As a business owner, most of your energy should be directed toward the actual business – not the administrative loopholes and red tape that must be met with local, state and federal authorities. Whether you are a new start-up or an existing business, you can trust your business, corporate and commercial concerns with the Elster Law Office and concentrate on carrying on your business.
We are here for businesses in both up and down times. We can assist you with the choice of a business entity by weighing such things as liability protection, tax treatment and operational formalities and costs. We can assist in drafting and reviewing employment contracts, shareholder agreements, operating agreements, confidentiality agreements and trademark protection.
Business, Corporate Litigation | Business litigation is a broad field which encompasses many different things. Litigation is the court process wherein disputes between individuals are settled by the court system in one way, shape or form. Because of the many different types of disputes that can occur with businesses — either between businesses, within a business, etc. — business litigation can be extraordinarily detailed, time-consuming, and expensive. Below are the types of business disputes we have handled —
- Breach of Contract. Contracts govern most things which we do. It is not surprising, then, that disputes arise which require court adjudication. Under traditional contract law, a breach occurs when a (1) party is under an absolute duty to perform, this (2) absolute duty of performance has not been discharged, and there is a (3) failure to perform in accordance with the contract’s terms. The non-breaching party, in turn, must be willing and able to perform the terms of the contract. Once this has been established, the next question is whether the breach is minor or material. In determining materiality, the law generally looks at the amount of the benefit received by either party, adequacy of damages, extent of part performance, likelihood of performance, etc. If the breach is material, the non-breaching part may rescind (i.e., bring to an end) the contract and will have an immediate right to all remedies for breach of the entire contract, including total damages. If the breach is minor, then there are not as many things that can be done. Contract litigation and interpretation is extremely meticulous. Accordingly, it is paramount to retain legal counsel in any contract dispute.
- Breach of Lease. Similar to contracts, leases also play a big part of day-to-day life with businesses. For instance, commercial leases, along with advertising and marketing, are often one of the biggest monthly expenses for a business. Provisions pertaining to things such as common area maintenance can be make or break in leases and need to be closely analyzed.
- Complex Contract Issues. Unilateral mistake, mutual mistake, rescission, specific performance, frustration of purpose, procedural unconscionability, substantive unconscionability, vagueness & ambiguity, parol evidence & merger clauses, frauduluent nondisclosure and inducement to contract, adhesion contracts, exculpatory clauses, blue penciling, implied obligation of good faith and fair dealing, anticipatory repudiation, third-party satisfaction, impracticability, assignments & delegations, force majeure (act of God), etc.
- Trade Secret Litigation. In Missouri, trade secrets constitute a compilation of data which derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use. Litigation concerning trade secrets can be enormously important because it usually centers on the “crown jewels” of a given business: customer contacts, pricing information, product specifications, etc. Breach of trade secret laws can result in heavy monetary damages and may warrant equitable relief.
- Non-Compete Contracts, Non-Solicitation Contracts. Covenants not to compete in Missouri are designed to safeguard against “unfair competition.” As such, employers are able to include restrictive covenants in their contracts which are reasonably necessary to protect their legitimate interests. Employees, on the other hand, are permitted to pursue their trade without undue restraint. Because of these competing interests, non-compete litigation and disputes are very detail oriented. While courts want to promote commercial activity and permit the employee to carry on his/her business, they will not let the employee do so at the employer’s expense.
- Breach of Fiduciary Duty. Partners and co-business owners generally owe each other a fiduciary duty of loyalty and good faith. When partners do not act in accordance with the best interests of the business and their fellow partners, the legal consequences can be quite serious. Similarly, it’s not just partners who owe each other a fiduciary duty. Such a duty exists between attorney-client, shareholder-director, etc.
- Corporate Shareholder Disputes, LLC Operating Agreement Disputes. As discussed above, LLC members and managers owe each other a heightened duty of care; by the same token, similar duties exist between majority shareholders and minority shareholders. We frequently help with these types of disputes in litigation, and the avoidance of such disputes in the form of the drafting of corporate bylaws, pledge agreements, promissory notes, stock transfer agreement, etc.
- Tortious Interference with Business Expectancy. Tortious interference occurs when an individual has a (1) valid business expectancy, the (2) defendant is aware of the business expectancy, (3) defendant intentionally and maliciously interfered with this expectancy, (4) without justification or excuse, and the (5) plaintiff is damaged.
