States Supreme Court decided a case last week (May 24, 2012) which clarifies this issue significantly, and simplifies this issue for real estate brokers.  In the case of Freeman v. Quicken Loans, the Supreme Court found that there is no violation of §2607(b) of RESPA without showing that a charge for a settlement service was divided with a third party.

The full decision of the Freeman case can be found here: http://www.supremecourt.gov/opinions/11pdf/10-1042.pdf.  An interpretation of how this decision impacts real estate brokerage companies and brokers/agents was offered by the National Association of Realtors(R) (“NAR”), and their article can be found here: http://speakingofrealestate.blogs.realtor.org/2012/05/24/supreme-court-rules-fee-split-required-for-respa-violation/.

In short, this author suspects that some of the national controversy and confusion surrounding real estate brokerage admin fees will now become an easier topic to  address consistently, and with less controversy. Prior cases, including the controversial 2009 decision in Busby v. JRHBW Realty, Inc. d/b/a Realty South, had suggested that merely charging an “admin fee” in addition to a commission, even if it is disclosed to the consumer paying such fee, is in and of itself a violation of RESPA.  In January 2010, a HUD letter from Helen Kanovsky (Office of the General Counsel at HUD) clarified that there may be some room from brokerages to have commissions composed of a flat fee or commission or both.

Now that the Supreme Court has weighed in, it would seem likely that admin fees charged by real estate brokers should draw less scrutiny.  Additionally, the prior caselaw and unfavorable decisions interpreting RESPA in such a way as to further restrict the real estate industry than was explicitly stated in RESPA are probably of dramatically less impact, or their impact is narrowed significantly by this decision.

Stay tuned to the Thomsen Nybeck Legal Update blog for further discussion of this issue as more information, interpretations, and decisions bring this issue into even sharper focus.  For now, real estate brokerage companies, agents, and brokers who charge (or have ceased charging) administrative fees may wish to discuss these issues once again with their legal counsel to identify how they want their business practices to fit within the fluid and evolutionary laws surrounding these practices.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck.  Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.

Manage risk by prudent planning

13 May

Have you ever wondered why the adage “an ounce of prevention is worth a pound of cure” has stood the test of time?  People use that adage consistently because it’s true.  Many legal problems that make their way to an attorney’s desk could have been dramatically reduced, or eliminated altogether, with prudent planning.

Whether it’s drafting your will or trust to avoid a contested probate, reviewing a lease or purchase agreement when buying or selling real estate, or reviewing and updating your business records to keep the liability protection strong, prudent planning is often less expensive and more effective than problem-solving once the problem has arisen.

In difficult economic times, it is quite typical to put off using an attorney for proactive planning, prudent decision-making, and risk management.  Too often, an individual or business contacts an attorney only once a dispute has arisen, such that the path is already fully or partially determined.

Recently, this author has seen an increase in scenarios where partner/shareholder disputes might have been eliminated or reduced by having a buy-sell agreement, and scenarios where real estate transactions gone awry could have been aided by a properly drafted purchase agreement or help from an attorney to review and understand what the documents say, before signing.

As you review your own individual and business scenarios, take a moment to consider whether you have been prudently planning to avoid problems, or whether you are just hoping problems don’t arise.  Nearly 10 times out of 10, the former strategy will prove much wiser, over time.

If you need to discuss your personal or business legal needs with an attorney, please feel free to visit the Thomsen & Nybeck website (www.tn-law.com) or call us directly.

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This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad is the chair of the firm’s Transactional Group, and his practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law, and Wind Energy Law.  Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters.  He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals.

There are a Million Reasons (Almost) for Careful Attention To Employee Time and Wages

17 Mar

As a restaurant in Copiague, N.Y. learned the hard way, failure to track and pay employee hours accurately can lead to a big matzah ball of legal liability.  The Wage and Hour Division of the United States Labor Department has announced that the restaurant was ordered to pay $390,000 in back wages to approximately 40 employees who had not properly been paid overtime pay and had not received the equivalent of the required minimum wage, despite working 70-80 hours per week in some cases.  Based upon “liquidated damages” provisions under applicable law, the restaurant also was ordered to pay an additional amount equal to the  back pay owed to the employees.  As a result, the restaurant was required to pay the employees a total of $780,000.  The restaurant also apparently was adjudged not to have properly tracked wages and tips, and to have paid employees with un-tracked cash payments, leading to an additional civil fine of $20,000.  All told, the restaurant is picking up an $800,000 tab for its lax record keeping and for underpaying its overworked employees.

