Business & Corporate

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.

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.

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.

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.

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.

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.

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 proprietorship’s 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.

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.

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.

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.

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.

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.

Yes, contract law is one of the more enjoyable areas of the law given its preciseness and freedom.

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.

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.

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.

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?

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.

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 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.

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.

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 guarantees 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.

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.

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.

Yes. Property disputes can take many shapes and sizes, including boundary disputes, nuisance disputes, ownership disputes/rights, and problems with covenants and indentures.

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.

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.

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.

No.

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).