Business Creation, Choice of a Business Entity & Tax Considerations| Deciding on a business entity is a crucial and often-overlooked aspect of forming your business. The creation of the business generally requires an articles of organization/incorporation and an internal set of bylaws governing how the business operates. Here is a sampling of some of the types of businesses we have advised:
- General Partnership. A general business partnership is the default business entity the law of Missouri imposes when there are two or more people carrying on a trade or business for profit. With this imposition, there are several statutory requirements that take effect. It is important to grasp these default provisions and consider whether a general partnership is optimal for your business.
- Nonprofit Corporations. Like all business entities, nonprofit corporations have their own set of rules in Missouri. However, because of their special status, nonprofit corporations will require a tax exempt status with the federal government, in addition to exemptions from things like sales tax and franchise tax at the State level. Once this process is over, then it is time for the bylaws.
- Corporations. Traditionally, corporations have been the most popular business entity (and most maligned). The pluses with a corporation are plenty: limited liability, favorable tax treatment for certain expenses and employee pensions, etc. There are, though, a few negatives: annual reports which must be filed with the State, internal corporate compliance, etc. As detailed below, given the rise of LLCs in recent years, corporations are not being utilized as frequently. Nonetheless, in those situations when a corporation is appropriate, we can help.
- Limited Liability Companies. LLCs have become the business entity of choice for most business owners. They possess the best of all worlds in that they provide owners limited liability and flexibility in structuring the business — while also allowing the business to be taxed as either a sole proprietorship, partnership, S Corporation, or C Corporation. In addition, LLCs do not require the red tape and governance requirements that corporations require.
- Professional Corporations
- Limited Liability Partnerships
Real Estate Disputes | There is a lot of business done in real estate because it can be quite lucrative. We have handled a number of different real estate disputes including:
- Failure to disclose real estate defects
- Review and preparation of real estate transaction documents (e.g., Deeds of Trust) for both residential and commercial sales
- Petitions for Quiet Title to establish ownership interests in real estate
- Real estate transaction negotiation
- Eminent Domain
- Property Disputes
- Real Estate Restrictive Covenants & Indentures
- Commercial leases
- Residential leases
- Quitclaim, General Warranty & Special Warranty Deeds
Securities Law & Litigation | Securities are defined liberally under both federal and state law to mean pretty much any kind of financial instrument. In light of the intense federal and state securities regulations in place, compliance with securities regulation and oversight is paramount to avoid civil or criminal liability. We defend securities violations claims in litigation involving brokers, agents, investment-advisors, brokerages, etc. for allegations such as misrepresentations, omissions, state securities violations, federal securities violations, breach of fiduciary duty, etc.
Business Mergers & Consolidations | A merger is when one or more businesses combines with another business. A consolidation is when two or more businesses combine into a brand new business entity. Each party to a merger/consolidation must enter into a detailed written agreement containing the information required in RSMo 347.128. The specific information requested will address how the merged LLC and the surviving LLC’s shares and assets are handled, as well as how the new operating agreement or bylaws will delineate decision-making authority. Moreover, the Missouri Secretary of State needs to be appropriately notified.
Draft, Preparation, Creation & Review of Business Document, Miscellaneous
- Operating Agreements
- Corporate Bylaws
- Buy-Sell Agreements & other Restrictive Transfer Agreements
- Business Succession Planning
- Nonprofit Corporation Law
- Collections Law Defense — Debt Defense
- Business & Commercial Lending
- Corporate Law & Litigation
- Construction Law
- Mechanic Liens
- Lost Income & Profits
- Complex Commercial Litigation
- Breach of Implied and/or Express Warranties
- Business Fraud
- Construction defect litigation
- Derivative shareholder litigation
- Shareholder/Partnership disputes
- Personal Guarantees
- Drafting, Enforcement of Promissory Notes
- Commercial & Residential Real Estate Loans
- Lending, Bank & Finance Transactions
- Insurance Policies
- Land use matters — zoning
- Quiet title actions
- Boundary disputes
Business Dissolution and Winding Up | Dissolving and winding-up a business is not as easy as shutting off the lights and locking up to close for the weekend. Missouri law puts forth an entirety statutory process which must be followed to properly shut down the business entity and resolve all of the businesses affairs. Think of it as the probate process for businesses: all parties which have an interest in the business must be notified, all creditor debts must be satisfied, all existing business must be brought to a halt. Although there is a default statutory scheme in place, the bylaws and/or operating agreement should dictate how the business is to be winded-down. This must be followed closely. Failure to properly dissolve and wind-up a business entity can result in breach of fiduciary duty or even fraud in severe circumstances.