The action against the employer was based upon the Fair Labor Standards Act, a federal law which requires employers to pay qualifying employees at least the federal minimum wage, plus time and a half for time spent at work beyond 40 hours in a given week.  Although there is no indication the violations were inadvertent in this instance, an employer is not excused from paying an employee overtime even if the employer has not directed the employee to work overtime, but the employer generally has to be aware the employee is doing so before it is responsible to pay.  There also are provisions aimed at protecting employees who report a violation of the FLSA.

There also may be state laws that apply to a given situation where there are unpaid compensation or a failure to account for employee time.  For example, our home state of Minnesota has passed legislation that  provides strong remedies to employees, and even commission-based agents, who have not been paid as required.  There are strict timing requirements that apply to these payments as well.

Employers or employees with questions about whether a business is in compliance with the law should seek the assistance of counsel in determining whether the FLSA applies and whether changes are necessary.  Also, an attorney can pursue or defend cases for recovery of unpaid wages under the FLSA as well as applicable state laws.  If you have a question, contact us at Thomsen Nybeck.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance.  He has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Yahoo!Finance.com, Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

Is Collecting Money About to Get Harder?

25 Feb

In this challenging economy, one of the most important services we offer is helping clients collect money.  Garnishment is a vital tool created by statute, which we use to help these clients by seizing a debtor’s money from another party who may owe or be holding that money for the debtor.  Often this includes a bank where the debtor holds an account.

The garnishment process does not involve the immediate turnover of the seized funds to the creditor; banks typically respond to a garnishment by stating the amount that is in the debtor’s account.  The bank then holds that money for up to six months until we “levy” on the money, unless the debtor can point to a reason under law that the funds should not be released to the creditor.

A case recently filed in the United States District Court in Minnesota challenges the constitutionality of the garnishment process.  The plaintiffs in Billiar v. Atlantic Credit & Financial, Inc. claim the rights provided to creditors under the statute violate the 14th Amendment to the U.S. Constitution, the so-called “Due Process Clause”.  The Due Process Clause provides, essentially, that no person may be deprived of his or her property without first receiving “due process”, or in other words notice and an opportunity to be heard.

The claim asserted in Billiar is that the creditor, who was owed money by Mark Fiers, garnished an account that Mr. Fiers held jointly with his children and his partner Kristie Billiar.  Only Mr. Fiers owed money to the creditor, so the creditor had first obtained a judgment against Mr. Fiers, but it did not have a judgment against the other account holders.  So while Mr. Fiers received notice and the opportunity to be heard, Ms. Billiar and the children did not.

A recent Minnesota Supreme Court decision previously established that creditors may seize funds in a joint account until and unless the non-debtor is able to establish that the funds in the account do not belong to the debtor.  Ms. Billiar and the other plaintiffs claim that seizing the money of someone other than the debtor is not fair unless you first give them notice and a chance to object.  The plaintiffs and others also point out that even seizing money for a day may cause a check to bounce, causing further damage to the non-debtor.

On the other hand: 1) neither the creditor nor the bank know how much of each account holder’s money is in the account, and a creditor who knows of the account may not know it’s a joint account, so requiring the creditor to provide notice to a non-debtor is not practical; 2) it is reasonable to assume that anyone who holds an account jointly with another person would (or should) be aware of a judgment against the debtor; and 3) if funds held jointly with another person were automatically protected from creditors, then debtors would have an easy way to stop collection activities simply by opening joint accounts.

As attorneys who perform a lot of this work, we will be watching the outcome of this case.  Regardless what happens, however, we will continue to use our creative and results-driven approach to helping clients get paid.

Matt Drewes contributed this post.  Matt is a Shareholder with Thomsen Nybeck.  He is the head of the firm’s nine-member Community Association Representation Group and the firm’s Creditors’ Remedies Group. and practices in the areas of business and real estate litigation and transactions, employment law, construction litigation, community association law, debtor/creditor law and insurance.  He has been included in Minneapolis/St. Paul Magazine’s list of Rising Stars for several years, and has been quoted on issues involving construction litigation, community associations and real property issues in the Minneapolis Star Tribune, Minnesota Lawyer, Yahoo!Finance.com, Bankrate.com, and elsewhere.  He can be reached at mdrewes@tn-law.com or by phone at 952.835.7000.

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