Frequently asked Business/Commercial law questions:
I am an employer/employee dealing with a non-compete agreement. What should I do or beware of? As outlined above, non-compete agreements are designed to protect an employer from unfair competition if an employee goes to a competitor or rival. The two interests most commonly held to be protected by courts are an employer’s customer contacts and trade secrets. After all, these two items are often the lifeblood of a business. However, while these two interests are valid things which may be protected, Missouri also wants to promote free trade and commerce. To that end, the employer’s protections cannot be more than is reasonably necessary so as to avoid placing an undue restraint on the employee’s ability to work and contribute. The law regarding non-compete agreements is very specific and is closely intertwined with contract law. In order to better understand the field of law at issue, remember that a non-compete agreements is a mere type of restrictive covenant. Other examples of restrictive covenants include confidentiality agreements, non-solicitation agreements, and sometimes even lawsuit waivers are considered a part of the class.
Can you help incorporate/start my business? Yes. Choosing your business form depends on how you want the business to operate (e.g., cash flow, decision making, ownership) and the particular situation of all of the owners involved.
What is the business form that you recommend? The limited liability company (LLC) combines the best of all worlds: freedom to contract, limited liability for personal assets, preferential tax treatment (sole proprietorship, “S” corporation, “C” corporation, or partnership), flexible governance, and minimal red tape. However, another entity may be appropriate to meet specific goals and needs.
What other documents do I need in place for my business? This, again, depends on your goals and how many owners there are. Generally, an operating agreement or bylaws should be in place to specifically articulate how the business is to operate, rather than have default Missouri statute control. Employment contracts may need to be in place. A buy-sell agreement may need to be in place to predetermine how a departing (voluntary/involuntary )owner and his/her shares/interest in the business is to be addressed. Finally, it may even be necessary to tailor business documents so that they are consistent with personal estate planning & probate objectives.
What advice can you provide about tax elections for the business and filing taxes? I am an attorney, not an accountant. As such, I cannot file returns for you or provide any real tax advice. For businesses, the tax classifications that are most common are: sole proprietorships (a “disregarded entity” designation for a single member LLC is taxed as a sole proprietorship), partnerships, S Corporations, and C Corporations. Consult an accountant or other tax professional.
Are there some important aspects of a partnership/co-ownership I need to be aware of? A few core things to remember: partners owe each other a strong fiduciary duty which necessitates a strong duty of good faith and strong duty of loyalty. This includes, among other things, a responsibility to provide information and use due diligence at all times. Partnership property is generally owned by the partnership, not an individual partner; thus, each partner has an undivided interest in using the property for partnership (i.e., business) use. Every partner has a right to inspect the books. Usually every partner’s actions can bind the partnership in business decisions. A dissolution of the partnership occurs when there is any change in the relationship between the partners (e.g., resignation, removal, death). The unmitigated dissolution of a partnership will then trigger the winding up of the business whereby the partnership’s remaining affairs are resolved and concluded.
What is meant by a limited liability business? Limited liability means that if a business entity is sued the business owners’ assets cannot be used to satisfy any liabilities found to exist on the part of the business. Accordingly, the business acts as a shield to protect personal assets. The reason for this is that businesses (with the exception of general partnerships and sole proprietorships and d/b/a) are considered to be a separate person/entity under the law. This protection is not unlimited, however. If a business is found to be liable, and it is determined by a court that the business is a sham or a mere alter ego designed at circumventing personal liability, then a court may disregard the business and find that personal assets can be used to satisfy business liabilities. In order to avoid this problem, it is imperative to treat the business as a separate entity — keep it well funded, keep its assets separate, keep independent records, etc. (see also personal guarantees touched on below). The theory of disregarding a business entity’s veil of limited liability is often called piercing the corporate veil.
What is the relationship between partners/owners in a business? Partners/owners in the same business have one of the highest legal standards of care and loyalty in the law. They must act in good faith at all times and be constantly working in furtherance of the business’ objectives (consistent with the operating agreement/bylaws). Owners/partners legally owe a fiduciary duty of loyalty and care to each other and the business. A breach of fiduciary duty is a serious suit.
Can you assist in drafting debt/equity financing documents? Yes. Debt financing is simply something like a promissory note (discussed below) where a business/individual receives money from another business/individual. The creditor will usually expect repayment at the fair market interest rate. Equity financing, on the other hand, is where a business owner cedes away ownership of the business away to an investor in exchange for the investor’s money. The investor receives some sort of financial interest from the company going forward, while the owner obtains needed capital.
I notice that many corporations are created in Delaware? Should I do the same? Delaware corporate law is very favorable to the corporation, its owners, and its board of directors. Many states — including Missouri — allow a business entity to be formed in another state, and then registered domestically as a foreign corporation authorized to do business consistent with how it is structured in the place of organization/incorporation. Thus, it is a backdoor way to set up your business in such a way that Missouri may not permit, but another state does permit. The question of whether to resort to another state will depend on the particular goals and features of the business.
What is a closely held corporation? A corporation owned by private individuals generally in a close locale. Though not required, it is usually selected because the business is too big for a partnership, but not quite big enough for a public corporation.
What is a public corporation? These are the corporations which everyone has heard of which can be owned by public shareholders. They usually have five-hundred or more shareholders and corporate ownership is actively bought and sold on the stock exchange.
I need help drafting a contract. Can you help? Yes, contract law is one of the more enjoyable areas of the law given its preciseness and freedom.
What are the most common ways businesses can raise money & capital? Debt financing and equity financing. Debt financing is simply when the corporation receives cash loans from third parties in exchange for a promise to repay. Examples include debentures, bonds and promissory notes. Equity financing is where the corporation exchange an ownership in the corporation or right to corporate profits to a third party for a stock price; this is essentially the common stock system.
What rights do shareholders have in the corporation? Quite a few, including a right to inspect the corporate books/records, preemptive rights (i.e., a right of first refusal), rights safeguarding against dilution of shares, voting rights, rights to profits, the free alienability of ownership interest (generally), etc.
What are important features of a corporate board of directors? A corporation’s management is generally vested in the board of directors for day-to-day affairs. The board of directors owe a fiduciary duty of care and loyalty to the corporation, and owe a special obligation to the shareholders to make a profit. The duty of care requires that the directors use due diligence in acting on behalf of the corporation; this is interpreted liberally, as courts tend to defer to director decisions as being reasonably prudent because of the directors’ expertise and informed decision-making. Loyalty requires that the directors always be working with the corporation and its shareholders in mind, and not for other third parties. A derivative lawsuit by shareholders is the primary vehicle in which shareholders sue directors for a breach of their fiduciary duty.
I have a contract dispute and I am considering litigation. Can you help? Yes. In order to properly evaluate the situation, a thorough review of the contract (including oral/written amendments) would need to be conducted and a discussion of all relevant facts would need to occur. From there, the decision whether to pursue litigation can be better evaluated. The things to consider in breach of contract litigation include the following: does the litigation economically make sense? What is the likelihood of success? What are the possible defenses the other side may have? Does the contract provide for awarding attorney fees to either side in litigation?
Can you defend me in a suit in which I am accused of breach of contract? Yes. As with pursuing a breach of contract suit, defending a breach of contract suit will necessitate a discussion of the facts and reviewing the contract at issue. Unlike with the prosecution of such a case, though, there is decidedly less discretion in whether to pursue litigation. Indeed, if you have been sued for breach of contract, the litigation has already commenced. And if you do not respond within the time provide by law (usually 30 days), the court may enter a default judgment against you.
Do you handle breach of lease cases? Yes — both commercial and residential leases. Legally, a breach of lease is handled in almost the same manner as a breach of contract case. A lease is a type of contract. The only difference is that leases (particularly residential leases) often require statutory interpretation because Missouri law has stringent landlord-tenant laws in place. Commercial leases often involve quite a bit of money and time, and, therefore, it is important that you understand them thoroughly before making such a large commitment.
When is a contract actually breached? When a (1) party is under a duty to perform, this (2) duty of performance has not been discharged, and there is a (3) failure to perform in accordance with the contract’s terms. The non-breaching party may elect to either ignore the breach (particularly if its minor), come to a mutually agreeable resolution with the other party, pursue legal expectancy damages in Court, or seek to rescind/cancel the contract in court if the breach is deemed central or material to the contract.
When is a promissory note breached? Promissory notes are very similar to contract. Unlike contracts, promissory notes flow from statutory law, rather than case precedent. As the name suggests, a promissory notes is really just a promise to pay back a certain amount of money at a certain point in time. Over that period of time, the creditor is entitle to periodic interest/principal payments. At the conclusion of the term — the maturity date — the debtor must pay back all of the funds. Failure to pay back the full amount is a breach.
What is a personal guarantee? Sometimes creditors will insist that a debtor sign and execute a personal guarantee for a loan in additional to a typical debt financing agreement or promissory note. The personal guarantee, if properly drafted, will have the effect of holding the debtor personally liable in case of default on the obligation. Personal gurantees are valid in Missouri. Sometimes they are unavoidable: the creditor will say it is required or no deal. Legally, however, there are several defenses which can be used to counteract a personal guarantee.
What is a security interest? Basically a way a creditor can guarantee repayment, in whole or in part, for an unmet obligation. For example, in exchange for the mortgage loan, the bank/financial institution will take a security interest in the underlying real estate so that if the mortgage goes into default, they can take possession of the home and reclaim all outstanding debt. A security interest is most easily understood as collateral designed to provide security/backup for a loan. Secured transactions become extraordinarily complicated when there are competing security interests in the same property.
What are restrictive real estate covenants/indentures? Real estate covenants are a special type of contract that applies to a specified area of a real estate (i.e., a neighborhood or area of commercial property). The covenants/indentures dictates how the property is to be managed and specifically states what may or may not be done on the property. In Missouri, covenants/indentures must be registered with the county recorder of deeds. They may be amended/modified consistent with the terms set forth therein.
Would you be able to assist with real estate disputes? Yes. Property disputes can take many shapes and sizes, including boundary disputes, nuisance disputes, ownership disputes/rights, and problems with covenants and indentures.
Speaking of ownership disputes, can you help obtain/clear good title to real estate? Yes. The most common way to do this judicially is to file a petition to quiet title in the appropriate county circuit court. Quiet title is designed to bring all individuals or entities who have a legal claim, lien, or interest to the property to Court and prove that the interest is legal. If a claimant cannot prove that the interest is legally valid, then the claim to the real estate may disappear. Examples of different types of claims that may be attached to a property include mortgage liens, credit card debts, mechanic liens, and judgment creditor liens.
Do you handle fraud or failure to disclose cases with real estate? Yes. Typically in Missouri a seller in a real estate transaction (both for commercial property and residential property) provides a disclosure statement identifying any issues that exist with the property. For example, whether there has ever been a problem with mold, a flooding basement, boundary disputes, lien issues, asbestos, etc. If it comes to light after the transaction occurs that there were problems with the property, and that the seller failed to disclose them, then the seller may incur civil liability for fraud and misrepresentation. What makes fraud difficult, however, is that, among other things the purchasers must prove that the sellers had actual knowledge of the defects and the defects, if known, would have been material in the purchasers’ decision to buy. In Missouri, very often the Merchandising Practices Act is used as an additional cause of action in these cases because the MPA provides liability for unfair practices, which is a much lower bar to prove. Lastly, in some cases it is not unheard of that the inspection company incurs liability for failure to discover defects which a reasonable inspector would have discovered.
Is there such a thing as squatter’s rights? Under Missouri law, yes. Adverse possession allows an individual who has continuously occupied a given parcel of real estate continuously and exclusively for a certain period of time in a manner which is hostile to all other interests (including the title owner) to claim legal ownership of the property. Adverse possession is difficult to prove because adverse claimant must act in such a matter continuously for ten (10) years. In spite of the stringent requirements, adverse possession claims are not uncommon in more rural areas.
Do you handle bankruptcy? No.
What are the sanctions for securities violations? Securities, in this sense, does not refer to a secured transaction (i.e., loan collateral), but instead pretty much most types of financial instruments. Securities are heavily regulated at the Federal level from the New Deal securities laws, securities and exchange commission regulations, and the Sarbanes-Oxley Act, etc.; similarly, state-securities laws — so-called Blue Sky laws — add additional levels of regulations. Securities compliance takes a long time to accomplish and is very nuanced. Because of the tremendous amount of emphasis (understandably) placed on securities laws there are severe penalties that come with securities violations — both criminally and civilly. Examples of securities violations include churning (i.e., excessive trading by a broker for the purpose of generating commission) and insider trading (i.e., trading securities based on material information not known to the public).